new information on the paycheck protection program and cares act

Signed into law by the President on June 5, 2020, The Paycheck Protection Program Flexibility Act amends the Paycheck Protection Program (PPP) to give borrowers more freedom in how and when loan funds are spent while retaining the possibility of full forgiveness.

Borrowers now have 24 weeks to spend loan proceeds, up from 8 weeks.

PPP borrowers will now have up to 24 weeks (but not beyond December 31, 2020) to spend the loan funds and remain eligible for loan forgiveness. The eligibility period is an increase from the 8-week period limitation established by the CARES Act. They also have the option to keep the original eight-week spending period if they already had their loan before the enactment of the PPP Flexibility Act. Under the new timeline, full forgiveness is still possible.

The PPP Flexibility Act reduces mandatory payroll spending from 75% to 60%.

Now a minimum of 60% of loan proceeds must be used for payroll expenses, down from 75%. This allows greater flexibility to cover monthly fixed expenses such as rent and utilities and still be eligible for loan forgiveness.

Under the new Act, failure to spend at least 60% of the total loan amount on payroll, will result in no loan forgiveness. Previous requirements required spending 75% of the forgiven amount on the payroll.

Two new exceptions let borrowers obtain full forgiveness even without fully restoring their workforce.

These are in addition to previous guidance that let companies exclude workers who turned down good-faith offers of re-employment. Borrowers can now also reduce workforce requirements based on the inability to find qualified employees or if they were unable to restore operations to Feb. 15, 2020, levels due to COVID-19 restrictions.

The PPP loan repayment period has been extended to five years from the original two while retaining the original 1% interest rate. This gives borrowers more time to pay off the unforgiven portion of their loan.

Payment deferment extension

The 6-month deferral on repayments has been removed. You do not need to repay the PPP until your forgiveness application has been processed and completed.

You have up to 10 months after the end of your covered period to apply for forgiveness. After that time, payments will be required.

Failure to apply for loan forgiveness within 10 months of the end of the covered period will result in payments being due.

The PPP program was extended to December 31, 2020

The PPP loan program now continues through December 31, 2020. Originally it was set to expire June 30.

Enhanced rehiring exemptions

The deadline that employers have to rehire employees that were laid off between February 15 and April 26, or restore employee wages that were reduced between February 15 and April 26, is extended from June 30 to December 31, 2020.

If an employer is unable to rehire a worker, they may qualify for a new exemption. They must be able to show that they were unable to fill the position with similarly qualified employees, or document that due to safety requirements, they were unable to return to normal operating levels.

Additional guidelines were established regarding employees returning to work so that a PPP borrower may still achieve loan forgiveness while facing a staff reduction if either of the following is documented by the borrower:

  • Unable to rehire previously laid-off workers or similarly qualified workers as replacements; or
  • Unable to return to the same level of business activity (as existed on February 15) due to compliance with governmental requirements or guidance related to social distancing, sanitation standards, or any other worker or customer safety requirements related to COVID-19.

Deferred Payroll Taxes

The PPP Flexibility Act of 2020 allows businesses that took a PPP loan also delay paying their payroll taxes until December 31, 2020. This was not allowed under the original CARES Act.

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