On Friday, June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), amending several provisions of the CARES Act.  The PPP Flexibility Act provides borrowers with greater flexibility in how they spend PPP Loan proceeds and how such loans will be forgiven.

Extends Time to Spend PPP Loan Proceeds

The original CARES Act provided that a borrower must spend its PPP Loan proceeds within an eight-week covered period following the PPP Loan disbursement date. The PPP Flexibility Act extends the PPP Loan covered period from eight (8) weeks to twenty-four (24) weeks (or until Dec. 31, 2020, whichever is earlier). The PPP Flexibility Act also allows borrowers who received their loans before enactment of the PPP Flexibility Act to elect an eight-week covered period if they wish.   All new PPP Loans after June 5, 2020 will have the benefit of the 24-week covered period. The PPP Flexibility Act ALSO allows borrowers up to ten (10) months from the date their covered period ends to apply for loan forgiveness.

Increases Flexibility on Use of PPP Loan Proceeds

After the CARES Act became law, the Small Business Administration (“SBA”) issued rules that required at least 75 percent (75%) of the PPP Loan proceeds to be used for payroll costs for the loan to be completely forgiven.  The PPP Flexibility Act lowered that minimum from seventy-five percent (75%) to sixty percent (60%).  That means borrowers may safely spend up to forty percent (40%) of their PPP Loan proceeds on non-payroll costs, such as rent, utilities and mortgage interest without affective the forgiveness of their PPP Loans.

Extends Time to Restore Reductions in FTEs or Salary

The CARES Act originally required that PPP borrowers maintain the same average full-time equivalent employees (“FTEs”) as they had prior to the Coronavirus pandemic and pay employees at least seventy-five percent (75%) of the salary or wages they received in the last fiscal quarter prior to the PPP Loan application. The CARES Act included a safe harbor if the PPP borrower restored employment or wages prior to June 30, 2020.  Borrowers now have until December 31, 2020 to restore any reduction in salary or FTEs that would have otherwise resulted in a reduction in the amount of loan forgiveness.  Furthermore, if a PPP borrower experiences a loss of FTEs between February 15, 2020 and December 31, 2020 that cannot be cured, the amount of loan forgiveness will not be reduced if the borrower can demonstrate that its inability to return to its pre-February 15th level of business activity was due to its compliance with federal requirements or guidelines established between March 21, 2020 and December 31, 2020 related to COVID-19, including standards set for sanitation, social distancing or worker or customer safety.

Extends Term of PPP Loan Repayment

The SBA’s rules initially set the maturity date of any portion of a PPP Loan that is not forgiven at two (2) years.  The PPP Flexibility Act increased the minimum term of a PPP Loan to five (5) years.  The PPP Flexibility Act allows existing PPP borrowers and lenders to mutually agree to modifications to the term of PPP loans that were already made at the two-year maturity term.

The CARES Act originally required that PPP lenders provide a deferment on payments of PPP principal, interest and fees for at least six (6) months and not more than one (1) year. The PPP Flexibility Act allows for the deferral of all payment of principal, interest and fees until the date on which the amount of the loan forgiven is remitted to the lender by the SBA.

Provides for Deferral of Social Security Taxes

A PPP Loan borrower may now defer all of its 2020 Social Security Tax obligations into 2021 and 2022 (split equally between each year).  Previously, the CARES Act had authorized a borrower to defer payment of its Social Security Tax obligations only until its PPP Loan was forgiven.


We anticipate that the SBA and US Treasury Department will issue additional regulations and FAQs concerning the PPP Flexibility Act.  The attorneys at Blalock Walters are following developments in the Paycheck Protection Program as well as developments in other responses of federal, state, and local governments to the Coronavirus pandemic.  If you have any questions about the effects of the Coronavirus on your business or about compliance with the various governmental responses to the virus, please contact us at 941.748.0100.