The legislation drafted to help individuals and businesses stay afloat financially during the COVID-19 pandemic was necessarily created at breakneck speed. As such, it’s not surprising to see numerous revisions come just as quickly.
Since drafting the CARES Act and the Payroll Protection Program, legislators and relevant government agencies have noted several important faults in the initial original legislation and accompanying regulations.
To remedy these imperfections, and help small businesses manage their ongoing financial challenges, the Treasure Department recently unveiled the Paycheck Protection Program Flexibility Act (PPFA). Here are six key details framing this new program to keep in mind…
MEET THE PAYCHECK PROTECTION PROGRAM FLEXIBILITY ACT
1. Loan Maturity Date Extended to 5 Years
Initially, under the CARES Act, the PPP loan maturity date was undefined. The SBA then set the minimum maturity date at two years. The PPPFA, however, extends this date to five years. And sets the maximum maturity date at ten years. Thus, your business has between five and ten years to repay an “unforgiven” portion of your PPP loan.
2. Covered Period Extended From 8 Weeks to 24 Weeks
The CARES Act originally required PPP funds to spent between February 15th and June 30th. The PPPFA extends this initial eight-week run until December 31st. This grants your business a full 24 weeks during which you can make use of PPP loan funds.
One further important note, this extension does not enable you to borrow additional funds after June 30th.
3. Employee Rehiring Timeline Extended
Under the CARES Act, you’re required to rehire or reinstate laid-off or furloughed employees by June 30th in order to take advantage of the PPP loan forgiveness option. The PPPFA extends this timeline, giving you until December 31st to rehire or reinstate sidelined employees.
In addition, your business is still eligible for PPP loan forgiveness if you’re unable to rehire or reinstate a full complement of employees because your business operations are limited by ongoing health code regulations related to COVID-19.
4. Payroll Spending Requirement Reduced From 75% to 60%
The CARES Act did not define the amount of PPP funds your business was required to be allocated toward payroll spending. The SBA’s initial regulation stated that 75% of PPP funds must be spent covering payroll. The PPPFA scales back this requirement to 60%. Thus, your business is now free to spend up to 40% of your PPP funds on rent and other operational costs.
5. PPP Loan Deferral Period Extended
The CARES Act initially stated that PPP loan payments could be deferred for six to twelve months from the date you received PPP loan funds. The PPPFA extends the deferral period by setting the repayment clock to begin ticking upon the date the SBA repays the lender for the forgivable portion of your PPP loan.
6. Employment Tax Deferral
The CARES Act offers you the option to defer employment tax payments, with 50% due on December 21st, 2021, and the remaining balance due on December 21st, 2022.
PPP borrowers, however, were not granted this exception. The PPPFA reverses this decision and extends the CARES Act employment tax deferrals to PPP borrowers as well.
Have Questions About The PPPFA?
As has been the case at seemingly every step of this challenging situation, the government’s financial assistance measures are at once helpful and complicated. If you have questions about the additional benefits extended under PPPFA, please don’t hesitate to get in touch.
I look forward to hearing from you!