Last week, the President signed the Paycheck Protection Program Flexibility Act into law. The new law gives businesses more flexibility in how they can use PPP funds and make it easier to qualify for forgiveness. We’ve highlighted some important updates below:
- Payroll Cost Requirements: To qualify for forgiveness, the Paycheck Protection Program Flexibility Act allows up to 40% of PPP funds may be spent on certain nonpayroll expenses while at least 60% of the PPP loan proceeds must be spent on payroll and payroll-related expenses.
- Covered Period: Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness
- Payroll Tax Deferral: The new bill allows businesses that took a PPP loan to also delay payment of their payroll taxes even after they receive forgiveness of their PPP loan. This was prohibited under previous guidance.
- Rehiring Time Period: Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
- Loan Period: For the portions of the loan that are not forgiven, new borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to five years if the lender and borrower agree. The interest rate remains at 1%.