Businesses are about to have much more flexibility and time to utilize the Paycheck Protection Program (PPP). Last week, the House of Representatives passed the Protection Program Flexibility Act (PFA) with only one vote against; the Senate approved the bill unanimously early last week and the President signed it on Friday. The PFA will extend several deadlines and loosen restrictions to give businesses more options to weather these difficult economic circumstances. Here are the 5 key takeaways from the PFA.
Program extended from 8 weeks to 24 weeks
The original program featured an 8-week covered period where businesses could borrow and spend money from the program – the end of which was rapidly approaching. That period has now been extended to 24 weeks after the loan’s origination or December 31 (whichever comes first.) Additionally, borrowers may now defer payments on PPP loans until they receive loan forgiveness from the SBA; however, there is now a deadline for applying for forgiveness – no later than 10 months after the covered period.
Percentage spent on payroll reduced from 75% to 60%
There is a tradeoff, however, as repercussions for failing to meet this threshold are now more severe. Previously, if a borrower spent less than 75% of the loan on payroll, less of the loan would be forgiven; now if a borrower spends less than 60% of the loan on payroll, none of it will be forgiven. Some experts believe that this change may be unintentional and that the Treasury Secretary and SBA will seek to return to the older system of reducing rather than eliminating loan forgiveness.1
Repayment extended from two years to five on unforgiven loans
This provision only effects loans taken out after the Program Flexibility Act takes effect (every other provision will apply retroactively to older loans). The interest rate on PPP loans remains unchanged.
Deadline to return to full staff and pay extended to December 31st
The original Paycheck Protection Program featured a safe harbor period in which employers could furlough/lay off workers or reduce their pay without being penalized as long as they returned to February 15th levels of staff and pay by June 30th; the deadline to return to normal staff and pay rates has been extended to December 31st.
More flexibility when rehiring workers
Businesses will no longer be penalized for failing to hire back employees which were employed on February 15th by December 31st as long as the business can (1) demonstrate that they tried in good faith to rehire employees and were unable or, (2) the business is unable to return to the same level of productivity due to ongoing public health restrictions.
1These provisions will ensure that the Paycheck Protection program will remain part of the business landscape at least until the end of 2020. As always, talk to your local financial institution and SBA office to get all the details on how this will impact your business. For more information on Covid-19 and the economic response and recovery in Yellowstone County, please visit the Yellowstone County Economic Recovery website and BillingsChamber.com.