Paycheck Protection Program: Congress Responds to Business Concerns Regarding Forgiveness Period

On June 3, 2020, the Senate approved the Paycheck Protection Program Flexibility Act (the “Flexibility Act”), which purports, among other things, to extend the 8-week ‘covered period’, for the incurrence and payment of eligible forgivable costs and to reduce the 75% payroll costs requirement. Specifically, the Act:

1. Establishes a minimum maturity of five years (effective for loans made after the enactment of the Act, although lenders and borrowers may modify the maturity date accordingly);
2. Extends the forgiveness “covered period” from 8 weeks to the earlier of the period ending on the date that is 24 weeks after the date of origination or December 31, 2020;
3. Extends the safe harbor date for rehires (elimination of workforce and salary reductions) from June 30, 2020 to December 31, 2020;
4. Provides additional exemption for inability to rehire or replace employees;
5. Reduces the payroll costs requirement from 75% to 60% of the PPP loan amount; and
6. Extends the payment deferral period (for the payment of principal, interest, and fees), to 10 months after the last day of the forgiveness covered period.

And for those borrowers who prefer to continue applying the 8 week period, the Flexibility Act also permits a business who received funds prior to the date of enactment of this Act to continue to apply the 8-week period as its forgiveness covered period. Businesses who received funds early in the program and have expended most (or a substantial sum) may prefer to use the 8-week period if they cannot maintain the requisite FTE levels for the longer period.

For additional guidance on the PPP, please contact Young-Ji Park via email, or Keith A. Krauss, via email, or call 973.535.4441.