Senate Unanimously Passes Paycheck Protection Program Flexibility Act of 2020

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Last night, the Senate unanimously approved the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). The PPPFA is designed to provide borrowers of the Paycheck Protection Program (PPP) loans with more flexibility on how to expend the funds. The bill now goes to the President where it is expected to be signed into law.


The PPPFA includes the following changes to the PPP:


  • Allows forgiveness for expenses beyond the current covered period. The CARES Act law allowed expenses to be considered for the first eight weeks after a PPP loan is received ("Covered Period"), and no later than June 30, 2020. The new bill extends the Covered Period to 24 weeks and moves the latest date to December 31, 2020.


  • Increases the current 25% restriction of non-payroll costs in the loan forgiveness computation to 40%. Non-payroll costs include rent, utilities, and mortgage interest on real and personal property. Although the 25% cap was not part of the CARES Act, Treasury added it to its initial rules to "ensure finite program resources are devoted primarily to payroll." The new bill codifies the threshold but lowers the minimum amount that must be spent on payroll costs to 60% (instead of 75%) of the forgiveness.


  • Importantly, the legislative language creates a "cliff" that disallows all forgiveness if the 60% payroll threshold is not met. The prior 75% version allowed a proportional reduction in forgiveness when payroll costs came in under the threshold. The cliff is widely understood to be an error that does not reflect the intent of Congress. Members of both houses approved the bill with the understanding that a technical correction to restore a partial reduction in forgiveness would be introduced in short order.


  • Extends the loan term on the remaining balance after forgiveness from two to five years. The interest rate remains at 1%.


  • Allows businesses that take out a PPP loan full access to the payroll tax deferral enacted in response to the crisis. The CARES Act disallowed this relief for taxpayers upon receiving PPP loan forgiveness.


  • Extends the rehiring and wage restoration deadline to December 31, 2020 (currently June 30, 2020), to offset the effect of enhanced unemployment insurance.


  • Allows an exemption to the loan forgiveness reduction based on reduced employee headcount when a borrower is unable to rehire an employee or a similarly qualified employee by December 31.


The loan forgiveness application form issued by the Small Business Administration last month is expected to be updated to reflect the new changes. The application should be submitted to the lending bank along with any documentation or other information the bank requires.


LM Cohen and Company will monitor the status of any relevant legislation and advise you of developments. During this crisis, your LMC professional is available if you have questions related to the latest updates on this topic. All our prior Alerts are available on the Updates page of our website.


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