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What the Paycheck Protection Program Flexibility Act Means for Business Owners

June 19th, 2020 | Written by

The Paycheck Protection Program Flexibility Act (PPPFA), passed Friday, June 5th, has the goal of making it easier for PPP loan recipients to qualify for forgiveness. Here are the major changes:

Extended Covered Period

Prior to PPPFA, borrowers had to spend their loan funds within an 8-week Covered Period following the receipt of their funds. Now, borrowers have 24 weeks to spend their funds (or December 31, 2020, whichever is earlier). Borrowers who had their loan before PPPFA was enacted have the option to keep the original 8-week Covered Period or use the new 24-week period.

Borrowers also have the option to use an Alternative Covered Period. That means they can choose to start their Covered Period on the day they receive their PPP loan funds or on the first day of their regular pay period.

For example, if you receive your PPP loan funds on Friday, June 12th but the first day of your regular pay period is Monday, June 15th, you can choose to start your Covered Period on June 15th, rather than June 12th.

Lowered Payroll Cost Percentage Requirement

Prior to PPPFA, business owners had to spend 75% of loan funds on payroll costs. The PPPFA has lowered that percentage to 60%. This makes it significantly easier for borrowers to receive full loan forgiveness. This rule is retroactive and applies to all PPP loans.

If you spend less than 60% on payroll costs, your loan may still be forgivable, however, the forgiveness amount will be reduced and you will have to pay the remainder of your loan back to your lender.

Restoring Your Workforce

Borrowers can now use the new 24-week Covered Period to restore their full-time equivalent (FTE) workforce to pre-COVID-19 levels to obtain full forgiveness. The new deadline to achieve this is Dec. 31st vs the previous deadline of June 30th. Again, this is retroactive and applies to all PPP loans.

There are new exceptions to the workforce restoration requirements. Borrowers can exclude workers if…

  • Workers they previously let go (as of Feb. 15, 2020) turned down good-faith offers of re-employment
  • They are unable to find qualified employees to replace them
  • They are unable to restore operations to Feb. 15, 2020 levels due to COVID-19 restrictions
  • During the Covered Period, an employee was fired for a valid cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours

If FTEs are reduced and these exceptions are not met, the forgiveness amount will be reduced.

Lengthened Deferment Period

Prior to the PPPFA, borrowers could defer their PPP loan payments by 6 months after the end of their Covered Period. Now, PPPFA states that the deferment period will start on the day the SBA sends the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, the deferment period will end 10 months after the end of the borrower’s Covered Period. Interest will accumulate during the deferment period and this is retroactive and will apply to all PPP loans.

Extended Repayment Term for New PPP Loans

PPPFA has increased the repayment terms from two years to five years. This only applies to new PPP loans made after the PPPFA was enacted. If your loan originated prior to the Paycheck Protection Program Flexibility Act, you may still be able to take advantage of the longer repayment period if you and your SBA lender can come to a mutual agreement. The 1% interest rate has not been changed.

Payroll Tax Deferral

The CARES Act prohibited PPP borrowers that received loan forgiveness to also utilize the CARES Act’s payroll tax deferral. Now, PPPFA allows business to delay paying payroll taxes even if they received PPP loan forgiveness.

Payroll tax deferral is applicable to an employer’s option of Social Security wages paid from March 27 thru December 31st, 2020. Employers must deposit 50% by December 31st, 2021 and the remaining 50% by December 31st, 2022 or face penalties.

Missed our recent Paycheck Protection Program Updates Webinar?

Our recent Paycheck Protection Program webinar made a deep dive into these PPP program updates. It also includes a useful forgiveness calculation example. Head to our COVID-19 page and fill out the form on the right hand side to request a copy of the webinar recording. On this page, you will also find information about upcoming webinars, relevant articles and useful links regarding COVID-19.

We’re All In

Navigating the COVID-19 landscape can be tricky as a business owner. At Prosperity, we’re all in. We’re here to help you manage your PPP funds, help you with cash flow, and anything else during this unprecedented time. If you need us, you can leave us a note in the box below, email us at [email protected] or call us at (410) 363-7211.

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    This information is not intended to be used as the only bases for investment decisions, nor should it be constructed as advice designed to meet your particular needs. You are advised to seek the advice of your financial advisor prior to making any decision based on any specific information contained herein.
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