On June 5, President Trump enacted the Paycheck Protection Program Flexibility Act, which allows paycheck protection program loan recipients to qualify for forgiveness.
Now, under the modified program, the period covered for loan cancellation is extended by eight weeks after the loan disbursement date, whichever comes first: 24 weeks after the loan disbursement date or December 31. 2020. A borrower who has already received a PPP loan can continue to use the eight week covered period if desired.
The amendment also reduced the amount needed to go to salary costs to qualify for the rebate. Now 60% of loan proceeds must be spent on staff costs, compared to 75% previously. This means that reimbursable non-salary expenses can reach 40% of expenses, compared to 25%. What qualifies as an expense qualifying for a rebate has not changed.
In addition, following the enactment of the PPPFA, new borrowers will have five years to repay remaining loan balances instead of two years. For loans initiated before June 5, the borrower and the lender can agree to extend the term to five years. The 1% interest rate has not been changed.
The PPPFA makes other important changes, including the following:
- Provides a safe harbor against reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers who, in good faith, are able to document an inability to rehire individuals who were employees of the borrower on February 15 and who are unable to hire employees with similar qualifications for unfilled positions by December 31.
- Offers protection against reductions in loan forgiveness based on the reduction in the number of full-time equivalent employees for borrowers who in good faith are able to prove that they have not been able to return to the same level of business activity at which the company was previously operating February 15 due to compliance with requirements or guidelines issued between March 1 and December 31 by the Secretary of Health and Human Services, Director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration regarding worker or customer safety requirements related to COVID-19.
- Extends the deferral period for payments by the borrower of principal, interest, and charges on PPP loans until the date the Small Business Administration remits the borrower’s loan forgiveness amount to the lender, or, if the borrower does not request a loan forgiveness, 10 months after the end of the borrower’s covered period or December 31, 2021, whichever occurs first.
- Eliminates the provision in the Coronavirus Help, Relief and Economic Security Act that prevents an employer from deferring employee payroll taxes as permitted under the CARES Act if the employer has canceled a PPP loan.
After the bill was passed, US Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza issued the following joint statement: “This bill will provide businesses with more time and flexibility to retain their employees. on the payroll and keep their operations going as we reopen our country safely. . We look forward to getting the American people back to work as quickly as possible. “
Despite this recent legislation, PPP borrowers are currently prohibited from claiming federal tax deductions that are normally fully deductible, including certain rent and utility payments as well as salaries and benefits paid to employees, for reimbursable expenses paid with PPP funds. The Small Business Expense Protection Act (HR 6821 / S 3612) would specify that receiving and exempting coronavirus aid through the PPP does not affect the tax deductibility of ordinary business expenses. AVMA advocates for this legislation and encourages its members to visit the Congressional Advocacy Network to urge Congress to pass this law.