The Senate has just approved H.R. 7010 – Paycheck Protection Program Flexibility Act of 2020. The bill previously passed the House on May 28th. This update to the original Paycheck Protection Program (PPP) makes the program’s lending terms more favorable for small and medium size businesses. The legislation extends the eight-week period in which loan recipients had to spend the PPP money while also addressing other details that have cause trouble for many businesses, mainly in the hospitality sector.
The bill now heads to President Trump for his signature.
If signed into law, the Paycheck Protection Program Flexibility Act would:
- Extend the covered period from eight-weeks to the ending of the earlier of 24 weeks from the date of origination or until December 31st in which the business can spend the proceeds from the loan. However, borrowers can still elect to have the eight-week period applied.
- Expand the use of the PPP funds on nonpayroll expenses, such as rent, mortgage interest and utilities, from the 25% cap to 40% of the total loan. This would lower the proceeds used for payroll from 75% to 60% in order to get maximum forgiveness.
- Extend the loan terms for repayment of any unforgiven portions from 2 years to 5 years using 1% interest.
- Extend the period in which a business can apply for loan forgiveness, from within 6 months to within 10 months of the last day of the covered period, before the business starts making principle, interest and fee payments. However, the PPP loan principal, interest and fee payments will be deferred until the loan is forgiven by the lender under the new bill.
- Allow businesses, in addition to taking a PPP loan, to qualify for a separate, recently enacted tax credit to defer payroll taxes. This is currently prohibited by the original act to prevent “double dipping.”
- Remove limitations on loan forgiveness for businesses that are able to document, in good faith, an inability to rehire individuals who were employees on February 15, 2020 or an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Limitations can also be removed if the business is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
By reducing the payroll limitation of the program and extending the loan forgiveness period, the Paycheck Protection Program Flexibility Act of 2020 will further help businesses impacted by COVID-19.
The Dopkins Transaction Advisory Specialists and our Financial Advisory Service Team is here to assist you in accessing liquidity and how to respond to changed business circumstances in light of COVID-19 while navigating the terms and conditions of the emergency loan programs identified above. Our team focuses on helping business owners and companies identify and secure short-term and long-term capital. Whether it’s domestic or foreign A/R, inventory, purchase order, construction, mezzanine financing, term loans and equity, our team has multiple sources of financing that will provide solutions to our clients.
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About the Author
Joseph A. Heim CFE, CPA
Joseph Heim has over 25 years' experience investigating matters involving white-collar crime, fraud and corruption. He provides forensic accounting, litigation support and expert witness services to businesses, attorneys and commercial finance lenders. He is the Partner in charge of Dopkins Asset Based Lending Consulting Services.