Congress just passed new legislation with significant changes to the PPP forgiveness terms. Titled the Paycheck Protection Flexibility Act, Congress’s goal was to ease the burden on businesses for allocating and spending PPP funds within a finite period of time. Passing with overwhelming bi-partisan support, President Trump is expected to sign this Act into law.
The Act makes two significant changes to qualify for loan forgiveness:
(1) lowering the threshold for the amount of PPP funds required to be spent on payroll costs from 75% to 60%; and
(2) extending the time for loan recipients to spend the funds from eight (8) weeks to twenty-four (24) weeks.
These adjustments were designed to make it easier for more borrowers to maximize their opportunity for loan forgiveness.
The Act also makes some other changes to the loan forgiveness qualification. Companies will now have 24 weeks to restore their workforce levels and wages to pre-pandemic levels. This means that the previous deadline of June 30 has been extended to December 31. The Act also allows businesses that took a PPP loan to delay payment of their payroll taxes, which was previously prohibited under the CARES Act.
If you are a Government Contractor, note that none of these changes impact the Department of Defense’s statements of potentially seeking a contract credit for a forgiven PPP loan or the conflict between the PPP loans and Section 3610. Our best advice to federal contractors is to be wary when seeking loan forgiveness.
For all other companies, the changes set forth in the Act are positive and should alleviate the concerns several clients have expressed. We are happy to talk through those changes and their impact on your loan terms to ensure that you structure the use of funds in a legal and compliant way.