The Paycheck Protection Program Flexibility Act Eases PPP Forgiveness Rules

The Paycheck Protection Program Flexibility Act (H.R. 7010) was signed by the President on June 5, 2020. It provides businesses who received or will receive a Paycheck Protection Program loan with more flexibility to use their funds and have their loans forgiven.

We have outlined the major provisions of the Act below. Please reach out to our COVID-19 Resource Team for further guidance or if you have any questions.

The Required Minimum Spend on “Payroll Costs”
Prior RuleNew Rule
To generate full forgiveness, payroll costs paid and incurred must be at least 75% of the loan amount. Forgiveness was reduced if the 75% test was not met.To generate full forgiveness, payroll costs paid and incurred must be at least 60% of the loan amount.
Borrowers can qualify for partial loan forgiveness if less than 60% of the loan is used for payroll.
The "Covered Period"
Prior RuleNew Rule
Period to spend PPP loan funds was the 8 weeks beginning the day funds were received by the borrower.Period has been extended to the earlier of 24 weeks after loan funds were received or December 31, 2020.
Any business that received PPP loan funds prior to June 5th can elect to continue to use the 8-week period beginning on the date funds were received.
The End of the Program
Prior RuleNew Rule
June 30, 2020 was the last date to: 1) apply for a loan and 2) for borrowers with layoffs or salary reductions during the Covered Period to restore employment/wage levels to Feb. 2020 levels.Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness.

December 31, 2020 is the new date to restore employment/wages to Feb. 2020 levels to avoid a reduction in forgiveness for reduced employment/wages.

Last day for loan applications remains at June 30, 2020, even if SBA will have funds available.

Borrowers have 10 months after the end of the Covered Period to submit their applications for forgiveness.
Repayment Period
Prior RuleNew Rule
Loan term was 2 years at 1%New borrowers have 5 years to repay the loan at 1%.
Payments are deferred until SBA determines the amount to be forgiven.
Existing PPP loans can be extended up to 5 years if the lender and borrower agree.
Deferral of Employer Payroll Tax
Prior RuleNew Rule
Borrowers could defer the employer’s 6.2% share of 2020 Social Security tax until the end of 2021 (50% payable) and 2022 (50% payable). The deferral period ended on the date borrower was informed of loan forgiveness.Borrowers of a PPP loan may now continue to defer Social Security tax even after their loans are forgiven.
Full-Time Equivalent Employees (FTE) During the “Covered Period”
Prior RuleNew Rule
Businesses could avoid reductions in forgiveness by rehiring/restoring wage levels by June 30, 2020.Businesses now have until Dec. 31, 2020 to restore staffing levels/wages that were reduced during the Covered Period.

New exceptions allow borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Two additional exceptions were added:
- Borrower could not find qualified employees and was unable to rehire individuals who were employees on Feb. 15, 2020 or
- Borrower was unable to restore business operations to Feb. 15, 2020 levels due to COVID-19 related operating restrictions (i.e. sanitation, social distancing or worker/customer safety).

In addition, The new bill leaves a few unanswered questions. The SBA is expected to release a new set of FAQs soon: 

  1. How soon can borrowers submit applications for loan forgiveness? When funds have been spent or, at the end of their 24 week covered period, or after Dec 31, 2020?
  2. Can the test to restore workforce levels be applied prior to Dec 31, 2020, or only on that date? Can borrowers choose to retain the June 30, 2020 testing date instead?
  3. Will banks allow existing PPP loans to be modified to the allowable 5-year longer maturity?
  4. How will businesses document their good faith certification they could not fully restore their workforce?