Flexibility Act helps clear up some of the PPP confusion

After the enactment in April of the Payroll Protection Program (PPP), there was a good deal of CCC — confusion concerning consequences.

In the wake of clarification legislation — the Flexibility Act — now passed by Congress and signed into law by President Donald Trump, the U.S. Small Business Administration and the Treasury Department are taking steps to try to eliminate uncertainty about how the PPP works and its effect on employers and employees.

With the coronavirus (COVID-19) wrecking and wreaking havoc on business plans and operations, Congress in March passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. The PPP portion, of just under $400 billion, was meant to help businesses sustain their payrolls.

Simply put, the PPP enables employers to keep their employees on the payroll through SBA low-interest or forgivable loans. The hope was that on the other side of the pandemic the employees would still have jobs — provided the business survived.

The enormous sums of money — $2.2 trillion for the entire original CARES Act — coupled with the speed at which it was passed and implemented, meant the bugs would have to be worked out after it hit the street, which is exactly what’s happening.

Here are some of the changes in the new and improved PPP:

  • An early PPP requirement was that loan forgiveness was in jeopardy if businesses didn’t return to their Feb. 15, 2020, employment numbers by June 30. The new PPP version grants a “safe harbor” on loan forgiveness as long as businesses reach that employment goal by Dec. 31. This provision of the Flexibility Act provides a lifeline to businesses that are struggling to reopen at full capacity due to governmental restrictions and other reasons

  • The previous PPP rules said to obtain full loan forgiveness, at least 75% of the loan had to be used for payroll costs. Full forgiveness is now achieved if 60% of the loan is spent on payroll costs. Partial loan forgiveness may be granted to businesses that don’t hit the 60% mark.


  • The covered period for loan forgiveness after disbursement is extended to 24 weeks from the original eight weeks. But regardless of when you loan is disbursed, the covered period will expire Dec. 31 or at the conclusion of 24 weeks, whichever comes first.


  • The deferral on making principal, interest and fee payments on PPP loans is extended to the date the SBA submits the borrower’s loan forgiveness amount to the lending institution. If the borrower doesn’t seek loan forgiveness, the deferral period will be 10 months after the borrower’s covered period ends.


  • Loan maturity for balances not forgiven is extended from two years to five years.


  • Most importantly, these new rules automatically apply to loans funded on or after June 5, the effective date of the Flexibility Act. Loans funded before June 5 may have their terms modified to conform to the enhanced and expanded provisions of the Flexibility Act, but borrowers must act to obtain a loan modification.


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This article first appeared in KnoxNews.


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