By Daniel M. Epstein
Executive Vice President, Chief Credit Officer, Mission Valley Bank
In June, the Paycheck Protection Program (PPP) Flexibility Act was signed into legislation, reforming the forgiveness piece of the SBA funding program in the CARES Act. The changes are outlined below. It is expected that the SBA will soon publish formal guidance.
Covered period extended
Extends the covered period during which the loan may be used for forgivable expenses from eight weeks following loan disbursement to 24 weeks from loan disbursement or Dec. 31, whichever is earlier. Borrowers who received loans before June 5 may elect to continue using the eight-week covered period.
Threshold lowered
Lowers the amount that must be spent on payroll costs from 75% to 60%. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, they will continue to be eligible for partial loan forgiveness.
Employment status
Extends to Dec. 31, the period that employers may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a PPP loan. However, the forgivable amount will be determined without regard to a reduction in the number of employees (compared to Feb. 15, 2020) if the recipient is (1) unable to rehire former employees and unable to hire similarly qualified employees by Dec. 31, or (2) unable by Dec. 31 to return to the same level of business activity that existed before Feb. 15, 2020, due to compliance with federal requirements or guidance related to COVID-19.
Payment deferral
Replaces the six-month deferral of payments due under PPP loans with deferral until the date SBA pays the lender the amount of loan forgiveness. If a borrower fails to apply for loan forgiveness within 10 months after the last day of the covered period for forgiveness, the borrower must begin to make payments of principal, interest, and fees on its PPP loan.
Loan maturity
Establishes a minimum maturity of five years for new PPP loans made on or after June 5. Lenders and borrowers may mutually agree to modify the two-year maturity terms of prior-disbursed PPP loans.
Payroll tax deferment
Eliminates a provision that makes PPP loan recipients who have PPP debt forgiven ineligible to defer payroll tax payments.
Mission Valley Bank is a locally owned, full service community business bank headquartered in Sun Valley, California with a business banking office in Santa Clarita. Daniel M. Epstein can be reached at (818) 394-2300. For more information visit www.MissionValleyBank.com. 
