Paycheck Protection Program Flexibility Act of 2020

Covid-19 Relief | Jun 5, 2020
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Updated on 06/17/2020 to make note of the U.S. Small Business Administration and Department of the Treasury revising the loan forgiveness application and introducing a new EZ version. You can read about this update here.


The Paycheck Protection Program Flexibility Act of 2020 was signed into law on Friday, June 5, 2020. This act changes several parts of the Paycheck Protection Program (PPP). Below is a summary of some of the changes that this law introduces to PPP loans.

Loan Forgiveness

This law extends the covered period from 8-weeks to 24-weeks after the loan is disbursed or December 31, 2020.

Initially, the Small Business Administration (SBA) stated that 75% of the loan must be used for payroll expenses while 25% could be used for non-payroll costs. This law changes that to 60% payroll costs and 40% non-payroll costs.

The original law provided that the forgiveness amount could be reduced based on a borrower employing fewer FTEs or paying lower wages during the covered period. There was an exception to that reduction so long as the borrower restored FTEs and wages on or before June 30, 2020. That deadline is extended to December 31, 2020.

There are now several exceptions to the borrower's requirement that they restore their FTEs. All exceptions must be documented. The exceptions include:

  • An inability to rehire employees or hire similarly qualified individuals.
  • A business is unable to return to the same level of activity due to federal guidance between March 1, 2020 and December 31, 2020 regarding worker or customer safety requirements related to COVID-19.


Forgiveness Application

There are now two different loan forgiveness applications – the Full Forgiveness Application and a new EZ Forgiveness Application.

The EZ version applies to borrowers that:

  • Are self-employed and have no employees; OR
  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

Regardless of what forgiveness application is used, borrowers have the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or an extended 24-week covered period.


Loan Repayment

If a PPP loan is not entirely forgiven, the borrower will have to repay the balance. The law extends the repayment term to a minimum of five years and a maximum maturity of ten years.

The change to the repayment term of the PPP loan only applies to PPP loans made after the Paycheck Protection Program Flexibility Act is enacted. However, lenders and borrows may mutually agree to extend the term of a pre-existing PPP loan to the new five-year term.

This law makes the payment deferral period to the date which a loan forgiveness determination is made and remitted to the lender. If a borrower does not apply for forgiveness within 10 months of the covered period, payments on the loan may start.


Tax Deferral

Under the initial act, employers who did not receive PPP loan forgiveness could defer payment of applicable employment taxes due between enactment and January 1, 2021; 50% of the taxes would be due on December 31, 2021 with the balance due on December 31, 2022.

This was changed to permit borrowers regardless of whether they received forgiveness to utilize this tax deferral provision as well.