By Jennifer Hart

Borrowers who are struggling with the rigidity of the Paycheck Protection Program’s forgiveness rules will soon see changes from new legislation that just passed the US Senate after passing the House last week. The Paycheck Protection Program Flexibility Act now heads to the President’s desk where it is expected to be signed into law.

The Act addresses three major concerns of borrowers:

  1. Extending the time period when they can use funds and have the loan be forgiven
  2. Reducing the 75% threshold that the Treasury Department and SBA rules have stated must be spent on payroll expenses
  3. creates additional exemptions from forgiveness reduction based on employee availability

The Act extends the period during which borrowers could obtain forgiveness for the loan from eight weeks to 24 weeks and would only require businesses to use 60% of proceeds on payroll expenses. This gives businesses, especially restaurants and retail operations, greater ability to use the loan funds on the other forgivable uses: rent, mortgage interest and utilities. It also created new statutory exceptions to the reduction in the forgivable amount of the loan due to an inability to hire workers back:

  • the borrower cannot rehire individuals who were employees as of Feb. 15, 2020 and cannot hire similarly qualified employees for unfilled positions on or before Dec. 31, 2020; or
  • the borrower cannot return to pre-coronavirus levels of business activity due to compliance with sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19 that is established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration through the end of the year. It is important to note that the legislation does not include state or local orders.

The Act also:

  • extends the date when employers need to rehire employees from June 30, 2020 to Dec. 31, 2020
  • defers payments on principal, interest and fees until a forgiveness determination is made
  • allows businesses who receive PPP loans to delay paying their payroll taxes, which the CARES Act specifically disallowed
  • extends the loan term from the SBA’s required two years to a minimum term of five years for new loans and allows lenders to renegotiate with current borrowers

The Act does not include a fix for the IRS’s notice issued on April 30 that expenses paid with loan proceeds are not deductible business expenses. A bill to address this issue has been introduced in the Senate but has not been acted on.

KJK will continue to provide updates on the PPP and will analyze the impacts of the Act on borrowers existing loans. If you have questions on the PPP loan program or on how the legislation may impact you, contact Jennifer Hart at or 216.736.7208, Cary Zimmerman at or 216.736.7275 or Demetrius Robinson at or 614.427.5749.