Updated PPP Loan Forgiveness Rules

* ALERT – The new deadline to apply for a Paycheck Protection Program Loan is August 8. President Trump signed a bill extending the deadline on July 4, 2020. Keep reading for recent changes to the PPP loan forgiveness rules. 


The Paycheck Protection Program became law when the CARES Act legislation passed in March. Critics argue that the PPP loan forgiveness rules in the CARES Act make it very difficult to achieve full loan forgiveness in today’s economic environment.  

To help more borrowers achieve full loan forgiveness, President Trump signed the Paycheck Protection Program Flexibility Act of 2020. Known as the FLEX Act, this law became effective on June 5, 2020.

There are 3 points of focus in the FLEX Act, which we address below. 

1. An increase in the minimum maturity of the PPP loan from 2 years to 5 years – a clarification of the PPP loan forgiveness guidelines 

The name of the game with PPP loans is loan forgiveness.  

If a borrower receives loan forgiveness on only a portion of the PPP loan, then the remaining balance must be repaid over no more than 10 years. The Small Business Administration (SBA), in its regulatory role, had placed a minimum maturity of 2 years.  Most PPP loans that have been issued have a maturity of 2 years.   

The FLEX Act changes the minimum maturity for PPP loans made on or after the date of enactment of the FLEX Act.  Subsequently, the new minimum maturity term is 5 years.  This change essentially encourages the lender and borrower of existing PPP loans to mutually agree on a loan maturity of at least 5 years. The FLEX Act changes the minimum maturity for PPP loans made on or after the date of enactment of the FLEX Act.  Subsequently, the new minimum maturity term is 5 years.  This change essentially encourages the lender and borrower of existing PPP loans to mutually agree on a loan maturity of at least 5 years. 

2.  Changes to the PPP loan forgiveness rules 

After the passage of the loan forgiveness programs in the CARES Act, achieving full forgiveness of the PPP loan has been complicated by current economic conditions. Many, if not most, PPP loan borrowers have experienced a business shut-down and local stay-at-home orders. As a result, businesses have found it difficult to spend on payroll costs. Businesses also face challenges maintaining the necessary count of employees. Many PPP loan borrowers expressed concerns. As a result, the FLEX Act has made the following improvements to the loan forgiveness rules found in the CARES Act: 

  1. Increase in covered period 
  2. The Covered Period is the period in which the PPP loan proceeds must be spent on qualifying payroll and other costs. The FLEX Act extended the Covered Period from 8 weeks to 24 weeks. As a result, the Covered Period now runs from the date of loan origination through the earlier of 24 weeks after such date or December 31, 2020. Note that the date of loan origination is the date the SBA funds the loan. A borrower with an existing SBA PPP loan may elect to keep the original 8-week Covered Period. In short, this a good PPP loan forgiveness strategy if the borrower met the requirements for full PPP loan forgiveness in that 8-week time frame. The borrower moves on through the SBA’s PPP loan forgiveness process that much earlier.
  3. Extension of deadline for rehiring employees 
  4. There is a specific change to the CARES Act concerning the deadline for rehiring employees.  Under the initial legislation, a borrower could rehire an individual by June 30, 2020. Rehiring by this date would cure a decrease in the Full-Time Equivalent (FTE) employee count. This restoration of headcount would protect against at least a portion of a possible reduction in the forgiveness amount under the forgiveness rules. As part of the changes with the FLEX Act, the rehiring deadline is now December 31, 2020.

  5. No hit to FTE count based on lack of employee availability 
  6. There is a new exception to the loan forgiveness rules on FTE counts. There is no longer a penalty (forgiveness reduction) for a proportional reduction in the number of FTEs if the borrower of an SBA PPP loan, in good faith, either:
    1. Is able to document:
      1. an inability to rehire individuals who were employees on February 15, 2020
      2. and an inability to hire similarly qualified employees for unfilled positions before December 31, 2020; or
    2. Is able to document an inability to return to the same level of business activity as before February 15, 2020, while complying with HHS, CDC, or OSHA requirements or guidelines for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
  7. Changes in the CARES Act’s required percentage of spending on payroll costs 
  8. The required percentage of eligible payroll spending for loan forgiveness decreased from 75% to 60%. Therefore, the reduction allows for a higher percentage of other allowable costs to be utilized for PPP loan forgiveness. 
  9. Increase in the deferral period for loan principal, interest and fees 
  10. The CARES Act allowed a deferral of principal, interest, and fees on PPP loans.  This deferral is for a period of 6 to 12 months. As part of the FLEX Act, the deferral is extended until the date loan forgiveness is determined. If a borrower fails to apply for forgiveness within 10 months after the end of the Covered Period, loan repayments will be required to commence at that time. 

3. PPP Loans and the Availability of the Delay of Payment of Employer Taxes 

The Cares Act includes loan forgiveness under the Paycheck Protection Program. It also includes the ability to defer the payment of the employer share of Social Security taxes. The CARES Act included a prohibition on utilizing both of these provisions. The FLEX Act removes that prohibition.     

Please see our blog post titled “What Do I Need to Know About Paycheck Protection Program (PPP) Loan Forgiveness?” for details on the previous rules under the CARES Act.  This post discusses reductions in the PPP loan forgiveness amount due to drops in payroll amounts and drops in the borrower’s FTE count. 

The SBA recently issued new rules for the Payroll Protection Program.  The new rules included a new set of loan forgiveness applications. Note that one of the new applications is a streamlined, simpler application, noted as an “EZ” application. SBA Form 3508EZ is used to submit the simplified application.  

COVID19 virus


The FLEX Act aims to make it far easier to achieve full forgiveness of the PPP loan. If your business did not face a PPP loan forgiveness issue before the FLEX Act, then you will probably be able to continue with your current forgiveness application. Otherwise, you could consider using the new SBA loan forgiveness rules and one of the new SBA Loan Forgiveness Applications. 

As an aside, note that many commentators suggest delaying payment of payroll tax amounts. One of the PPP requirements included a borrower certification indicating the need for the PPP loan to meet obligations. The step of NOT delaying payment of payroll taxes suggests that the PPP loan borrower did not have difficulty meeting business obligations. Paying payroll taxes on the normal timeframe could provide an opening for the SBA to unravel the PPP loan. Any employer FICA tax (or similar tax for the self-employed) incurred from March 27, 2020, through December 31, 2020, may be delayed. In this case, a total of 50% of the payment is due on December 31, 2021, and the remaining 50% of the payment is due on December 31, 2022. 

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Michael specializes in meeting the tax compliance, projection, and planning needs of businesses, entrepreneurs, and business owners. He is Tax Partner in PW Associates, a firm that provides CFO and outsourced tax and accounting services. Michael has regional and small CPA firm experience and ran a sole practitioner tax practice for over 25 years.

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This communication is provided by PW Associates, PLLC for educational and informational purposes only and is not intended, nor should it be construed as tax or legal advice.  The comments in this communication are based on our understanding of applicable rules and regulations as of June 5, 2020.  

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Useful Links 

PPP Loan Forgiveness Changes Coming Journal of accountancy

PPP Flexibility Act of 2020 – Congress

Paycheck Protection Program Flexibility Act Is Signed Into Law – Forbes

Trump signs new law relaxing PPP rules – Forbes

Enactment of the PPP Flexibility Act – SBA

Revised PPP Loan Forgiveness Application – SBA

Revisions to Loan Forgiveness Interim Final Rule – tresury.gov

PPP Loan Forgiveness Application Form 3508EZ – treasury.gov

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