New Law Provides Borrowers with Flexibility in Using PPP Funds

June 5, 2020

On June 5, 2020, President Donald Trump signed the Paycheck Protection Program (PPP) Flexibility Act (the Flex Act) into law. The Flex Act provides PPP loan borrowers with more time and flexibility in using funds received as part of the Paycheck Protection Program.

The Flex Act expands the period in which to use loan proceeds from eight to 24 weeks. Additionally, the amount of the loan that must be spent on payroll expenses has dropped from 75% to 60%.

However, this expenditure requirement now affects loan forgiveness eligibility. Previously, a borrower’s forgiveness amount was reduced if less than 75% of the funds received were used for payroll expenses. Under the Flex Act, loan forgiveness is eliminated, rather than reduced, if the 60% threshold is not met. Therefore, borrowers must now spend at least 60% of the PPP loan funds on payroll expenses or none of the loan will be forgiven.

The Flex Act also modifies the terms of PPP loans. Borrowers who receive PPP loans after enactment of the Flex Act will have five years to repay the loan, instead of the previous two-year maturity, with an interest rate of 1%. For existing loans, lenders and borrowers may agree to modify terms to increase the maturity to five years. Additionally, the deferral on payments has been extended from six to 12 months.

The  Flex Act also provides changes to the requirements to restore the workforce.  Borrowers now have until December 31, 2020, rather than June 30, 2020, to restore their workforce levels and wages as required for full forgiveness. The Flex Act also provides an exemption to the loan forgiveness penalty for reduction in full-time equivalent employees by allowing a borrower to document and certify in good faith:

  1. an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020, and an inability to hire similarly qualified individuals by December 31, 2020;
  2. an inability to restore business operations to February 15, 2020, levels due to COVID-19 related operating restrictions.

Finally, the Flex Act provides that PPP borrowers may take advantage of payroll tax deferrals provided under the CARES Act – something they were previously prohibited from doing.

It is important to note that the Treasury Department will have to revise the previously published interim final rules on loan forgiveness based on the changes provided for in the Flex Act. Full details on loan forgiveness will not be available until the Treasury Department revises its rules.

RCO Law will provide additional information on the new rules as soon as they are published.  The  Flex Act, however, provides loan recipients some breathing space in the meantime.

Please contact the attorneys at RCO Law for advice regarding the Flex Act and PPP, or other matters specific to your business.


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