The Senate has passed by unanimous consent the Paycheck Protection Program Flexibility Act of 2020 and it now heads to the President for his expected signature.

The bill which passed the House of Representatives last week by a 417-1 vote will allow small business that received Paycheck Protection Program (PPP) loans greater flexibility in using the loan proceeds. This will significantly change the loan forgiveness application and will make it easier for most businesses to get larger or full loan forgiveness.

Key Points of PPP Flexibility Act – H.R. 7010:

• Allows forgiveness for expenses beyond the original 8 week covered period to 24 weeks or until December 31, 2020 whichever comes first . A borrower who received a loan before the bill’s enactment could elect to continue using the 8 week covered period.
• Extends the deadline for the rehiring exception to forgiveness reduction from June 30, 2020 to December 31, 2020.
• Increases the current limitation on non-payroll expenses (such as rent, utility payments and mortgage interest) for loan forgiveness from 25 to 40 percent.
• Extends loan terms from two to five years. This would take effect on the date of the bill’s enactment and apply to any PPP loan made on or after such a date. However, lenders and borrowers would not be prohibited from mutually agreeing to modify the maturity terms of prior-disbursed PPP loans.
• Ensuring full access to payroll tax deferment for businesses that take PPP loans regardless of loan forgiveness. This is the employer FICA deferral that was to end upon loan forgiveness notification.
• Eliminates the six-month deferral of payments due under PPP loans and replacing it with deferral until the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender. If a borrower fails to apply for forgiveness within 10 months after the last day of the PPP loan forgiveness covered period (i.e., the earlier of 24 weeks from origination or December 31, 2020), the borrower must then begin to make payments of principal and interest on its PPP loan.

While the new bill now requires that 60% of the loan be used on payroll costs (down from 75%), due to the wording there is some concern that the provision no longer allows partial loan forgiveness if the 60% threshold is not met. This might have to be corrected with future guidance or a technical correction act.

This bill did not address the deductibility of the expenses which is currently not allowed per IRS Regulations.

You can download a copy of the entire bill by clicking here.

DDK has established a dedicated PPP loan forgiveness team to assist you in planning and applying for loan forgiveness. You can contact the team by sending an email to pppteam@ddkcpas.com or click here to fill out a form to contact our PPP Task Force and we will be glad to provide you guidance and insights based on your unique situation.