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PPP Flexibility Act: Loan Forgiveness Updates

We previously published a blog post articulating COVID-19-related stimulus options for healthcare providers. This post serves as an update to those options, as the government has further taken steps to provide relief to small businesses, including healthcare providers and related businesses, who have been impacted by COVID-19. On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) into law. The PPPFA makes several significant amendments to the Paycheck Protection Program (“PPP”), originally created by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act).

The PPP is implemented through the U.S. Small Business Administration (“SBA”) with support from the U.S. Department of Treasury. Originally, the PPP provided small businesses with funds (“PPP loans”) to cover 8 weeks of payroll costs including benefits; mortgages; rent; and utilities. However, the structure and requirements of the loans were inadequate and flawed, thereby creating obstacles for these small businesses to maximize the loans as it pertained to their individual needs. As a result, the PPPFA aims to rectify these flaws by creating greater flexibility and providing relief to businesses through the end of this year. Please note that the final date to apply for a PPP loan is June 30, 2020. The following are the PPPFA’s most significant amendments to the loans originally authorized under the PPP.


Previously, the amount that qualified for forgiveness was the amount spent during the 8-week period after the loan was made. However, the PPPFA has increased the loan covered period beginning on the date of the origination of the PPP loan and ending on the earlier of either (A) 24 weeks the date of origination, or (B) December 31, 2020. It is important to note that PPP borrowers who received the PPP loan prior to the June 5th have the option to extend their covered period up to 24 weeks or elect the original 8-week period.


The PPPFA prescribes that the amount of loan forgiveness is determined without regard to a proportional reduction in the number of full-time equivalent employees if a PPP loan borrower in good faith (A) is able to document an inability to (1) rehire individuals who were employees of the business on February 15, 2020; and (2) hire similarly qualified employees for unfilled positions on or before December 31, 2020; or (B) is able to document an inability to return to the same level of business activity as such business was operating at or before February 15, 2020 due to compliance with requirements established or guidance issued by the Government during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.


The SBA originally required PPP borrowers to spend 75% of the PPP loan on payroll costs to qualify for loan forgiveness. However, the PPFA has decreased that amount from 75% to at least 60%, whereby PPP borrowers may now use up to 40% of their PPP loan on any payment of interest on any covered mortgage obligation (which includes any prepayment of or payment of principal on a covered mortgage obligation); any payment on any covered rent obligation; or any covered utility payment.


The PPPFA amends the PPP by extending the maturity date PPP loans issued on or after June 5, 2020, whereby the covered loan must have a minimum maturity of 5 years and a maximum maturity of 10 years from the date on which the PPP borrower applies for loan forgiveness. However, as it pertains to PPP loans issued prior to June 5th, PPP borrowers and lenders may mutually agree to modify the existing maturity terms of the PPP loan in order to reflect the PPPFA’s minimum maturity of 5 years.


The SBA originally required that principal and interest payments on each PPP loan were to be deferred until the date that was 6 months after such loan’s funding date. The PPPFA has extended the deferral period to the date on which the amount of forgiveness determined under Section 1106 of the CARES Act is remitted by the PPP lender. However, the PPPFA articulates that if a PPP borrower fails to apply for forgiveness of a covered loan within 10 months after the last day of the covered period defined in section 1106(a) of the CARES Act, the PPP borrow must make payments of principal, interest, and fees on such covered loan beginning no earlier than 10 months after the last day of the covered period.


Section 2302(a) of the CARES Act previously did not allow PPP borrowers to defer payment of their payroll taxes. However, pursuant to Section 4 of the PPPFA, Section 2302(a) of the CARES Act has been amended and now permits PPP borrowers to defer payment of their payroll taxes for PPP borrowers who obtain loan forgiveness.

As always, our attorneys are here to answer any questions you may have about how to keep your head above water during these trying times. Please feel free to call us at 609-799-5150 or mail us at info@buttacilaw.com any time with your questions or concerns.

Stay safe, stay healthy, and we will get through this together.

  • Posted on: Jun 13 2020