An Overview of the PPP Flexibility Act

June 09, 2020

On Friday, June 5, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law. The primary benefit of this new legislation for Paycheck Protection Program loan borrowers is that it gives them additional time to qualify for loan forgiveness and eases the requirements surrounding the percentage of loan proceeds that must go toward payroll in order to receive forgiveness.

ENB is awaiting additional details and guidelines from the Small Business Administration (SBA) on how this new legislation will impact our PPP loan customers. We will provide more information as it becomes available including details on the modified loan forgiveness application. In the meantime, here are a few highlights so you can begin to decide which course of action is best for your business.

  • The covered period during which PPP funds used for eligible payroll and non-payroll expenses can qualify for forgiveness has been expanded from eight weeks to 24 weeks or until December 31, 2020 (whichever is earlier). Existing borrowers retain the option to utilize the 8 week period, however, if you decide to extend to 24 weeks, you may desire to evaluate the impact of loan payments on the PPP Loan as they would start in the seventh month.
  • The amount of loan proceeds that businesses must use for payroll costs in order to receive loan forgiveness is reduced from 75% to 60% during the covered period. Under the new PPP rules, eligible non-payroll business expenses can account for as much as 40% of the forgiven loan amount. Although the language of the PPPFA indicates that borrowers must spend at least 60% of the loan proceeds on payroll costs to qualify for ANY loan forgiveness, guidance from the SBA has confirmed that borrowers using less than 60% of their PPP loan amount for payroll costs during the forgiveness covered period will still be eligible for partial loan forgiveness.
  • The period in which borrowers must restore FTE counts is extended from June 30, 2020 to December 31, 2020. This extension, in combination with the loan forgiveness period extension, gives businesses more time to bring their FTE count and salaries/wages up to Feb. 15 levels. If this requirement is met and 100% of the loan proceeds go to payroll costs, the entire loan will likely be forgiven.
  • If a business cannot reach Feb. 15 FTE counts as a result of having to comply with health and safety requirements and restrictions put in place by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or OSHA during the period beginning March 1, 2020 and ending December 31, 2020, the resulting reduction in FTEs will not inversely impact their loan forgiveness. The same would apply if a business is unable to rehire individuals who were employees on Feb. 15, 2020 and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
  • Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a business with a PPP loan could defer payments of the employer’s share of 2020 Social Security taxes until they are granted forgiveness of their PPP loan. This has been amended to allow businesses that receive PPP loan forgiveness to continue delaying payment of these taxes. Please speak with your tax advisor for additional guidance

If you have questions or would like more details, please call your ENB Relationship Manager or our Customer Service Center at (717) 733-4181. As always, you are also encouraged to seek independent accounting and legal advice on decisions that require such professional reviews and to assist you in determining your priorities.

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