Paycheck Protection Program Flexibility Act of 2020 Extends and Modifies Key Loan Forgiveness Provisions

By: Kyle D. Kring and Kerri N. Polizzi

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), signed March 27, 2020, established the Paycheck Protection Program ("PPP") to provide federally-backed, partially-forgivable loans administered by the U.S. Small Business Administration ("SBA") to aid employers who maintain their payroll during the coronavirus pandemic. 

As of June 3, 2020, both houses of Congress passed the Payroll Protection Program Flexibility Act of 2020 (the "Flexibility Act"), which extends and modifies key PPP loan forgiveness provisions and is expected to allow many more borrowers to achieve complete forgiveness for their loans. The Flexibility Act was signed into law by the President on June 5, 2020.

While many of the changes will be most helpful those to who were unable to maximize their forgiveness under existing law, a number of changes can benefit all borrowers. The Flexibility Act's key modifications are summarized below:

  • Extends the maturity date for repayment of any unforgiven funds on a PPP loan issued after the enactment of the Flexibility Act from 2 years to 5 years;
  • Extends the loan coverage period for all PPP loans from June 30, 2020 to December 31, 2020;
  • Extends the forgiveness period for all PPP loans from 8 weeks following loan origination to the earlier of the following:
    • 24 weeks following loan origination; or
    • December 31, 20201;
  • Creates an Employee Availability Exemption that allows the borrower of any PPP loan to avoid reduction in loan forgiveness based on a reduction in the borrower's full-time equivalent employees if the borrower can show in good faith either of the following:
    • The borrower was unable to rehire individuals it employed on February 15, 2020 and unable to rehire similarly qualified individuals to fill those positions by December 31, 2020; or
    • The borrower was unable to return to the same level of business activity at which it was operating before February 15, 2020 due to compliance with COVID-19 related sanitation, social distancing, or other worker and/or customer safety requirements or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) from March 1, 2020 to December 31, 2020;
  • Extends the safe harbor period to cure reductions in full-time equivalents and in employee salary/wages from June 30, 2020 to December 31, 2020;
  • Reduces the amount of any PPP loan which must be spent on payroll costs from 75% to 60%;
  • Extends the payment deferral period for all PPP loans from 6 months to the date the forgiveness amount is remitted to the lender2;
  • Allows borrowers who receive loan forgiveness to take advantage of the provisions for the deferral of employer payroll tax deposits and payments otherwise due from March 27, 2020 through December 31, 2020.

Kring & Chung, LLP is continuing to monitor and work with clients to respond to federal, state, and local government responses to the evolving COVID-19 pandemic. We strongly encourage those considering applying for loan forgiveness mentioned in this summary to consult with their employment and business legal counsel, financial advisors, and tax specialists.

Kyle D. Kring is a Managing Partner of Kring & Chung, LLP. He can be reached at (949) 261-7700 or kkring@kringandchung.com. Kerri N. Polizzi is an Associate of Kring & Chung, LLP. She can be reached at (949) 261-7700 or kpolizzi@kringandchung.com.

[Disclaimer: Please note that during this time of crisis, the updates, advisories and regulations that we receive from the promulgating agency often contain ambiguities and/or are often amended, modified or updated. The opinions expressed herein are based on our reasonable interpretation of the issuing agency's publication at the time the opinion is expressed and is therefore subject to change based on further developments. The effect of the opinions expressed may be different based on your particular circumstances, and it is recommended that you not rely upon these general opinions prior to obtaining a consultation with your legal and/or financial advisors.]


1 However, a borrower that received a PPP loan before the date the Flexibility Act was enacted may still elect for the forgiveness period to end of the date 8 weeks after loan origination.

2 If a borrower does not apply for forgiveness within 10 months of the end of the loan coverage period, that borrower's deferral period ends 10 months after the coverage period.

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