The Paycheck Protection Program (PPP) Flexibility Act of 2020 was signed into law on Friday, June 5th. It allows current PPP borrowers the option to extend the current 8 week covered period by 16 weeks, equating to a total of 24 weeks. This extension likely allows current borrowers increased chances to receive 100% forgiveness. However, forgiveness will still heavily depend on borrowers’ ability to maintain FTEs and/or bring FTEs back to February 15th levels by December 31, 2020.
If you applied and received your PPP funding prior to June 5th, the Mueller Covid-19 Response Team recommends calculating the 8 week period forgiveness amount as a backstop, even if you believe you will fare better using the 24 week covered period. Knowing what amount of forgiveness you already have achieved may help give you peace of mind to run your business without the worry of how business decisions may impact your forgiveness during weeks 9 through 24. At the end of week 24 you should calculate forgiveness again and compare and choose which covered period is best for you.
If you are a PPP borrower intending to reduce FTEs during the extended covered period, you will most likely select the 8 week period due to the requirements to maintain the average FTEs during the covered period.
- Allows current PPP borrowers the option to extend the 8 week covered period by 16 weeks to a total of 24 weeks. Does NOT appear you can choose a covered period between 8 to 24 weeks. It is one or the other for current borrowers.
- All new borrowers will have a 24 week covered period and do NOT have the option to select an 8 week period.
- The payroll expenditure requirement has dropped from the original amount of 75% to 60%, but it is now a cliff, meaning if you do not use at least 60% of the funds borrowed on payroll costs, then none of the loan will be forgiven.
- Safe-harbor FTE restore timeline has been extended from June 30, 2020, to December 31, 2020, for all current and new borrowers.
- Allows borrowers relief from the reduction in FTEs because they could not find similarly qualified employees for unfilled positions by December 31, 2020, or were unable to rehire individuals who were employees on February 15, 2020, due to COVID-19 related operating restrictions. Specific requirements and documentation are required by the Act.
- All new PPP borrowers will have five years to repay the loan instead of two. Current borrowers are allowed to restructure their terms from two to five years if mutually agreed to with their lender.
- Borrowers can now defer the employer’s share of FICA payroll taxes for two years under the CARES Act provision. 50% of the payroll taxes will be due in 2021, with the remaining 50% due in 2022.
- The borrower must apply for forgiveness within 10 months after the last day of the covered period.
Additional Considerations for Current Borrowers:
- There is no new guidance on how the FTEs in the 24 weeks will be calculated, but it is expected they will be calculated similarly to the current guidance that was released for the 8 week covered period. This could negatively impact borrowers who intend to layoff employees in weeks 9 to 24.
- It does not appear that the borrower needs to elect to use the 8 or 24 week period until the time of forgiveness. This gives the borrower the option to see which scenario is most beneficial.
With this new legislation, we anticipate the SBA to provide additional guidance and updates to the application. Mueller’s COVID-19 Response Team is currently monitoring, reviewing, and providing guidance as it relates to application completions.
If your company received PPP funds and you are interested in assistance with the monitoring and forgiveness analysis or need professional advice on technical matters with respect to calculations, please contact your Mueller accounting advisor.