Five Ways the Flexibility Act Improves the Paycheck Protection Program

The Paycheck Protection Program is a $650 billion loan program, introduced by the CARES Act , that offers small businesses eight weeks of cash-flow assistance through 100 percent federally guaranteed loans. The Paycheck Protection Program Flexibility Act of 2020 (PPPFA) was introduced by Representatives Dean Phillips (D-MN) and Chip Roy (R-TX) and passed by the House of Representatives on May 26^th.

On June 5^th, the Flexibility Act was signed into law by President Trump, two days after the Senate approved it by unanimous consent. The bill addresses concerns expressed by the small business community, emphasizing these five key points:

Amount allotted for payroll

Small business owners were originally ordered to spend 75% of the loan on payroll. Now, the PPPFA has changed that amount to 60%, after a 50/50 compromise was suggested by business groups. Other eligible expenses include rent, mortgage payments, utilities and interest on other loans. The loan still does not apply to funds for inventory, personal protection equipment or expenses related to remote working.

Time period for using funds

Business owners needed flexibility when it came to how much time they were given to spend the money. The PPFA extended the period from eight weeks to twenty-four weeks. Now, employers can allot some of the money for paying employees, after reopening. The best part is that businesses can still apply for complete loan forgiveness after the eight weeks, without having to wait until the end of the year.

Deadline to rehire workers

For salaries to count towards forgiveness, small businesses were told they had to rehire workers by June 30. Now, they have until the end of the year. This allows plenty of time to figure out whether they can reopen and at what capacity. It would be pointless to have to hire anyone if there is nothing for them to do.

Requirements for rehiring

Employers were originally required to maintain the same number of employees that they used to calculate the loan. Employers had until June 30^th. If an employee rejected the offer, the employer had to prove it in writing. This date is extended until the end of the year, with additional exceptions for a reduced head count.

Extension of repayment term

The repayment term for the loan under the PPP was two years. The new law not only eases repayment terms, but expands them to five years, at 1% interest. Once the SBA comes to a decision on forgiveness, payment is deferred for six months.

The Paycheck Protection Program was hopefully the first of several steps to protect our economy and our future. However, the ability to adjust and adapt has always been the strength of entrepreneurs and small business owners. The magnitude of these changes can be overwhelming, but together we will adjust, we will adapt and we will prosper.