What the Paycheck Protection Program Flexibility Act Means for Your Business

COVID-19 PPP Flexibility Act

Any business that received or is pursuing funding from the federal Paycheck Protection Program in response to COVID-19 got further clarification last week after Congress passed and President Donald Trump signed the Paycheck Protection Program Flexibility Act.

The Paycheck Protection Program has had notable success in saving businesses from closure during the long periods of quarantine this spring, distributing a reported 4.42 million loans worth close to $511 billion to American businesses.

The trouble is that many of the rules surrounding the forgivable loans were too restrictive to save businesses with not income. With the new flexibility act, the following changes are now available to businesses in the program:

  • PPP loan borrowers can choose to extend the eight-week period in which to spend the money to 24 weeks. This flexibility helps borrowers reach full or close to full forgiveness. There were concerns that the eight-week period was not enough time due to business closures/restrictions from the stay-at-home orders.
  • Borrowers must spend at least 60% of the loan on payroll expenses for the loan to be fully forgiven. Under the new flexibility act, this percentage was dropped from 75%. The remaining 40% of funding can go towards overhead such as rent and utilities. Additionally, there is no “cliff,” meaning that if businesses do not reach the 60% threshold, they will still be eligible for some forgiveness on the loan.
  • Borrowers can use the 24-week period to restore their workforce and wages to the pre-pandemic levels. This must be done by Dec. 31st, 2020. It was originally June 30th, 2020.
  • If a business does not meet the benchmarks to make the loan forgivable, there is a minimum maturity date of five years instead of two years and the interest rate remains at 1%.

Recently reports indicate that $130 billion may still be available as part of the Paycheck Protection Program, for any businesses that have yet to apply. This week, the Small Business Administration and the U.S. Treasury Department clarified that the deadline for all PPP applications is June 30, 2020.

Full Text: Paycheck Protection Program Flexibility Act of 2020