PPP Flexibility Act brings (mostly) welcome changes to PPP loans

On June 5, 2020, President Donald Trump signed the Paycheck Protection Program (PPP) Flexibility Act, which amends key provisions of the emergency relief loan fund. The PPP was originally established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The amended program will give borrowers important flexibility in their use of the loan proceeds, timing requirements, and the ultimate forgiveness of their loan.

Summary of key changes

Loan maturity date. To the extent a borrower's loan isn't fully forgiven, the Flexibility Act extends the repayment term from two to five years at 1% per annum. The revision applies only to PPP loans made on or after June 5, when the Act became law. It doesn't prohibit lenders and borrowers from amending the maturity date for preexisting PPP loans, but it also doesn't require them to do so.

Covered loan period. The Flexibility Act extends the time period during which a borrower can use PPP loan proceeds and still qualify for loan forgiveness from eight weeks (as originally required under the CARES Act) to the earlier of 24 weeks after origination or December 31, 2020. The clock still starts upon receipt of the PPP loan, but borrowers have the flexibility to conserve their loan proceeds until they are able to reopen and/or employees are actually able to return to work.

While changing the time period will likely help most businesses that haven't yet been able to reopen or fully restaff, many remain unable to open or resume operations at full capacity. In addition, many don't yet know whether or when they can do so.