On Friday, June 5th, the Paycheck Protection Program Flexibility Act was signed into law modifying terms within the Paycheck Protection Program, which was established by the Coronavirus Aid, Relief and Economic Security (CARES) Act in response to COVID-19. The key changes, noted below, provide more flexibility to borrowers in order to maximize their forgiveness amount.
Loan Maturity
The PPPFA establishes that for new PPP loans that have a remaining loan balance after a portion is forgiven by the SBA, the minimum maturity on these loans must be 5 years. For legacy PPP loans made prior to the PPPFA, borrowers and lenders must agree to modify the maturity; the borrower does not have the sole discretion to make this modification.
8 week to 24 week period
The PPPFA extends the “covered period”, which is the period borrowers are allowed to seek loan forgiveness, from 8 weeks to 24 weeks or December 31, 2020 (whichever occurs first). Borrowers who have received a PPP loan before PPPFA was signed into law will also have the option to extend their covered period to 24 weeks.
Importantly, the shift in covered period from 8 weeks to 24 weeks substantially moves back the expected timing of forgiveness payments from the SBA. When one combines both this provision and the provision related to interest deferral, the cash flow events now seem to point to Q1 or Q2 of 2021 fee recognition of forgiven amount.
