The U.S. House of Representatives passed a bill on May 28, 2020, to relax the terms and conditions for forgiveness of Paycheck Protection Program(PPP) loans, just before the eight-week covered periods for early borrowers are coming to an end. The Paycheck Protection Flexibility Act, H.R. 710, would increase the “covered period” for measuring qualifying expenses from eight to 24 weeks, change the ratio of covered payroll costs to covered non-payroll costs from 75%/25% to 60%/40%, and change the loan repayment period for the non-forgiven balance from two years to five years.

The U.S. Senate is separately considering its own bill, which seems to indicate there is consensus to elongate the covered period. However, the Senate version would change it from eight weeks to sixteen weeks, compared to the 24 weeks approved by the House.

Paycheck Protection Flexibility Act, H.R. 710

Other features of H.R. 710 include changing the outside date for restoring FTE headcount from June 30, 2020, to December 31, 2020, under the headcount reduction safe harbor exemption for loan forgiveness and providing relief on the same headcount reduction test if the borrower can demonstrate an inability to rehire employees who were employed on February 15, 2020, but terminated between February 15 and April 26, 2020; or if borrowers can document inability to return to the same level of business as it was experiencing before February 15, 2020, due to compliance with CDC, HHS, or OSHA guidance requirements after March 1, 2020.

PPP Loan Forgiveness

The changes to the PPP lending terms are in response to general acknowledgment that the eight-week covered period originally enacted last March is too short, and that uncertainty of potential borrowers about qualifying for loan forgiveness was inhibiting loan application usage during the second wave of PPP funding. Approximately $135 billion in PPP funds remained available for additional lending as of May 27. There is reason for optimism that some legislative relief will be enacted promptly, but it remains to be seen how the Senate’s consideration will influence the outcome.