Paycheck Protection Program (PPP) Flexibility Act of 2020: COVID-19

As published earlier, President Trump signed the CARES Act (the “Act”) on Friday, March 27, 2020. The Paycheck Protection Program (the “PPP”) included in the Act dedicates $669 billion for businesses with 500 or fewer employees (including employees of your other affiliated entities) – that were in operation prior to February 15, 2020. This week the U.S. Congress made significant changes to important terms of the PPP loan program, primarily geared towards easing the burden of loan forgiveness for all borrowers. However, the deadline for receiving a PPP loan remains as June 30, 2020.

LOAN MATURITY EXTENDED• In the event a loan is not 100% forgiven, maturity date of the loan is extended from 2 years to 5 years
• The 1% interest rate and all other terms of promissory notes remain the same
• Borrowers are encouraged to work with their lenders to modify their specific loan terms

LOAN FORGIVENESS PERIOD EXTENDED
• The forgiveness period and covered period are extended to the earlier of:
– 24 weeks after disbursement of the loan; or
– December 31, 2020

PAYROLL COSTS AND NON-PAYROLL COSTS
• At least 60% of the loan proceeds must be used for payroll costs, in contrast to the previous 75% requirement
• At most 40% of the loan proceeds can be used for non-payroll costs (rent, utilities and mortgages), in contrast to the previous 25% requirement

REDUCTION IN NUMBER OF FULL-TIME EQUIVALENT EMPLOYEES
• The Act extends the date for the rehiring of employees or restoring salaries from June 30, 2020 to December 31, 2020 in order to avoid a reduction of forgiveness
• Two exceptions to the previously stated reductions in forgiveness (for the period ending December 31, 2020):
1. If the borrower, in good faith, can document an inability to rehire the same or similar employees that were employed as of February 15, 2020; or
2. If the borrower, in good faith, can document an inability to return to the same level of business activity before February 15, 2020 due to social distancing, sanitation and any other customer safety requirements related to COVID-19. Additionally, any requirements/guidance as promulgated by Health and Human Services, the Centers for Disease Control or the Occupation Safety and Health Administration are allowable reasons

DEFERRAL OF LOAN PAYMENTS AND PAYROLL TAXES
• Loan payments can now be deferred until the date lenders receive remittance from the SBA
• If borrower does not apply for loan forgiveness, then borrower can defer loan payments until 10 months after the end of the new covered period (see above)
• Borrowers can now defer 50% of payroll tax payments until December 31, 2021 and remaining 50% until December 31, 2022. Such deferred payroll taxes are to be accrued between March 2020 and end of the year 2020

ADDITIONAL INFORMATION
The attorneys at Underwood are available to answer questions regarding the Act. Please reach out to your contact at Underwood or to Mitchell Moses (mjm@uwlaw.com; (806) 239-9992).