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Congress Makes Forgivable Payroll Protection Plan Loans Easier to Spend


The persistence of the COVID-19 epidemic led Congress to amend the Paycheck Protection Program (PPP) to help the many small businesses that have so far taken advantage of it. As originally drafted and then expanded, the law provided some $700 billion in funds to make low interest, forgivable loans to businesses with fewer than 500 employees. The original rules for the loans proved restrictive given the effects of the coronavirus, so Congress passed the Paycheck Protection Program Flexibility Act of 2020, which was signed into law June 5 and is retroactive to March 27, 2020.

The law provides as follows.

  1. PPP loan proceeds must now be used by December 1, 2020 rather than June 30. If the loan was taken prior to June 5, 2020, it has a 2-year maturity date that can now be expanded to 5 years. All loans after June 5 mature in 5 years. The interest rate remains 1%, and PPP loans remain subject to full forgiveness on application to lenders and the Small Business Administration.
  2. The covered period for loan forgiveness has been expanded from 8 weeks to 24. This means that borrowers now have an extra 16 weeks to spend PPP money in accordance with forgiveness rules. Borrowers who wish to stick with the original 8 week period may do so.
  3. The Flexibility Act reduces the percentage of a loan that must be spent on payroll from 75 to 60. The remaining 40% of proceeds must be spent on the following covered expenses: continuing group health care benefits for paid sick, medical, or family leave; mortgage interest payments (but not mortgage prepayments or principal payments); rent payments; utility payments; interest payments on debt obligations incurred before February 15, 2020; or refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020. Failure to meet the 60% requirement will no longer mean forgiveness is impossible. It will instead merely reduce the forgivable amount of a loan by a percentage equal to the shortfall.
  4. Forgiveness applications are due within 10 months after expiration of the spend period (24 weeks). No payments need to be made until the SBA makes a forgiveness decision on the application. Interest will accrue during any deferment period. Payments start at the 10-month mark in cases where no forgiveness application is submitted. A revised application was drafted by the SBA and is available online or through our offices.

The prior requirement that borrowers rehire employees to the level in effect prior to the onset of Covid-19 is no longer applicable.