PPP Flexibility Act – More Changes to Come
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The Paycheck Protection Program (PPP) has been an effective tool helping California and Texas businesses manage through the COVID-19 emergency. Due to the immediate need to distribute loan funds, the PPP was launched very quickly, leaving regulators with little choice but to provide updates and guidance during implementation. Although well-intentioned, this has often led to confusion and issues for borrowers. To resolve some concerns and make adjustments designed to benefit businesses, the House and Senate recently passed the PPP Flexibility Act of 2020 (the Act). features important changes which include an extension of loan term from two to five years for new loans issued. To keep clients, prospects, and others updated, JLK Rosenberger has provided a summary of key provisions below.
Key Act Provisions
- Extended Covered Period – There has been a concern for businesses in many industries that the 60-day Covered Period is too short. The Act addresses this by extending the Covered Period to 24 weeks after loan origination. This change opens the door to the potential for a larger loan forgiveness amount.
- Non-Payroll Expenses – Many businesses have expressed concern about the requirement to spend 75% of loan funds on payroll to be eligible for forgiveness. The issue is that many borrowers also have fixed expenses that need to be paid using PPP funds. The Act addresses this by reducing the amount that must be spent on payroll to 60%, allowing 40% to be used for covered mortgage, rent, or utility expenses.
- Extended Application Deadline – The current application deadline of June 30, 2020, will be extended to December 31, 2020, assuming allocated funds are not exhausted. This will be useful for those contemplating application to manage the various reopening and safety changes required by state and local reopening guidelines.
- Re-Hire Deadline Extension – To give businesses more time to work through reopening, the Act extends the deadline to rehire and reinstate salaries from June 30, 2020, to December 31, 2020. This change is designed to alleviate the concern that businesses will be unable to rehire because they are required to stay closed by local government agencies.
- Loan Repayment Deferral – There is concern that borrowers may need to start repaying the loan before they have information about their approved loan forgiveness. To resolve this, the Act extends the repayment period from 6 months to the date the lender receives the loan forgiveness application. If a borrower fails to apply within ten months after the last day of the Covered Period, they must begin making payments on principal, interest, and fees.
- Loan Term Extended – The Act extends the minimum loan term from 2 years to 5 years, expanding the maturity date. Unfortunately, this is not a retroactive change, so if enacted, it would only apply to new loans taken after the Act passage. It is important to note that lenders and borrowers would be permitted to revisit loan terms and make modifications.
The PPP changes outlined above are designed to expand the opportunities and benefits available to California and Texas businesses. The next step is for President Trump to sign the Act, which is expected to happen very soon. If you have questions about the information outlined above or need assistance with a PPP Loan issue, JLK Rosenberger can help. For additional information, call us at 949-860-9895 or click here to contact us. We look forward to speaking with you soon