On Friday June 5th, the President signed into law the Paycheck Protection Program Flexibility Act (PPPFA), which makes several significant changes to the existing Paycheck Protection Program (PPP).  The new law should provide borrowers with expanded relief and allow them to better take advantage of the Program.

Here are the key changes:

  1. The “75% Rule” is now the “60% Rule.”

Previously, businesses receiving a PPP loan would need to spend at least 75% of the loan proceeds on payroll costs in order to qualify for maximum forgiveness, but under the new law need only spend 60% on payroll costs.  The remaining 40% may be spent on rent, mortgage interest, and utilities.

  1. The time period for businesses to spend the loan proceeds has been expanded from 8 weeks to 24 weeks.  Businesses will now have until the end of the year to use their PPP loans.
  2. Under the previous version of the law, borrowers needed to rehire workers by June 30, 2020 in order for their salaries to count toward loan forgiveness.  Now, businesses have until December 31, 2020 to rehire workers and have their salaries count toward forgiveness.
  3. The PPFA creates new exceptions for businesses that are unable to rehire all of their employees or restore their workforce to pre-COVID levels.  If a borrower can show that it was unable to rehire employees who were laid off; unable to hire new, similarly qualified employees; or unable to return to pre-COVID levels of business activity by the end of the year, loan forgiveness will not be reduced based on reduction of its workforce.  Previously, this exception was available only when a borrower offered to rehire an employee or employees and the offer was rejected.
  4. Businesses receiving a PPP loan may now defer payroll taxes into 2021 and 2022, even if the loan is forgiven before the end of the year.
  5. The repayment term has been extended from 2 to 5 years.

The PPFA is great news for borrowers, but raises some new questions and we expect more guidance to come.  We will continue to monitor developments and provide updates as they become available.