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Paycheck Protection Program (PPP) – Better Loan Terms May Be on the Way

Read the latest update on the Paycheck Protection Program Flexibility Act here.

In an overwhelming majority vote on May 28, 2020, (417-1), the House passes bill H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020. The bill serves “to amend the Small Business Act and the CARES Act to modify certain provisions related to the forgiveness of loans under the paycheck protection program, to allow recipients of loan forgiveness under the paycheck protection program to defer payroll taxes, and for other purposes.”

This latest move to improve the already invaluable CARES Act loan program serves to give businesses more time to utilize the funds it obtains through the PPP program. Upon enactment, this bill allows borrowers and lenders to increase the maturity of the loan balance, remaining after forgiveness, from two years to five years as long as there is mutual agreement.

Additionally, the bill proposes the following amendments to the PPP program upon enactment:

  • Extension of the loan period from February 15, 2020 - June 30, 2020 to February 15, 2020 - December 31, 2020;
  • Increases the covered period from 8 weeks to 24 weeks beginning on the date of the origination of the covered loan to the earlier of 24 weeks or December 31, 2020;
  • Modifies the loan forgiveness safe harbor that relates to staffing and salary reductions by:
    • Allowing rehire of workers or restoration of the staffing or individual salaries through December 31, 2020 rather than June 30, 2020;
    • Removes loan forgiveness reduction based on change in staffing/i.e. full-time equivalent employees, if, in good faith, the borrower can document that they have:
      • an inability to rehire the individuals who were their employees on February 15, 2020; AND
      • an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
      • can document that the business cannot return to the operating levels that existed on or before February 15, 2020 due to regulatory requirements or guidance, issued by the Department of Health and Human Services, related to the maintenance of sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19
  • Modifies the loan forgiveness limitation of payroll and non-payroll costs from at least 75% payroll costs and up to 25% non-payroll costs to 60% payroll costs and up to 40% non-payroll costs
  • Extends the deferral period to pay back any remainder of the loan from six months to 10 months after the last day of the covered period
  • Opens up eligibility to employers and self-employed who receive PPP loan funds and loan forgiveness to defer the payment of their Social Security tax (6.2%) through 12/31/20 and payback over two years (50% by 12/31/21 and 50% due by 12/31/22) with no penalty

The bill is moves to the Senate for consideration. We will continue to monitor its progress and will advise of any next actions.

For additional insights on the Paycheck Protection Program or the CARES Act, visit OneDigital’s Stimulus Guidance for Employers Page, or reach out to your local OneDigital advisory team.

The Paycheck Protection Program does not apply to all businesses. Based on past SBA practice, our expectation is that Venture Capital or Private Equity-backed companies will be excluded from the SBA’s Paycheck Protection Program. We will be monitoring these developments closely, but please also consult with your investor(s) for guidance.