Paycheck Protection Program Flexibility Act Updates
Yesterday, the U.S. Small Business Administration posted a revised, borrower-friendly Paycheck Protection Program (PPP) loan forgiveness application implementing the PPP Flexibility Act of 2020. In addition to revising the full forgiveness application, the SBA also published a new EZ version of the forgiveness application, which requires fewer calculations and less documentation for eligible borrowers. These changes will result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan.
The Third Interim Final Rule confirms that payroll costs include salary, wages, and tips, up to $100,000 of annualized pay per employee (for 24 weeks, a maximum of $46,154 per individual, or for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer.
Owner compensation replacement, calculated based on 2019 net profit, with forgiveness of such amounts limited to eight weeks worth of 2019 net profit (up to $15,385) for an eight-week covered period or 2.5 months worth of 2019 net profit (up to $20,833) for a 24-week covered period.
A new EZ Forgiveness Application is available for the following:
- Borrowers who are “self-employed and have no employees.”
- Borrowers who “did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees.” Or,
- Borrowers who “experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.”
The interim final rule also modifies earlier guidance to account for changes included in the Payroll Protection Flexibility Act.
- The minimum term for PPP loans is raised to five years for all loans made on or after June 5. For loans made before June 5, the two-year minimum maturity remains in effect unless both the borrower and the lender agree to extend it to five years.
- The proportion of PPP funding that must be used on payroll costs to qualify for full forgiveness drops to 60% from 75%.
- The application deadline for PPP loans remains June 30.