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BHG Brief: Critical PPP Flexibility Act Updates

Question: How will the recently passed PPP Flexibility Act (PPPFA) affect small business owners who have taken, or are interested in pursuing a PPP loan through the SBA?  

Answer: The PPPFA has several new key provisions which extend coverage period and loan length, adjust spending category allotments, and more.  

The Paycheck Protection Program (PPP) was designed to support small business owners through the economic shutdown caused by the coronavirus pandemic, specifically to help with payroll and related costs like healthcare and other benefits. If employers use all PPP funds within a certain timeframe, for approved purposes, the loan could potentially be forgiven in its entirety. 

Now in its second round of funding, lawmakers have enhanced the PPP through a new Flexibility Act in order to alleviate some of the concerns that small business owners had, especially regarding loan forgiveness:  

  1. Covered Period Extended: The timeframe for business owners to spend their PPP funds in total has been extended from eight weeks to 24 weeks. The period starts on the day that borrowers receive their funds, and was extended because of the concern that eight weeks wasn’t enough time for many small businesses to spend their PPP funds on eligible expenses including payroll, mortgage interest, rent and utilities.  
  1. Payroll Expenditure Requirement Lowered: The proportion of non-payroll expenses that can be forgiven was changed from 25% to 40% to give borrowers more flexibility on how they spend their funds. Non-payroll expenses range from business mortgage interest to rent or lease payments to utilities.  
  1. Loan Term Extended: Any funds that are not forgiven can be paid back over five years instead of the original two-year term. This extension must be confirmed through mutual agreement of the borrower and lender. 
  1. Deferral Period Extended: Borrowers do not have to make any payments on the unforgiven portion of the loan until the SBA makes a final decision on the forgiveness application. Payments must begin after 10 months if the forgiveness application is not filed.  
  1. Reduction in FTE or Salary Period: Employers now have until Dec. 31, 2020 to reinstate any employees that were laid off or furloughed in order to be eligible for loan forgiveness.   

Source: US Congress