What the Paycheck Protection Program Flexibility Act Means for You

Note: The Paycheck Protection Program closed to new applicants on August 8, 2020. This page will be updated if and when the federal government passes legislation to restart the program or create additional small business financial relief.

On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act, which includes several key changes to the Paycheck Protection Program (also known as PPP) that will affect the millions of small businesses that received a PPP loan, as well as the many who may still yet apply for one. 

The president signed the bill into law on June 5, 2020. It’s now up to the SBA and Treasury to interpret and implement the law.

Ever since the introduction of the PPP in late March as a response to the coronavirus pandemic, business owners, industry leaders, and even some politicians have asked for changes to the program that better address how the pandemic has impacted American businesses. 

The PPP was originally conceived as a short-term fix to the economic fallout of the various stay-at-home orders and restrictions on business operations. Months later, some businesses are still unable to operate as normal, unemployment is climbing, and consumer demand is subdued. In order to make it easier for businesses to achieve forgiveness of their loan under these conditions—and thus survive long-term—the PPP has been altered through this bill. 

Let’s review the changes that the PPP Flexibility Act, also known as H.R. 7010, brings to this loan program and how it will affect your small business, whether you’ve taken out a PPP loan yet or not. 

Changes to the Paycheck Protection Program 

The PPP Flexibility Act amends the PPP in the following ways: 

  • Borrowers now need to only spend at least 60% of their loan on payroll expenses in order to receive full forgiveness, with 40% or less eligible to be spent on rent, utilities, and/or mortgage interest. Previously, businesses needed to spend at least 75% of their loan on payroll to receive full loan forgiveness. 
  • The covered period for forgiveness of the loan has been extended from eight weeks to 24 weeks, or December 31, 2020, whichever is earlier. (Borrowers can also choose to use the eight-week period if they received a loan prior to the bill’s passage.)
  • Borrowers will have 10 months from the end of their covered period to apply for loan forgiveness. 
  • Borrowers that tried to rehire employees during the safe harbor period but were unable to do so before December 31, 2020, won’t be penalized, as long as they make two “good faith” certifications.  
  • PPP loan maturity has been extended from two years to five years for loan amounts not forgiven.  
  • Borrowers who applied for PPP forgiveness can now also delay the payment of the employer’s share of payroll taxes, as allowed in Section 2302 of the CARES Act. 

Lawmakers made a specific note about one key way that this bill should not change the PPP: It does not extend the application window for the program to the end of the year. New borrowers will need to apply for a PPP loan before June 30, 2020, if they want one. 

You can review the full text of H.R. 7010 to review all the modifications. 

What Does This Mean for Businesses With PPP Loans? 

The SBA and Treasury will need to decide how to implement these changes as quickly as possible. 

That’s very important, as 7% of the PPP loans that have been approved will finish out their covered periods during the week of June 1, 2020. 

For business owners that already applied for and received PPP loans before this bill passed, they’ll be able to take advantage of most of the changes detailed above. 

Most of the changes to the Paycheck Protection Program through this bill will apply to borrowers that applied for the PPP before the passage of this bill as well as after. Only one change does not apply to existing borrowers: Their loan maturity will still only last two years, rather than being extended to five. (However, existing borrowers and lenders are allowed to work together to agree on an extended maturation of the loan.)

What Issues Still Need to Be Addressed?

The bill was held up in the Senate for a number of reasons, but one of the biggest concerns was that the Treasury may interpret the new law in a way that could hurt business owners. 

Under the previous law, businesses had to spend at least 75% of the loan on payroll in order to receive forgiveness. If they spent less than that, their forgiveness could be reduced in relation to how much they spent. With the PPP Flexibility Act, that threshold has been lowered to 60%, but the language of the bill may have forced the Treasury to interpret the act to say that if a business spends anything less than 60% on payroll, they will receive no forgiveness at all. This potential “forgiveness cliff” was reportedly unintentional.

The Treasury and the SBA then issued a joint statement confirming that they would allow for partial forgiveness if businesses spent less than 60% on payroll.

Additional legislation from Congress may also address any technical issues that arise in the implementation of the bill. 

Should This Affect Your Decision to Apply for PPP?

If you’ve been on the fence about applying for a PPP loan due to uncertainty over forgiveness guidelines, or because you felt the rules around forgiveness would make it difficult for you to use the loan effectively, these changes should go a long way toward making the program more attractive. 

Due to these rule changes, it will now be much easier for a business to take out a PPP loan and have it forgiven. You’ll have more time to use the loan, more flexibility on how to use it, and fewer barriers standing in the way of total forgiveness

Eric Goldschein

Eric Goldschein is the partnerships editor at Fundera.

Eric has nearly a decade of experience in digital media, writing and reporting on entrepreneurship, finance, business lending, marketing, and small business trends. 

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