The Small Business Administration (SBA) and the U.S. Treasury issued a joint statement on June 8, 2020, announcing forthcoming updated rules and guidance for the Paycheck Protection Program (PPP). These modifications will implement the changes legislated by the newly enacted PPP Flexibility Act.
Importantly, this statement provides clarification regarding eligibility for partial loan forgiveness under the new provisions. Many commentators interpreted the language in the PPP Flexibility Act to mean that none of the loan would be forgiven if the employer/borrower did not spend at least 60% of the PPP funds on payroll costs. However, this statement confirms that partial loan forgiveness will also be available under the 60% threshold.
Updates expected to be issued in the near future by the SBA and Treasury include:
- Revised PPP rules and guidance
- A modified PPP borrower application form
- A modified PPP loan forgiveness application implementing these legislative amendments
Primary changes covered in these modifications to the PPP:
Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness
- Borrowers who have already received PPP loans retain the option to use an eight-week covered period
Lower the requirements that 75% of a borrower’s loan proceeds must be used for payroll costs, and that 75% of the loan forgiveness amount must have been spent on payroll costs during the 24-week covered period, to 60% for each of these requirements
- If a borrower uses less than 60 % of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs
- This is an important clarification as most commentators felt the language in the law reducing the percentage to 60% created a cliff, and a failure to use at least 60% of the loan proceeds would prevent any loan forgiveness
Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are:
- Unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with certain requirements or guidance issued between March 1, 2020 and December 31, 2020, or
- Unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020
Increase to five years the maturity of PPP loans that are approved by the SBA (based on the date SBA assigns a loan number) on or after June 5, 2020
Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period)
Confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved
Given the trauma created by the trickle-out guidance that has been issued since early April when the program was first initiated by the CARES Act, the announcement should be welcome news for employers/borrowers seeking clarification.
Given the breadth of these developments, principally, the enactment of the PPP Flexibility Act, we expect to present a third GYF Webinar in the near future. Watch our website for announcements of the date and time.
We will continue to closely monitor this information as well as all major tax, accounting and business matters affecting our clients, contacts and friends. Should you have questions or comments on the expected rules and guidance, please contact Bob Grossman or Don Johnston at 412-338-9300.