Flexibility for Paycheck Protection Program

On June 5, 2020, President Donald Trump signed the Paycheck Protection Program Flexibility Act (PPPFA), bringing several critical changes to the Paycheck Protection Program (PPP).

The bill originated in the U.S. House of Representatives, where it passed 417-1 the week prior. On June 4, 2020, the U.S. Senate approved the measure by unanimous consent. The new law came less than one month before the June 30 deadline by which the PPP was set to require borrowers to make rehiring decisions. June 30 was also the date by which some borrowers would reach the end of the original eight-week loan forgiveness period. Among other stipulations, the new law extends those timeframes.

The law also:

• Reduces from 75% to 60% the percentage of forgivable expenses that must be allocated to payroll costs;
• Extends the covered period for forgiveness calculations from eight weeks to 24 weeks from the origination date of the loan or until Dec. 31, 2020, whichever comes sooner;
• Expands the timeframe for making the determination for rehiring from June 30 to Dec. 31, 2020;
• Provides partial forgiveness reduction relief in the event a borrower can document that it is unable, on or before Dec. 31, 2020, either (1) to rehire or replace individuals who left its employ during the pandemic or (2) to return to its pre-COVID level of business activity;
• Repeals the CARES Act provision that barred PPP forgiveness recipients from deferring employer payroll taxes; and
• Establishes that covered loans that have a remaining balance after applying any forgiveness shall have a minimum maturity of five years and a maximum maturity of 10 years from the date on which the borrower applies for PPP loan forgiveness.

In response to the legislation, NADA updated its preliminary guidance on  PPP Loans: Use of Proceeds and Forgiveness .  Additional guidance from the U.S. Small Business Administration (SBA) and Treasury is forthcoming. For now, we recommend VADA members with PPP loans put off applying for loan forgiveness until after consulting with their legal, accounting, and banking experts regarding how these new modifications will apply to their specific circumstances.

We thank NADA for their efforts and support of these changes. On May 21, NADA joined a large group of trade associations and other organizations in a letter to Congress, requesting PPP modifications that would make the program more flexible for borrowers nationwide.