Senate Passes Paycheck Protection Program Flexibility Bill

June 4, 2020

There has been much criticism about the Paycheck Protection Program (PPP), which was intended to help small businesses devastated by the COVID-19 pandemic. Under the PPP, small businesses were able to obtain forgivable loans provided that the small business spent 75 percent of the loan on payroll, and 25 percent on non-payroll costs, like rent and utilities. The funds had to be spent within 8 weeks of the initial loan disbursement and only for approved costs.

The problem for many small businesses – for example, restaurants, bars, and hotels – is that they were unable to spend the money on eligible costs during the eight week period because they were closed down by government order. Many restaurants, bars, and hotels laid off their employees because there was no work those employees could do from home. Those small businesses could not meet the requirement that the money be spent within 8 weeks with 75 percent going towards payroll.  The small businesses most affected by the pandemic were the businesses that found it most difficult to benefit from PPP loans.

To remedy that problem, Congress passed the Paycheck Protection Program Flexibility Act of 2020, which changed the requirements so small businesses would have 24 weeks to spend the loans (up from 8 weeks) and would be required to use only 60 percent of the loan amount on payroll (down from 75 percent). The President is expected to sign the bill into law.

There are other important revisions to PPP that are beneficial to small businesses that have already received a PPP. For example, originally the PPP reduced the amount of loan forgiveness if the employer laid off employees. The Flexibility Act amends the PPP so that an employer does not face those reductions in loan forgiveness if the employer rehires all employees laid off between February 15, 2020 and April 26, 2020 no later than December 31, 2020. Current PPP loan recipients should consult with their lenders and other professional advisors relating to the changes to the PPP.

The PPP loan program is open until June 30, 2020, and there are still funds available. Businesses should apply as soon as possible because there are limited funds, and the lenders need time to process the loan applications.