On June 5th, President Trump signed into law the Paycheck Protection Program Flexibility Act (“PPPFA” or “Act”). This business-friendly law provides greater flexibility for employers receiving loans under the Coronavirus Aid, Relief, and Economic Security (“CARES’) Act’s Paycheck Protection Program (“PPP”). The Act:
1) Extends time frames
2) Expands exemptions
and
3) Modifies other PPP terms affecting potential loan forgiveness and repayment.
Here is some important information about these three provisions of the Flexibility Act:
1) EXTENDED “COVERED PERIOD” FOR USING LOAN PROCEEDS
Initially, under the PPP, loan recipients needed to spend PPP loan proceeds on approved expenses within a period of eight weeks to potentially qualify for loan forgiveness.
- Many businesses expressed concern that an eight week period was simply too short of a time period.
The new law expands this period so that borrowers may now spend their PPP loan amounts over the EARLIER of:
(a) A period of 24 weeks from the origination of the Loan
or
(b) December 31, 2020
Borrowers may still choose to use the original eight-week covered loan period in the Payroll Protection Program or alternative payroll covered period provided in the Small Business Administration’s guidance related to loan forgiveness.
2) REDUCED % OF LOAN TO BE SPENT ON PAYROLL FOR FORGIVENESS
Initially, in order for a borrower to obtain loan forgiveness, businesses had to spend 75% of their loan amount on payroll costs, with 25% able to be spent on qualified non-payroll expenses.
The Forgiveness Act reduces the % that needs to be spent on payroll costs to 60% of PPP loan proceeds need to be spent on payroll costs in order for the loan to be forgiven. This leaves 40% which can be spent on qualified non-payroll expenses.
- This gives employers some welcome flexibility to use loan proceeds on rent, mortgage payments and other qualified non-payroll expenses.
3) EXPANDED EXEMPTIONS FROM LOAN FORGIVENESS REQUIREMENTS
A. The PPP provided that employers who had experienced a reduction in either employee headcount or employee salaries between February 15, 2020 and April 26, 2020 could receive forgiveness if it eliminated any reduction headcount and salary by June 30, 2020.
→ The PPP Flexibility Act extends this June 30 date to December 31, 2020.
B. The Flexibility Act also expands exemptions from the reduction to loan forgiveness corresponding to a reduction in the number of full-time equivalent (FTE) employees.
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- An employer who has experienced a reduction in FTE employees after February 15 will not see a reduction in loan forgiveness based on FTE count if it can document in good faith that it has been unable to:
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1) Rehire individuals who were employed by the business on February 15, 2020 and also unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020
or
2) Return to the same level of business activity at which it was operating before February 15, 2020 due to compliance with requirements or guidance from the U.S. Secretary of Health and Human Services, CDC or OSHA between March 1 and December 31 relating to standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
4) FIVE-YEAR REPAYMENT PERIOD FOR NEW LOANS
A. For PPP loans made on or after the June 5th effective date of the Flexibility Act, borrowers will have a period of at least five years to pay off the portion of any loan which is not forgiven.
B. For loans made before the Flexibility Act effective date of June 5, lenders and borrowers may, but are not required to, mutually agree to modify the terms of an existing loan to include a minimum five-year period for repayment of any unforgiven amounts.
5) EXTENSION OF LOAN DEFERRAL PERIOD
The Flexibility Act also expands the six-month loan deferral period created by the PPP. Repayment of a PPP loan is now deferred until after the SBA has determined the borrower’s loan forgiveness amount and remitted that amount to the lender.
FOR MORE INFORMATION ABOUT RE-OPENING CHALLENGES:
- Email Trinity at info@TrinityHR.net
- Visit our website at www.TrinityHR.net
- Call us at 856.905.1762 or Toll Free at 877.228.6810
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