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Gianelli Nielsen News Blog

Tuesday, June 9, 2020

The Paycheck Protection Program Flexibility Act

Last week the President signed into law the Paycheck Protection Program Flexibility Act (PPPFA) to address many concerns expressed about the social injustice of the PPP program itself in that it favored larger businesses with strong banking relationships and more importantly, by requiring businesses to spend 75% of the loan on payroll, it basically turned businesses, who were completely shut down because of the COVID pandemic into unemployment offices, paying businesses to keep their workers at home and not work. Often that made little sense, because the workers were doing as well or even better collecting unemployment benefits.

The PPFA dropped the percentage that had to be paid to payroll expenses to 60% thus increases funds available for other expenses (rent, mortgages, utilities, interest on loans) from 25% to 40%.

The PPFA also extended the time period to use the funds from 8 to 24 weeks. This gives businesses more flexibility to keep the money in reserve until it is needed at such time as their businesses reopen.

The PPFA also pushed back the June 30 deadline to rehire workers to December 31, 2020, and a business can still receive forgiveness if it is not able to rehire the same number of employees who were employed on or before February 15, 2020 if it is unable to rehire an individual who was an employee on or before February 15, 2020, can demonstrate an inability to hire similarly qualified employees by the December 31, 2020 date or is able to demonstrate an inability to return to the same level of business activity as such business was operating prior to February 15, 2020.

Once again, documentation will be critical to qualifying for loan forgiveness in the event of an SBA audit.

And there is still the question of liquidity.  It is an open question whether the SBA may determine the borrower was ineligible for the PPP loan if the borrower had other means to stay afloat, including lines of credit. While borrowers no longer need to worry about criminal penalties if such a determination is made, except in the case of fraud, they could be required to repay the loan in full. The answer to this and other open questions may come from the SBA in the days ahead.

~ Mike and Dave Gianelli


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