Paycheck Protection Program Flexibility Act is Enacted

Today, Pres. Trump signed into law much needed revisions related to the popular PPP relief program. It is no doubt that the COVID-19 shutdown has been far greater and longer lasting than expected. These revisions, while still sorting out the actual implementation, should provided added relief for small business borrowers who secured PPP loans.

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Paycheck Protection Program Flexibility Act is Enacted
By: D. Keith Dunnagan, Esq.

Previously on March 27, the CARES Act was enacted. As part of that legislation the immensely popular Paycheck Protection Program (“PPP”) was created and celebrated by many small business owners who were struggling because of the COVID-19 related shutdowns. A central piece of the legislation was the loan forgiveness component of the PPP loan. On March 30 we put out an initial guidance which can be found here. The funds initially allocated for the program were depleted in less than 2 weeks and a second round of funding was allocated at the end of April. Subsequently, the SBA continued to issue new guidance as the rules were constantly changing as the program developed. Finally, on May 15 the SBA rolled out its initial loan forgiveness application. Again, we put out a guidance on May 18, 2020 that addressed these issues. In an effort to resolve many of the unintended consequences of PPP under the CARES Act on June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act.


Initially the PPP only allowed debt forgiveness based upon 8 weeks of covered costs and required that a minimum of 75% of the proceeds be used for payroll costs to obtain full forgiveness. When the CARES Act was passed, the 8-week covered period seemed reasonable, or no one expected the economy to be shutdown for nearly 3 months. It was expected that these shutdowns would last from 2-6 weeks and then people would begin to make their way back to work. Unfortunately, that did not happen. The economy is still not fully open and what became readily apparent was that businesses were getting the loans, but unable to use the funds because they were unable to return to work. This creates potentially significant problems for small business owners faced with obtaining necessary loans to keep employees as they re-open but who are unable to qualify for the loan forgiveness because they were shutdown during the 8-week covered period.

The PPPFA provides much needed relief for small businesses by modifying the legal requirements of the previous language creating the PPP. Chief among these revisions is the extension of the loan forgiveness period from 8 weeks to up to 24 weeks, but to a date no later than December 31, 2020. This will give businesses that obtained the PPP loans or small businesses that seek the PPP loan while still funded additional time to use the proceeds for employee retention and still qualify for the loan forgiveness intended under the program. The PPPFA does allow for a borrower who received funds prior to the enactment of the PPPFA to elect to remain on the 8-week forgiveness plan if they so choose. That will be a case by case basis and each individual business must make that own determination. It remains to be seen what further developments may arise related to the forgiveness program.


Another component that was concerning under the previously unmodified statutory language was the rehire or retention of employees. Under the initial CARES Act, the employer was required to restore employment to pre-COVID-19 levels by no later than June 30, 2020. What employers quickly found is that some employees were not willing to return to work either (i) out of concern for safety related to COVID-19; or (ii) because in some situations many employees were making more money on unemployment as a result of the federal unemployment stimulus of $600 per week on top of the state benefits. Simply put, it was economically beneficial to remain unemployed.

Again, the PPPFA addressed this employee retention concern by modifying the CARES Act provisions. Under the PPPFA the employer can still qualify for the full forgiveness without concern for proportional reduction in forgiveness amounts if the employer is able to in “good-faith” document (i) an inability to rehire individuals who were employees and the inability hire similarly qualified individuals for unfilled positions before December 31, 2020; or (ii) an inability to return to the same staffing level prior to February 15, 2020, because of compliance with CDC, OSHA or HHS guidance and standards related to social distancing, sanitary or safety protocols in place between March 1, 2020 and December 31, 2020. One thing employees must be aware of is pursuant to prior guidance issued by the SBA, an employee’s refusal to return to work may jeopardize future unemployment benefits as employers may be required by state law to report the refusal to work to local agencies. In order for an employer to qualify, they will have to issue a written offer to rehire and document the refusal.


Additionally, many businesses were concerned about the ability to use up to 75% of the proceeds for payroll costs. As a part of the PPPFA the allocation changed and now a business owner must us at least 60% of the proceeds on allowed payroll costs. In making this revision, the PPPFA requires that to be eligible for loan forgiveness, a minimum of 60% of the proceeds must be used for the approved payroll costs. If the threshold is not met, then the business will not be eligible for any loan forgiveness.


The payment deferral window was also extended under the PPPFA. Under the language of the previous version of the statute, the loan deferral was for a period of 6 months. This initially seemed reasonable in light of an 8-week covered period and then the following loan forgiveness review period. What we have learned since the initial passage is that the loan forgiveness period could take up to 5 months to complete. Coupled with a now 24-week period to use the funds, a borrower could have been faced with having to begin repayment prior to the determination of the loan forgiveness amount. Under the PPPFA the deferral period was extended to the time in which the forgiveness determination is made. However, if an applicant fails to apply for loan forgiveness within 10 months of the last day of their covered period, then the borrower must begin to repay principal and interest. The key takeaway here is that the deferral is tied to both timing of the forgiveness application and determination.


Under Sec. 2302(a)(3) of the CARES Act, businesses that received a PPP loan were not eligible for deferral of the payment of payroll taxes. Under this provision, businesses could defer payment of certain payroll taxes, up to 50% of the payroll tax to Dec. 31, 2021 and the remaining 50% due Dec. 31, 2022. With the PPPFA removing this exemption, PPP borrowers will now be able to qualify for the same deferrals.

This is a considerable positive step for the small business owners as they should largely be able to qualify for significant portion if not 100% of the loan forgiveness on the borrowed sums. However, we must be cautious as we move forward. As with the initial roll out of the PPP platform, expect new and changing guidance from the SBA related to these changes. But this step is a positive step for small businesses that are still trying to recover and re-open from the prolonged interruptions to their business.

The information contained in this article is for informational purposes only and not to be construed as legal advice. If you have questions, you should seek competent legal representation to assist you.


The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in probate, business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at Our flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.