4 Notable Changes Made by the Flexibility Act to the PPP Loan Terms

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As the deadline to apply for the Paycheck Protection Program (PPP) loan neared, the news of $130 billion in allocated funds that remain unused promoted the Senate to extend the deadline to apply until August 8, 2020. The bill still needs to be signed off by the House and the President.

Whether an extension is officially granted or not, the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) was signed into law on June 5, 2020, which modified the CARES Act. If you have received a PPP loan or plan to apply, below are four significant revisions via the Flexibility Act.

1. The “Covered Period” is Extended

Initially, the covered period was an eight-week time frame for which a business could use its PPP loan to cover expenses like payroll costs, rent, and utilities. The covered period began on February 15, 2020 and was supposed to end on June 30, 2020. However, the end date is now on December 31, 2020, which helps to ensure there is a sufficient amount of time for PPP borrowers to use their loans on eligible expenses.

2. Extension of the Maturity on a PPP Loan

The Flexibility Act modifies the CARES Act to issue a minimum loan maturity of five years for all PPP loans made on or after the date of the enactment of the Flexibility Act. A loan maturity date means the day on which the borrower’s final payment is due.

It’s important to note that the maturity date for PPP loans approved before June 5, 2020, is for two years, and loans obtained on or after June 5, 2020, the maturity date is five years. However, lenders and borrowers can both agree to extend the maturity of such loans to five years.

3. Revisions for the 75 percent/25 percent (Payroll/Non-Payroll) Rule

Initially, the Small Business Administration (SBA) required that borrowers of the PPP loan use at minimum 75% of their loan money on payroll costs and 25% on non-payroll expenses. With the Flexibility Act, PPP loan borrowers can utilize at minimum 60% percent on payroll costs and a maximum of 40% for qualifying non-payroll expenses.

4. Employment Payroll Tax Deferment

Employers who receive PPP loan forgiveness can now defer employment tax deposits and payments through December 31, 2020. Initially, the CARES Act did not allow employers to defer payroll taxes, but the Flexibility Act withdrew the restriction.

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