PPP Flexibility Act Passes; Fundamentally Changes Forgiveness Rules

By: Matthew Mitchell and Scott Bleier

MLM Headshot Photo 2019 (M1341570xB1386) M0846500








On June 3, 2020, the Senate passed, by unanimous consent, the Payroll Protection Program Flexibility Act (the “Act”), which eases certain forgiveness requirements to the favor of PPP loan recipients.  Specifically:

  • Forgiveness Period Extended: The Act extends the Forgiveness Period of the PPP loan from 8 weeks to the earlier of 24 weeks or December 31, 2020.
  • The “25% Rule” Relaxed: The Act permits loan recipients to allocate up to 40% of loan proceeds to Qualified Non-Payroll Costs, as opposed to the 25% limit imposed by prior Treasury Department regulations.
  • The Safe Harbor Date Extended: The Act exempts a loan recipient from the Forgiveness Reduction Rules if the loan recipient restores previously reduced wages and employee headcount levels by December 31, 2020.
  • Additional “Safe Harbors” Established: The Act provides loan recipients with additional safe harbors from the Forgiveness Reduction Rules.

In addition to the changes to the forgiveness elements of the PPP, the Act also provides for:

  • An extension of the Payroll Deferral Program: The Act permits PPP loan recipients to defer FICA costs up to December 31, 2020.
  • PPP Loan Term Extended: The Act extends the repayment term of any portions of PPP loan proceeds that are not forgiven from 2 years to 5 years.
  • Repayment Commencement Date Extended: The Act eliminates the six-month deferral of payments due under PPP loans, and replaces it with deferral until the date on which the amount of loan forgiveness is remitted to the lender. If a loan recipient fails to apply for loan forgiveness within 10 months after the last day of the covered period for PPP loan forgiveness, the loan recipient must begin to make payments of principal, interest, and fees on its PPP loan.

The Act has already been approved by the House of Representatives, and the President is expected to sign the Act into law in the coming days.

Details can be found in our COVID-19 Alert.