On June 5, 2020, the
Paycheck Protection Program Flexibility Act (PPP Flexibility Act) became law. The PPP Flexibility Act includes significant changes for small businesses across the nation that received funding from the Paycheck Protection Program. Perhaps most importantly, the PPP Flexibility Act increases the spending period of PPP funding from eight to 24 weeks. This means that unless employers elect to stick with the original eight-week time period (which is allowed), they are required to maintain their employee headcount for an additional 16 weeks, until either: (a) 24 weeks after the employer’s PPP loan was originated; or (b) December 31, 2020, whichever date is earlier. However, the “safe harbor” date for rehiring employees is extended from June 30, 2020, until December 31, 2020, and the PPP Flexibility Act includes an exemption for employers who can show that: (a) they were unable to rehire individuals whom they employed as of February 15, 2020; and (b) they were unable to hire similarly qualified employees for unfilled positions before December 31, 2020. An additional exemption exists for employers who can show that they were unable to return to the same level of business activity as of February 15, 2020, due to compliance with certain requirements established or guidance issued by the DHHS, CDC, or OSHA from March 1, 2020, until December 31, 2020.
Furthermore, the PPP Flexibility Act increases the amount that borrowers can spend on non-payroll items, including rent and utility payments, from 25% to 40%. Employers should note, however, that they still cannot use PPP funding to make either prepayments or regular payments towards the principal on any covered debt obligation, including a mortgage or equipment loan (they are still limited to use the funding to make payments towards interest on covered debt obligations). Under the PPP Flexibility Act, employers are also now permitted to defer the employer portion of certain payroll taxes. Previously, under the Coronavirus Aid, Relief & Economic Security Act, employers were prohibited from deferring such payroll taxes incurred between March 27, 2020, and December 31, 2020. In addition, instead of a six-month deferral period for payments due on PPP loans after the covered period, the PPP Flexibility Act extends the deferral period to the date on which the appropriate amount of forgiveness is determined and remitted to the employer’s lender. Finally, the minimum term for any loan made after the enactment of the PPP Flexibility Act will be five years, while giving lenders and borrowers the option to renegotiate the term of loans made before the PPP Flexibility Act takes effect.
While these changes brought by the PPP Flexibility Act are certainly welcome news for borrowers, numerous questions regarding PPP loans remain unanswered. Most significantly, the PPP Flexibility Act says nothing to resolve the ambiguity surrounding the business necessity certification. Consequently, businesses that received a loan amount over $2 million are still left wondering what standards the SBA will apply when auditing borrower eligibility based upon economic need. We will continue to track the PPP loan program carefully and provide frequent updates. If you have any questions about the PPP loan program, please contact the Cohen Seglias lawyer with whom you regularly consult.
