Finally – Some Relief and Clarity Regarding PPP Loan Forgiveness

COVID-19 , PPP ,

Source: TFH Legal

The original constraints of PPP Loan forgiveness simply no longer fit the situation which most businesses, especially those in the hospitality arena, are facing. For example, if a business could not hire back its employees if governmental regulations prevented it or its ability to generate business due to Coronavirus fear made it operationally impossible, under existing PPP requirements, forgiveness of the PPP loan would be reduced or even possibly eliminated.

But last night, the Senate passed the Paycheck Protection Flexibility Act to alleviate some of those types of issues facing PPP loan borrowers. As of this writing, The Flexibility Act has not been signed into law by President Trump but is expected to be. Some of the highlights of the Act include:

  • Extension of the 8 week use period for the PPP loan funds to 24 weeks;
  • Extension of time from 8 weeks to 24 weeks, i.e., by December 31, 2020, for businesses to meet the full time equivalent employee numbers required for forgiveness;
  • Expansion of reasons for forgiveness whether full time equivalent requirements met or not; i.e., if a business is not able to hire the requisite number of employees (whether employees turn down good faith re-hire offers or whether qualified candidates cannot be found) or if a business cannot restore business operations to the level at Feb. 15, 2020 due to Coronavirus restrictions, it may still be able to receive full PPP forgiveness;
  • Extension of time period for repayment of any part of the PPP loan that is not forgiven from 2 years to five years with the interest rate still at 1%;
  • Extension of the 6 month deferral of commencement of repayment to a 10 month period before repayment has to start;
  • Reduction of the percentage of the PPP loan required to be paid for payroll costs; i.e., the requirement for 75% of the PPP loan to be used for payroll costs has been reduced to 60%; BUT – whereas before – if the business did not meet the 75% threshold, the forgiveness would be reduced by the difference between the 75% threshold and the percentage actually spent on payroll costs – under the PPP Flexibility Act, it appears that the 60% is an absolute threshold, meaning that if a business does not meet it – it gets no forgiveness; there is an ongoing discussion, however, as to whether there was simply an error that will be fixed or an intentional provision, so stay tuned.
  • Allowance of use of the recent tax credits and deferral of payment of payroll taxes provisions for PPP loan borrowers.