House Contemplates Revisions to the Paycheck Protection Program

This week, the United States House of Representatives is set to take action on a bipartisan bill coined the Paycheck Protection Program Flexibility Act of 2020 (the Flexibility Act). Introduced by Reps. Dean Phillips (D-MN) and Chip Roy (R-TX) on May 15, the law, if passed, would make certain substantive changes to the PPP, as described below.

Q. What changes to the PPP does the Flexibility Act look to make?

A. The Flexibility Act would amend provisions of the CARES Act pertaining to (1) the maturity period for PPP loans; (2) the PPP itself; and (3) the delay of payment of employer payroll taxes. These changes would operate as if they were included in the CARES Act in the first place.

Q. How would the passage of the Flexibility Act impact the maturity date for loans having a remaining balance after forgiveness?

A. To the extent a borrower has a remaining balance on its PPP loan after a portion of the indebtedness being forgiven, that balance will continue to be guaranteed by the Small Business Administration. In terms of the timing for repayment, the Flexibility Act states that a PPP loan would have a minimum maturity of five years and a maximum maturity of 10 years from the date the borrower applied for loan forgiveness.

Q. What changes would be made to the PPP itself if the Flexibility Act were signed into law?

A. Most significantly, the bill, if passed, would lengthen the time businesses may spend their PPP loan proceeds. Likewise, the legislation seeks to eliminate the requirement that 75 percent of a loan be spent on employee pay and benefits.

Beyond these two items, the Flexibility Act would change the PPP by amending (1) the definition of “covered period” within the meaning of the law, and (2) the limit on the amount of forgiveness available. The bill would do so with language that essentially says:

  • The term “covered period” (now eight weeks beginning on the date of loan origination) will be extended to the earlier of 24 weeks after loan origination or December 31, 2020
  • The date by which an employer has to bring back furloughed full-time employees and eliminate any reduction in compensation to those workers for purposes of loan forgiveness will be extended from June 30 to December 31, 2020. However, there will be no such obligation on the part of any given borrower that cannot (1) rehire an individual employee on or before February 15, 2020, or (2) hire similarly qualified employees on or before December 31, 2020

Q. How would enactment of the Flexibility Act affect employer payroll taxes?

A. Under the CARES Act, employers may defer payment of payroll taxes, though there is an exception for companies that have received PPP loans. As the law stands now, PPP recipients cannot delay payment of employer payroll taxes; however, the Flexibility Act would strike that exception, making deferment of these taxes available to all eligible employers.

Q. When will the House take a vote on the Flexibility Act?

A. The House was expected to vote on the bill today (Wednesday, May 27), but as of this writing, no vote has been taken. Michelman & Robinson will continue to track the progress of the legislation and report back with any important updates.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.