Paycheck Protection Program Flexibility Act (PPPFA) Enhances Borrower Options
Congress has passed the Paycheck Protection Program Flexibility Act (“PPPFA”) which amends the CARES Act and the Small Business Act to modify certain provisions related to the forgiveness of loans under the Paycheck Protection Program (PPP). This program continues to evolve, however the changes noted below are sure to bring relief to borrowers.
- The eight-week “covered period” has been extended to twenty-four weeks. Borrowers who received their loans prior to the PPPFA will be able to elect the eight-week or twenty-four-week period when applying for forgiveness. With this change, many pharmacies that elect the twenty-four-week period should be able to use 100% of their loans for Payroll Costs, which should allow for maximum forgiveness.
- Prior to the PPPFA, 75% of the proceeds were to be used for Payroll Costs; this threshold has changed to 60%. Therefore, 60% of the loan proceeds must be spent on Payroll Costs to maximize forgiveness while the remaining 40% may be used for Nonpayroll Costs.
- If a borrower experienced a drop in employment levels or salary/hourly wages, they now have until 12/31/2020 rather than 6/30/2020 to rehire employees and/or return wages to pre-pandemic levels. Additionally, new options for Full-Time Equivalent (FTE) employee reductions are available. This again provides an increased opportunity to maximize the amount of forgiveness.
- Borrowers have more flexibility regarding amounts that must be paid back, including an extended deferral period before payments begin and a potential increase in the term from two years to five years.
- Additionally, the CARES Act allowed for businesses to defer payment of the 2020 employer portion of Social Security tax into 2021 and 2022. This deferral option was not available for those with PPP loans until after the loan had been forgiven. The PPPFA will now allow a borrower to begin deferral of this tax even if the loan is forgiven prior to 12/31/2020. We advise everyone to cautiously approach this change – a good rule of thumb with any payroll taxes; always pay and pay timely.
With fundamental changes such as these, questions arise, and planning remains critical; further guidance is expected from the SBA and Treasury. Stay tuned to Sykes & Company, P.A. as we continue to monitor the PPP and what it means for you and your pharmacy.
To read the full contents of the PPPFA, click here (H.R. 7010).
As always, feel free to send your questions to ASK SYKES to confer with a trusted pharmacy advisor.