On June 3rd, the Senate passed the Paycheck Protection Flexibility Act, the bill was passed by the House on May 28th. The President had previously indicated he would sign the bill and is widely expected to do so. 

The bill makes several key changes to the Paycheck Protection Program (PPP) all geared around improving the ability of borrowers to maximize loan forgiveness. Under current PPP regulations, to achieve maximum forgiveness, borrowers must use 75% of PPP funds for covered payroll costs and 25% for covered non-payroll costs during an 8-week period which generally begins on the day the loan was disbursed. Many businesses found these requirements challenging due to government-imposed shutdowns and reduced demand for their products or services.

Under the bill:

  • Borrowers may extend the eight-week period to 24 weeks if the longer period will allow them to better achieve loan forgiveness.
  • Payroll costs need now only account for 60% of the forgivable amount, giving business the ability to utilize more funds for other covered costs.
  • Businesses have a longer period of time to restore their workforce without incurring forgiveness reductions.
  • There will be additional exceptions for businesses who are unable to return to their prior number of FTEs.
  • The repayment period for unforgiven amounts is extended from two years to five years.
  • Businesses with PPP loans are now eligible for deferment of payroll taxes.

Overall, the changes to the PPP program should provide businesses with greater opportunity to achieve loan forgiveness while meeting their operational needs. However, this is still likely not the final work on the constantly evolving program. Once passed, regulatory guidance will follow implementing the changes and that guidance may contain additional surprises. Many banks are also now calling for blanket or streamlined forgiveness for certain borrowers, which may ultimately make it into future legislation.

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