Paycheck Protection Program Flexibility Act

June 24, 2020

Dear Clients & Friends,

We hope that you are maintaining a positive attitude and are staying well during these crazy times. We consider ourselves fortunate to have been considered an essential business and allowed to stay open during these past months. Remaining open allowed us to assist our clients with their tax filing requirements and also take advantage of the many stimulus programs offered by the government and SBA.

You are receiving this letter because our records indicate that you have applied and/or have been approved for the Paycheck Protection Program loan. The Paycheck Protection Program (PPP) loan was designed to provide direct incentive for small businesses to keep their workers on payroll. The most appealing aspect of this loan is the forgiveness.

On June 3, President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA). The Flexibility Act is an enhancement to the CARES Act which contained the original 8-week loan forgiveness provisions. The PPPFA is designed to make it easier for borrowers to qualify for full, or almost full, forgiveness and triples the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness.

There are many enhancements in the PPPFA. PPP borrowers no longer have to use the loan funds in eight weeks, instead, they have 24 weeks to use the loan funds. This is a huge break for the PPP recipients who were fully or partially closed during the pandemic or those who have not been able to hire their staff back. Current PPP borrowers can choose to extend the 8-week period to 24 weeks, or they can use the original 8-week period. Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by December 31, 2020, a change from the previous deadline of June 30, 2020.

The PPPFA also includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The PPPFA adds new safe harbors that allow borrowers to document either: an inability to hire similarly qualified employees for unfilled positions or an inability to return to the same level of business activity as such business was operating at before February 15, 2020 due to COVID-19 related operating restrictions. The new safe harbors could prove beneficial to certain businesses that may not be able to operate on the same level before the end of this year due to COVID-19 limitations.

Another key provision of the PPPFA is a change to the threshold for the amount of PPP funds required to be spent on payroll costs to qualify for forgiveness from 75% to 60% of the loan amount. Also, new borrowers now have five years to repay the unforgiven portion of the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.

It is important to start preparing now for completion of your PPP loan forgiveness application. Keeping good payroll records, compiling receipts and statements for utility payments, rent, and mortgage interest, keeping employee and/or shareholder insurance statements, and recording pension contributions on behalf of employees and/or shareholders.

We are here to assist you with the preparation of the PPP loan forgiveness application and provide support during this process. Please call the office if you have any questions regarding the information contained in this letter.


Starkey & Company, PA