Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010)

Bill #5 – Enacted June 5, 2020

The primary purpose of this fifth bill is to provide more flexibility for recipients of Paycheck Protection Program (PPP) loans with respect to repayment and loan forgiveness. The bill also removes a provision in the CARES Act that prevented organizations receiving PPP loan forgiveness from also taking advantage of employer payroll tax payment deferrals. More specific guidance related to the PPP Flexibility Act can be found in the SBA’s Revisions to First Interim Final Rule.

Relevance to the Charitable Sector

Clarification of Minimum Maturity Dates for PPP Loan Balances not Subject to Forgiveness

While the original PPP provisions in the CARES Act included a maximum maturity of 10 years for loan balances remaining after determining amounts that qualify for forgiveness, the PPP Flexibility Act also imposes a minimum maturity of five years for loans made on or after June 5, 2020 (for loans made before June 5, 2020, the maturity date is two years unless borrowers and lenders mutually agree to extend that date). The SBA determined that the date it assigns a loan number to the PPP loan provides an efficient, transparent, and auditable means of determining when a PPP loan is “made” that provides certainty to lenders.

PPP Loan Forgiveness Covered Period Extended

Under the original PPP provisions in the CARES Act, loan forgiveness was determined based on use of loan proceeds during an eight-week period beginning on the date of loan origination. The PPP Flexibility Act expands that period to either 24 weeks or December 31, 2020 (whichever is earlier). The PPP Flexibility Act also amends the definition of “covered period;” extending it from February 15, 2020 – June 30, 2020 to February 15, 2020 – December 31, 2020. In order to receive any loan forgiveness, a borrower must submit to its lender a loan forgiveness application within 10 months after the end of the loan forgiveness covered period. If they do so, the borrower will not have to make any payments of principal or interest on its loan before the date on which SBA either remits the loan forgiveness amount to the lender, or notifies the lender that no loan forgiveness is allowed.

New Flexible Provisions to Address Reduction in FTEs and Re-Hires

Under the original provisions in the CARES Act, an organization that experienced a reduction in FTEs after February 15, 2020 had until June 30, 2020 to restore those positions and eliminate the reduction in FTEs or risk failure to qualify for loan forgiveness. The PPP Flexibility Act extends that time period to December 31, 2020. The Act also includes a new exemption based on employee availability. This provision states that PPP loan forgiveness will be determined without regard to a proportional reduction in FTEs, if the organization has made good faith efforts to rehire, but has failed to restore FTEs within the required time period due to an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020 or is able to document an inability to return to the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of HHS, the Director of the CDC, or OSHA during the period beginning on March 1, 2020, and ending December 31, 2020.

New Ratio for Application of PPP Loan Proceeds

The PPP Flexibility Act provides more flexibility with respect to how PPP loan recipients use the loan proceeds. Previously, a recipient was required to apply at least 75% of PPP loan proceeds to payroll costs and the remaining 25% could be applied to mortgage interest, rent, and utilities. The PPP Flexibility Act amends that ratio; recipients now need only apply 60% toward payroll costs and up to 40% can be applied to mortgage interest, rent, and utilities.

Removal of Restriction on PPP Loan Forgiveness/Payroll Tax Deferral

Under the CARES Act, employers were not permitted to take advantage of a provision allowing the employer to delay payment of its employer payroll taxes if the employer also received PPP loan forgiveness. The PPP Flexibility Act removes this restriction and allows employers to participate in both programs.