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PPP Flexibility Act Eases Restrictions

June 9, 2020 Posted by Kristen Anderson in COVID-19, Non-profits, Nonprofits

On June 5, 2020, the President signed the PPP Flexibility Act into law, easing restrictions imposed by the CARES Act and the Small Business Administration (SBA). The CARES Act created the Paycheck Protection Program (PPP). The PPP assists small businesses, including nonprofits, with maintaining their payroll by providing forgivable loans. The details of the original PPP terms are in our blog post on SBA Loans for Nonprofits.

In recent weeks, small businesses have complained that SBA rules implementing the CARES Act are overly burdensome. In response, Congress passed the PPP Flexibility Act specifically to provide businesses with more time and flexibility to keep their employees on payroll and to assist them with continued operations. The changes, detailed below, will make it easier for nonprofits to use PPP loan funds and to have their PPP loans forgiven.

Use of PPP Loan Proceeds

Originally, the PPP required borrowers to use at least 75% of the loan proceeds for payroll costs during the first 8 weeks after receipt of the loan to be eligible for loan forgiveness. The PPP Flexibility Act reduces this requirement and extends the period in which a borrower can use the loan funds. Now, a borrower must use 60% of the loan proceeds for payroll costs during the 24 weeks following the receipt of the loan to be eligible for full forgiveness. Additionally, if a borrower uses less than 60% of the loan proceeds on payroll costs during the covered period, they may still be eligible for partial forgiveness.

Safe Harbor from Reductions in Loan Forgiveness Amount

The PPP Flexibility Act also creates a safe harbor from reductions in the loan forgiveness amount. Our previous blog post details the various reductions in forgiveness that borrowers face if they are not able to maintain their payroll. Now, there is a safe harbor if a business can show that it was unable to return to the same level of business activity it operated at prior to February 15, 2020 or if it was unable to rehire employees and unable to hire similarly qualified employees for unfilled positions.

In addition to the safe harbor, the act also extends the deadline for rehiring workers from June 30 to December 31 giving businesses more time to restore their payrolls.

Updated Loan Terms

The PPP Flexibility Act increases the loan maturity from two to five years for any loan amounts outstanding after receipt of loan forgiveness. In addition, the act extends payment deferral from 6 months to 10 months after the covered period if the borrower does not qualify for loan forgiveness.

The PPP Flexibility Act should be welcome news to many nonprofits that have received PPP loans as it increases their ability to have their loan forgiven. If you have any questions about how this act affects your organization, please call The Law Firm for Non-Profits.

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