Paycheck Protection Program Flexibility Act of 2020 Passes in the House

Today the House passed the Paycheck Protection Program Flexibility Act of 2020. The Bill passed the House 417-1. While the official text of the Bill still has not been posted to the Congress.gov website, the following is a summary of the Bill as we understand it:

1. The minimum loan maturity would be 5 years and the maximum 10 years. Loans are currently set at 2 year maturities. Borrowers and lenders can mutually agree to modify the maturity of existing loans.
2. The Covered period for applying for loans would be extended to December 31, 2020. Currently, the covered period for applying for loans ends June 30, 2020.
3. The 8-week covered period for spending loan funds would be extended to 24 weeks from the date loans are funded or December 31, 2020, whichever comes first.
4. The safe-harbor or rehire provisions would be extended to December 31, 2020. They are currently June 30, 2020.
5. The Treasury added several exemptions for the FTE provisions for employees that terminated their employment for various reasons or reduced their hours. The Bill amends the law and adds the following additional exemptions to the FTE requirements:
   1. The borrower is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
   2. Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
   3. Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.
6. The 75% rule is modified to indicate that 60% of the forgivable amount of a loan must be for payroll purposes.
7. There is an exception allowing borrowers that received their loans prior to this Bill to elect to retain their original 8-week covered period.
8. The deferral period for principal, interest or fees would be extended to the date the forgiven amount is determined.
9. The date a borrower must apply for forgiveness is currently not defined. The Bill would require application for forgiveness within 10 months after the last day of the covered period.
10. Lastly, the Bill restores eligibility of a borrower to get employer payroll tax deferral regardless of their PPP Loan forgiveness.

Unfortunately, what’s not included in the House version of the Bill is correction of the “Tax-Free” treatment of the PPP Loans. As we previously indicated, this could take more time and happen closer to the end of the year if previous tax legislation is any indication.

There is no indication for when the Senate will vote on this bill. Hopefully, soon so the President can sign it into law and borrowers whose covered periods are about to expire can make decisions based on these provisions.

by Barton Haag, CPA