The PPPFA

On Friday, June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) that changes the forgiveness rules on the Paycheck Protection Program loans.

The House passed the PPPFA by 417-1 vote on May 27th, and the Senate approved it by unanimous consent on June 3rd.

The key changes to the PPP rules are as follows:

  1. It extends the Covered Period, the period in which borrowers can spend money on forgivable expenses, from 8 weeks to 24 weeks, at the borrower’s discretion.
  2. It extends the Safe Harbor deadline for rehiring employees to pre COVID-19 benchmark levels. This deadline is now December 31st – it was previously June 30th. Loan forgiveness rules under the PPP do remain subject to a reduction in proportion to any reduction in a borrower’s full-time equivalent employees (“FTEs”) against these benchmarks. The Act clarifies one and adds two exemptions to the PPP’s loan forgiveness reduction penalties. These are:
  3. a. The forgiveness amount will not be reduced due to a reduced FTE count if the borrower can document that they attempted, but were unable, to rehire individuals who had been employees on February 15, 2020; and

    b. That they have been unable to hire “similarly qualified employees” before December 31, 2020; or

    c. That they can, in good faith, document an inability to return to the “same level of business activity” as prior to February 15, 2020, due to governmental rules related to “the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.”

  4. It raises the cap on the amount of forgivable loan proceeds that borrowers may use on non-payroll expenses from 25% to 40%. The Act does not change the definitions of forgivable expenses.
  5. It extends the maturity date of any portion of a PPP loan that is not forgiven from 2 years to 5 years for new loans granted after the Act date. With respect to already existing PPP loans, the Act states that nothing will “prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan.”
  6. It extends the loan deferral period (the period in which no payment of principal, interest, and fees are made) to:
  7. a. Whenever the amount of loan forgiveness is remitted to the lender; or

    b. 10 months after the applicable forgiveness covered period if a borrower does not apply for forgiveness during that 10-month period.

    Under the unamended PPP, a borrower’s deferral period was to be between 6 and 12 months.

  8. It lifts the ban on borrowers whose loans were partially or completely forgiven from deferring payment of payroll taxes. The payroll tax deferral is now open to all PPP borrowers.

KROST Actions and Next Steps

Even though this Act has been passed into law, we still expect to receive a number of clarifications on these rule changes from the SBA and the Dept. of Treasury. Once we have that, we will:

  1. Run a Webinar in which we will not only articulate these modifications but, more importantly, explain what the implications of these changes mean to your business.
  2. Modify and release the KROST PPP Budgeting and Loan Optimization Tool and release the updated version to our clients and those who bought the tool.
  3. Provide a Loan Forgiveness Application Review Service that:
  4. a. Reviews the actual expenses incurred by the borrower.

    b. Checks the forgiveness calculations to ensure that they follow the rules.

    c. Assists the borrower to assemble the necessary backup documentation that is required.

    d. Reviews the representations that are required as part of the application with the borrower to ensure their accuracy.

Meanwhile, please check back on our website for updates, and feel free to contact your KROST relationship manager or Subject Matter Expert if you have any questions.

Paycheck Protection Flexibility Act

Paren Knadjian, Director of KROST’s M&A and Capital Markets practice, reviews the latest PPP updates including the Paycheck Protection Flexibility Act, KROST’s PPP loan forgiveness maximization tool, COVID-19 resources, and more.

Have questions about COVID-19? We have created a Resource Center for individuals and businesses.

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