New Modifications to the Payroll Protection Program

Employers who received emergency federal loans designed to prevent layoffs during the Covid-19 pandemic now have more time to rehire workers and still qualify for loan forgiveness.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law March 27, 2020,   provides many paths to relief for small businesses, both for non-profit and for profit alike. The Paycheck Protection Program (“PPP”) provides funding for special emergency loans (emergency SBA 7(a) loans) of up to $10 million for eligible nonprofits and small businesses, permitting them to cover various costs. Some portions of the PPP were recently modified by the Paycheck Protection Program Act Flexibility Act (“PPPFA”) of 2020 signed into law on June 5, 2020, by President Trump.

The PPP provision provides that the loans be forgiven in whole or in part under certain circumstances. The funds from these loans can be used to make payroll and associated costs, group health insurance premiums, facilities costs, mortgage interest payments, rent, utilities, and debt obligations. The borrower is not required to show the business is unable to obtain credit elsewhere. Additionally, neither a personal guarantee nor collateral is required to obtain the emergency loan.

The PPP provision is available to entities that existed on March 1, 2020 and had paid employees as well as charitable nonprofit organizations with 500 or fewer employees. Employers that maintain employment between February 15, 2020 and June 30, 2020 or rehire employees by June 30, 2020 would be eligible to have their loans forgiven, essentially turning the loan into a grant. However, the PPPFA pushed back the date by which employers had to rehire their employees from June 30, 2020 to December 31, 2020 to be eligible to have their loans forgiven. The PPPFA also extends the repayment period for the loans that are not forgiven from two years to five years. That means that a small business who received a loan has five years to pay it back ta 1% interest.

The PPP Employee Retention Payroll Tax Credit provision creates a refundable payroll tax credit of up to 50% of the qualified wages for each employee on the payroll when certain conditions are met. The entity had to be an ongoing business at the beginning of 2020 and realized a decrease in revenue of more than 50 % in the first quarter of 2020 compared to the first quarter of 2019. Notably, employers receiving emergency SBA 7(a) loans are not eligible for these credits.

Further, the PPPFA allows for borrowers seeking forgiveness of their loans to defer the payment of 2020 employment taxes. This deferral allows these borrowers to pay 50% of this employment tax by December 31, 2021 and the remaining 50% by December 31, 2020.

Under the PPP, small businesses were originally required to spend the money they received within eight weeks. They were also required to spend at least 75% of the money they received on payroll. Now, under the PPPFA modifications, business have twenty-four weeks to spend that money and are only required to spend 60% of it on payroll.

All businesses are unique and should consult with legal counsel to determine which programs are most appropriate for the business’s specific circumstances.

The full text of the CARES Act is available here:

The full text of the PPPFA will be available at:

COVID-19 Task Force

Please reach out to us for specific legal advice or with any decision-making questions you may have. We are here to help.

Barry L. Loftus
Sarah N. Dimmich
Scotty N. Teal

Stuart & Branigin was founded in 1878 in Lafayette, Indiana. Our experienced and knowledgeable lawyers provide trusted counsel to local, regional and national clients. Our firm is composed of five practice groups, Corporate and Non-Profit, Litigation, Personal Injury, Private Client Services, and Transportation.