Recent PPP Developments: New Legislation Passed Enhancing Borrower Benefits Under PPP Loans


The Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”) was signed into law on June 5, 2020 (the “Enactment Date”). As summarized below, the PPP Flexibility Act makes certain Paycheck Protection Program (“PPP”) borrower-favorable amendments to the CARES Act, including, among others, expanding the loan forgiveness covered period and related changes. As discussed in our previous alert, certain of these amendments had been recommended to Congress and President Trump by restaurant industry leaders.

The PPP Flexibility Act makes the following PPP-related amendments to the CARES Act:

  • The PPP Flexibility Act provides a maturity of at least 5 years for any portion of a PPP loan not subject to forgiveness. Unlike most other provisions of the PPP Flexibility Act, the expansion of the term of PPP loans applies only to PPP loans made after the Enactment Date. The term for PPP loans made prior to the Enactment Date will remain 2 years (although lenders and borrowers may mutually agree to modify the maturity terms of any PPP loan made before the Enactment Date to conform with the amended minimum maturity term).
  • The PPP Flexibility Act extends the duration of the PPP to December 31, 2020. Previously, the program had been set to expire on June 30, 2020.
  • The PPP Flexibility Act extends the loan forgiveness covered period (i.e., the period during which PPP loan expenditures may be subject to forgiveness) to the earlier of (i) 24 weeks after the date of loan origination or (ii) December 31, 2020. Previously, only expenditures made within the first 8 weeks after origination were subject to forgiveness.[1] Given that the loan forgiveness covered period may not extend beyond December 31, 2020, any loan proceeds expended after 2020 would not qualify for loan forgiveness. Accordingly, if a borrower receives a PPP loan within 24 weeks prior to December 31, 2020, that borrower’s loan forgiveness covered period would expire on December 31, 2020.
  • The PPP Flexibility Act provides an exemption with respect to the headcount reduction formula under the CARES Act. Specifically, the CARES Act limits the amount of expenditures otherwise eligible for forgiveness based on a reduction in average monthly full-time equivalent (“FTE”) employee headcount during the loan forgiveness covered period when compared with average monthly FTE employee headcount during one of two prior periods selected by the borrower.[2] The PPP Flexibility Act, however, provides that such a reduction in the forgiveness amount will not apply if, and to the extent, a borrower satisfies the following conditions in good faith:

    • (A) the borrower is able to document (i) an inability to rehire individuals who were employees of the borrower on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
    • (B) the borrower is able to document an inability to return to the same level of business activity as the business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued between March 21, 2020 and December 31, 2020 by the Department of Health and Human Services, the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to standards for sanitation, social distancing, or any other worker or customer safety requirement associated with COVID-19.
  • The PPP Flexibility Act provides that up to 40% of PPP loan expenditures may be allocated to permitted non-payroll related expenditures. Previously, the CARES Act did not contain a provision allocating loan proceeds among the various permitted PPP loan expenditures, but interim final rules issued by the SBA mandated that at least 75% of PPP loan proceeds be allocated to payroll costs, with no more than 25% allocated to permitted non-payroll related expenditures.
  • The PPP Flexibility Act provides that all borrower payments in respect of PPP loans be deferred until the date on which the amount of loan forgiveness is remitted to the lender by the SBA.[3] Previously, SBA regulations specified that borrowers would be required to commence payments on the unforgiven portion of their PPP loans not subject to forgiveness at the end of a 6-month deferral period.

We expect that the amendments under the PPP Flexibility Act will necessitate additional changes to SBA regulations, application forms, the SBA’s Frequently Asked Questions (FAQs) and other guidance.

[1] Borrowers that received PPP loans before the Enactment Date may nevertheless elect to retain the 8-week forgiveness period.

[2] A description of the headcount reduction provisions of the PPP can be found in our previous alerts.

[3] The PPP Flexibility Act also provides, however, that: “If an eligible recipient fails to apply for forgiveness of a [PPP] loan within 10 months after the last day of the [loan forgiveness] covered period . . . , such eligible recipient shall make payments of principal, interest, and fees on such [PPP] loan beginning on the day that is not earlier than the date that is 10 months after the last day of such [loan forgiveness] covered period.’’