Legal Blog

Small Business Act and Cares Act Amended to Provide PPP Loan Relief

The Paycheck Protection Program Flexibility Act of 2020 (Public Law 116–139) (the “PPPFA”), signed into law on June 5, 2020, has granted much-needed relief for employers and lenders struggling with unintended payment difficulties created by uncertainty in administering loans under the Paycheck Protection Program and Healthcare Enhancement Act (the “PPP Act”).

The PPPFA provides relief to employers relating to repayment of PPP loans in the following ways:

  1. It extends the covered period for spending loan proceeds on allowable expenses from 8 weeks after the first loan disbursement to the earlier of 24 weeks after the first loan disbursement or December 31, 2020. Employers can, however, elect to keep the original 8-week period.
  2. The limits on the percentage of loan proceeds that can be used for payroll expenses and non-payroll expenses and still have the loan qualify for loan forgiveness are changed from a minimum of 75% for payroll expenses and maximum of 25% for non-payroll expenses to 60% and 40%, respectively. Note, however, that unlike the original Act, if at least 60% of the loan proceeds are not used for payroll expenses, then none of the loan is forgivable.
  3. The June 30 “safe-harbor” date to reinstate salary or wages of employees and/or to rehire full-time equivalent employees, to avoid the reduction in the amount of a PPP loan that can be forgiven, is extended from June 30, 2020, to December 31, 2020. As was the case with the original PPP Act, there must still be some reduction between February 15, 2020,  and April 26, 2020, in salary and wages or number of employees in order to qualify for the “safe-harbor”.
  4. The PPPFA provides that a reduction in the salary or wages of employees or the number of full-time equivalent employees will not reduce the amount of the loan that can be forgiven if the employer is able to document that it is (a) unable to rehire or replace employees with similarly qualified employees or (b) unable to return to the pre-February 15 levels of business activity because of compliance with COVID-19 safety requirements.
  5. The date by which loan repayment (to the extent not forgiven) may be delayed is extended from 6 months from loan origination to the date the lender receives repayment of the forgiven amount of the loan from the Small Business Administration.  If the employer does not apply for loan forgiveness, repayment begins 10 months following the date the covered period ends.
  6. The minimum PPP loan maturity date is extended from 2 to 5 years for loans originated after the enactment of the PPPFA. The new Act also states that nothing in the PPPFA, CARES Act, or the PPP Act shall be construed to prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan to conform with these new requirements. Flexibility is provided to extend the minimum term for existing loans to 5 years.

The PPPFA also extends an important tax benefit to employers to assist with cash flow during this period of reduced business. Section 2302 of the CARES Act permits employers to forgo timely payment of the employer portions of Social Security and Railroad Retirement Tax Act taxes, that would otherwise be due quarterly from March 27 through December 31, 2020, without penalty or interest charges unless the employer has received forgiveness of a PPP loan. Eligible employers will be required to pay 50% of the deferred amount by December 31, 2021, and the remainder by December 31, 2022.  The PPPFA removes the forgiveness exception, meaning that the ability to defer payment of these taxes now extends to employers whose PPP loan is forgiven.

The PPPFA is unlikely to be the final PPP loan guidance, but at least it provides essential relief.


C. Thomas (“Tom”) Hicks III has more than 35 years business law practice experience in Northern Virginia. Mr. Hicks represents business clients in all their legal needs, working with the management team as outside general counsel, and otherwise coordinating the company’s general legal needs. Mr. Hicks assists the organizers with choice of business entity and organization, initial and private equity financing and debt financing. He advises the management team regarding corporate governance, executive employment and compensation matters, contract matters, business acquisitions, equity and asset sales and merger, and business breakups and dissolutions of business entities, among other legal areas.  He also advises business executives and companies regarding stock and other equity benefit plans, and wealth planning and asset protection.  Mr. Hicks has advised commercial real estate developers in all legal aspects of their business.






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