On May 28, the House passed the Paycheck Protection Flexibility Act of 2020 (H.R. 7010), which is a small, focused bill designed to give some flexibility to small business owners who are still struggling with the effects of the pandemic. Congress is in agreement that significant changes need to be made to the CARES Act and Small Business Act legislation for the Paycheck Protection Program (PPP), which was passed on March 27, 2020. Since then, it has become clear that the pandemic has lasted well beyond initial projections. Businesses are still struggling with shut down orders and reduced capacities due to worker layoffs and furloughs and reduced demand for their products and services.
The House version of the bill is four pages in length and makes the following changes to the PPP legislation:
• Extends the covered period, which is currently eight weeks, to the earlier of 24 weeks or December 31, 2020. This would give the business owners more time to use funds for qualified expenses such as payroll costs and apply to have them forgiven.
• Changes the 75/25% rule for spending PPP funds to 60/40%, which relaxes the amount mandated to be spent on payroll costs during the covered period. With the extension of the covered period, this is less of a concern than it was under the eight-week time frame.
• Doubles the term of the loan from 2 years to 5 years at 1% interest on any amount of the loan that is not forgiven.
• Extends the June 30, 2020 deadline to December 31, 2020 to rehire employees. It also expands the exceptions to rehire employees to include several additional new provisions, with one significant addition being an “inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.” If the business can demonstrate their continued reduced capacity, the FTE/wage requirement reductions could be waived.
• Lifts the prohibition to defer FICA taxes for businesses that have any part of their loans forgiven beyond the date of forgiveness. If signed into law the change will allow all PPP borrowers to utilize the section 2302 credit for the full year until December 31, 2020.
If these new provisions become law, many business owners should be able to get most, if not all, of their PPP loans forgiven. It will also provide them the flexibility they need to weather the financial storm with better assistance and less pressure on cash flows when they are finally able to rehire their employees and reopen their businesses to full capacity.
The Senate, which largely favors changes to the current law, is scheduled to discuss the bill on Tuesday, June 2. The Senate’s version of the bill allows for a 16-week extension and does not favor a reduction in the 75/25% rule but does have an additional provision which allows business to use PPP funds for PPE and other purchases needed to comply with new guidelines for reopening their businesses.
You may view a copy of the House bill here: Paycheck Protection Flexibility Act 2020.
We will continue to keep you updated. Should you have any questions, please don’t hesitate to reach out to your tonneson + co representative.