On June 5 the president signed the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act). The Flexibility Act makes numerous changes, including, but not limited to,:
- Extends the maturity period for new PPP loans made after June 5, 2020, from two to five years. By mutual agreement of the lender and the borrower the maturity on existing PPP loans may be extended.
- Payments of principal and interest on existing PPP loans were deferred for a period of six months from the date of the loan. The Flexibility Act extends the deferral period to the date the lender receives the forgiven amount from SBA. If a borrower does not apply for loan forgiveness within 10 months following the end of the covered period, the deferral period will end on the date that is 10 months after the last day of the covered period.
- Expends the period in which the PPP funds must be used from June 30, 2020 to December 31, 2020.
- Extends the forgiveness period for all PPP loans from eight weeks to 24 weeks from the date of origination or December 31, 2020, whichever is earlier.
- Reduces the minimum amount that businesses must use to maintain payroll from 75% to 60% to qualify for forgiveness. The law appears to mean that no amount will be forgiven if the borrower doesn’t use 60 percent of the loan proceeds for payroll costs. Previously if less than 75% was used for payroll the amount of forgiveness was prorated.
Please note that while the new law provides flexibility your PPP loan documentation may not. Existing documentation may need to be modified to allow use of the revised provisions of the Flexibility Act.
The Flexibility Act is effective as if included in the CARES Act.