Over the last few months, thousands of Maine businesses and individuals have received assistance from the Paycheck Protection Program (“PPP”), enacted as part of the CARES Act, which is intended to help address the financial crises caused by the COVID-19 pandemic. On June 5, 2020 the President signed into law the Paycheck Protection Program Flexibility Act (“PPPFA” or “Act”), which significantly changed the PPP by extending deadlines and changing requirements for loan forgiveness. A summary of those changes is found below.
Time Extension
The PPPFA extends the time period to use loan funds (aka the “covered period”) from 8 to 24 weeks, but in no case beyond December 31, 2020. This extension will apply automatically for all new loans, and borrowers with existing PPP loans can choose to keep the original 8 week period, or opt for the new 24 week option.
Loan Fund Use
The Act also reduces the payroll expenditure requirement from 75% to 60%, meaning that borrowers only need to spend at least 60% of the loan on payroll costs (and no more than 40% on other uses such as utilities and mortgage interest payments) to receive full loan forgiveness.
Salary or Full Time Equivalent (“FTE”) Employee Restoration
The PPPFA changes the requirement that employers restore payroll levels by June 30, 2020 to align with the time extension of the covered period discussed above. Accordingly, a borrow may choose either the 8 or 24 week covered period, and only must maintain salary and FTE level through the end of their chosen covered period.
Loan Maturity
PPP loans with any unforgiven loan amounts will now have a maximum maturity of 5 years, instead of the previous 2. Borrowers with existing loans may mutually agree with their lenders to modify the maturity of their existing loans to conform with the new 5 year maturity date.
Loan Forgiveness and Employee Availability
The Act also provides that borrowers will not suffer a reduction in loan forgiveness due to a reduction in the number of their FTE employees if:
- The borrower is able to document an inability to rehire individuals who were employees who were employees of the borrower on Feb. 15, 2020 and an inability to hire similarly qualified employees for unfilled positions on or before Dec. 31, 2020; OR
- The borrower is able to document an inability to return to the same business level it was operating at on Feb. 15, 2020 due to compliance with requirements or guidance issued by the DHHS, the CDC, or OSHA during the period from March 1, 2020 to Dec. 31, 2020.
Loan Repayment Deferral
The PPPFA also changes the timing of the first loan payment by deferring payment until 6 months after the SBA makes a determination on forgiveness.
Payroll Tax Deferral
The Act further provides that borrowers are eligible to take advantage of the CARES Act benefit of deferring the employer share of payroll taxes. Previously, the PPP did not permit payroll tax deferral on the forgivable portion of the loan.
If you have questions on specific projects, please contact Matthew Worthen or Jack Bjorn. Our office is trying as best we can to work remotely, while continuing to timely and effectively respond to, and anticipate, client concerns.
Eaton Peabody Resources:
Employment Issues & PPP Zoom Presentation
Paycheck Protection for Small Businesses
COVID-19 IRS Employee Benefits Update: §125 Cafeteria Plan Elections
Dealing with Debt: COVID-19’s Effect on Foreclosures, Bankruptcy, and Collections
Families First Corona Virus Response Act
COVID-19 and the Construction Industry