House Passes Bill to Provide Flexibility on Loan Forgiveness Requirements for PPP Borrowers

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The House of Representatives overwhelmingly approved the Paycheck Protection Program Flexibility Act (H.R. 7010) on May 28, 2020. The bill passed with 417 members voting yes and just one dissenting vote. The Act works to amend the hugely popular Paycheck Protection Program (PPP), which was created under the CARES Act, making many of the changes that have troubled employer/borrowers, lenders and advisors.

The major elements of the bill include:

  • An extension of the eight-week (56-day) “covered” period in the original legislation to 24 weeks (168 days) or December 31, 2020, whichever is earlier
  • Movement of the date for rehiring employees that have been furloughed or laid off due to the economic implications of the pandemic to December 31, 2020, an extension of six months
  • A reduction of the requirement that 75% of the loan proceeds be utilized for payroll costs and no more than 25% of the loan proceeds be utilized for non-payroll costs – the bill proposes 60% for payroll costs and no more than 40% for non-payroll costs
  • An expansion of the “payback period” for that portion of the loan that is not forgiven to a minimum maturity of five years, up from the two-year term in the original bill
  • An extension of the original six-month deferral period to one year for the payments of the loan principal, interest and fees allocable to any portion of the loan that is not forgiven
  • A relief provision allowing for a determination of loan forgiveness without regard to a proportional reduction in the number of full-time equivalent employees (FTEs) if an eligible recipient (the employer/borrower that received the PPP loan) is able to document in good faith:
    • an inability to rehire individuals who were employees on February 15, 2020, and
    • an inability to hire similarly qualified employees for unfilled positions before December 31, 2020, or
    • an inability to return to operations at the level the business was at on February 15, 2020, due to compliance with governmental orders regarding required safety measures related to COVID-19 during the period March 1, 2020 and ending on December 31, 2020
  • A provision requiring that an application for loan forgiveness be made within 10 months of the last day of the covered period.
  • The elimination of the restriction included in the CARES Act that disallowed employers that were eligible recipients of a PPP loan, and that later had those loans forgiven, from taking advantage of the payroll tax deferral

These changes reflect a significant response to business leaders’ and employer/borrowers’ complaints and objections about the PPP loan forgiveness provisions. The proposed changes go a long way to ensuring that a substantial number of eligible recipients will receive the promised forgiveness.

A different, but relatively similar, bill (S.3833) is currently moving through the Senate. Senate Small Business and Entrepreneurship Committee Chairman Marco Rubio (R-FL) is supporting the alternative bill and made it clear that he does not back the House approach. However, there are similarities between the two pieces of legislation, and the White House also supports making changes to the PPP, so a compromise could emerge.

This PPP Flexibility Act reflects a very positive development for employer/borrowers under the program. Even with Senate objections to the bill as passed by the House, the odds are good that a compromise and substantial relief is likely to come soon. The overall intent of the bill has wide bipartisan support to keep America’s small businesses moving forward as they begin to open up and come back online.

Grossman Yanak & Ford LLP will continue to monitor the progression of this legislation as it moves through the Senate and onto the President’s desk. We would expect passage to occur fairly quickly. In the meantime, should you have questions or comments, please contact Bob Grossman, Don Johnston or Mike Weber at 412-338-9300.

Related posts:

SBA Offers Additional PPP Loan Forgiveness Information

Bipartisan Paycheck Protection Program Legislation Appears to Be on the Way

Paycheck Protection Program Loan Forgiveness Application Released

Paycheck Protection Program Loans – Round 2

FAQs Issued to Further Clarify Guidance on PPP Loans

Paycheck Protection Program Loans (PPP) Available Under the CARES Act

Bob Grossman

Bob Grossman

Bob, one of the firm’s founding partners, has over 40 years of experience in public accounting. He specializes in tax and valuation issues that affect businesses as well as their stakeholders and owners. Bob has extensive experience working with the Internal Revenue Services and also serves as an expert witness in litigation matters.

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