In a rare display of bipartisanship, on June 5th, Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) in an attempt to address many concerns expressed by the small business community around the Paycheck Protection Program (PPP) aimed at providing COVID-19 relief.

The SBA and the Treasury, will “promptly” (accountants and lawyers also promptly roll their eyes) issue guidance and a modified loan forgiveness application implementing the amendments to the PPP made in the new law. This means that we will likely see guidance sometime between July and when humanity has established civilization on Mars. 

Here are the changes to the PPP in a nutshell: 

1. Reduction in Percentage Which Must Be Spent on Payroll Costs

   Reduces the percentage of PPP loan proceeds which must be spent on payroll from 75% to 60% allowing for greater uses of PPP Loan proceeds for such non-payroll “covered costs”. If a Borrower did not meet the 75% threshold, the Borrower could still be eligible for partial forgiveness of the PPP Loan. 

   Note: The SBA stated that there will not be any cliff as suspected from the language of the bill.

2. Extends Period of Time to Use PPP Loan Proceeds.

   The new legislation has allowed borrowers to select to increase their covered period to 24 weeks. The Borrower has the option to choose the 8 week period if the Borrower received the PPP Loan prior to the passing of the current legislation.

3. Extends Safe Harbor for Rehiring Employees.

   Extends the deadline to rehire workers from June 30, 2020 to December 31, 2020, as follows:

   1. FTE Reduction Safe Harbor. If the Full-Time Equivalent (FTE) employee headcount was reduced between February 15, 2020 and April 26, 2020 (the Safe Harbor period) but the Borrower eliminates those reductions by December 31, 2020 (previously June 30, 2020) or earlier, the Borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in FTE employees.

   2. Compensation Safe Harbor. Under the Flexibility Act, if certain employee salaries and wages were reduced between February 15, 2020 and April 26, 2020 (the Safe Harbor period) but the Borrower eliminates those reductions by December 31, 2020 (previously June 30, 2020) or earlier, the Borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries and wages.

4. New Safe Harbors Relating to FTE Reductions.

   New Legislation provides two new Safe Harbors exempting a Borrower from any reduction in loan forgiveness amount that would otherwise be required due to reductions in FTE employees:

   1. Inability to Rehire. During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of FTE employees if an eligible Borrower, in good faith, is able to document: 

      1. An inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and 

      2. An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.

   Note: This is a strange provision, as the enforceability of unfilled positions seems like a big lift for banks to check in on. This may be further “clarified” in guidance from the SBA.

5. Inability to Return to the Same Level of Business. The exemption also applies if the Borrower is unable to return to the same level of business as before February 15, 2020, due to compliance with requirements issued by government agencies in relation to COVID-19.

   Note: This is a huge win for hospitality, who will be heavily restricted from returning to normal business due to government restrictions of full-service hospitality businesses. 

6. Extends the Maturity Date on Unforgiven PPP Loan.

   Any PPP Loan which originated prior to the enactment of the Flexibility Act, the Flexibility Act permits, but does not require, a Borrower to change the terms of their PPP Loan to 5 years from the origination date. Any PPP loans originated after the enactment of the Flexibility Act will automatically be a 5-year term.

7. Extends Deferral Period Before Repayments Required.

   Extends the period of time in which a Borrower may defer interest and principal payments on the PPP Loan from 6 months after funding to either: 

   1. the date on which the amount of forgiveness is determined, or 

   2. ten months after the last day of the Covered Period if the Borrower fails to apply for forgiveness within ten months.

8. Permits Borrowers to Defer Payroll Taxes Even if PPP Loan is Forgiven.

   Section 2302 of the CARES Act permits employers to defer the payment of the employer portion of federal payroll taxes (i.e., Social Security Tax) that would otherwise be due from March 27, 2020 through December 31, 2020, without penalty or interest charges; provided that the employer must pay 50 percent of the deferred amount by December 31, 2021, and the remainder by December 31, 2022. Prior to the Flexibility Act, once a Borrower received a decision from its lender that its PPP loan was forgiven, the Borrower was no longer eligible to continue to defer such payroll taxes. Under the Flexibility Act, even after a Borrower receives a decision from its lender that its PPP loan is forgiven, the Borrower will still be eligible to take advantage of Section 2302 and continue to defer such payroll taxes through December 31, 2020.

   Note: This is a huge change. While ER SS expenses aren’t that significant, this means you can defer 

Updated PPP Forgiveness Spreadsheet

We’ve made some changes to the PPP. Seeing as how many are already at least 2/3rds of the way through their PPP covered period we have continued to focus on the 8-week timeframe. We’re looking to add the 24 week calculator at a later point when we have more guidance on how the FTE calculation works over the longer duration of time.

Here’s what we changed

• FTE Selection Method: You can choose between the Simple and regular calculation methods for FTE count. 

  • Simple method: Counts all employees that are salaried or 40 or more hours as 1 FTE. All employees under 40 hours are .5.

  • Regular Method: Counts all employees that are salaried or 40 or more hours as 1 FTE. All employees under 40 hours have their hours worked divided by 40, and rounded to the nearest tenth. IE 35/40= .9. Yup, that’s write, we’re not using full time numbers anymore.

• Loan Term Selection: You have the option to repay the loan in 2 years or 5. This allows you to look at both payment sizes

• 60/40 payroll split: All calculations are now based on a 60/40 split rather than 75/25.