By Erin M. Byom, Marguerite J. Ahmann and Levi J. Smith
On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) which provides for greater flexibility for both existing and new borrowers under the Paycheck Protection Program (PPP). While it is anticipated that the SBA and Treasury Department will issue new guidance and forms in the coming days, here is what we know now:
Extension of Loan Maturity
The PPP Flexibility Act establishes a minimum maturity of five years for any PPP loans issued on or after June 5, 2020. However, lenders and borrowers may mutually agree to modify the maturity terms of a covered loan issued before June 5, 2020.
Extension of PPP Loan Period
The PPP Flexibility Act amends the broad “covered period” for loans under the Paycheck Protection Program, defining it as the period beginning on February 15, 2020, and ending on December 31, 2020, which is an extension from the original covered period of June 30, 2020. A Joint Statement by the Treasury Secretary and the SBA Administrator, issued on June 8, 2020 (Joint Statement), clarified that June 30, 2020, remains the deadline to apply for a PPP loan.
Extension of Covered Period for Forgiveness
The PPP Flexibility Act extends the loan forgiveness covered period during which the PPP loan would be eligible for forgiveness from eight weeks beginning on the date of origination of a covered loan to the period beginning on the date of the origination of a covered loan and ending the earlier of:
- 24 weeks after such date of origination; or
- December 31, 2020.
However, a borrower who received a PPP loan prior to June 5, 2020, may elect to retain the original eight-week loan forgiveness covered period.
The loan forgiveness covered period is used to determine the total amount of the PPP loan eligible for forgiveness, as well as the potential reduction resulting from a reduction in FTE and salaries during that covered period (subject to the re-hire provisions and exemptions noted below).
Extension of Re-Hire Period
The PPP Flexibility Act also revises the re-hire provision under the CARES Act to provide borrowers until December 31, 2020, to eliminate any reduction in FTE or reduction in salary that occurred during the period beginning on February 15, 2020, and ending on April 26, 2020.
Exemption Based on Employee Availability or Business Restrictions
The PPP Flexibility Act specifies that during the period beginning on February 15, 2020, and ending on December 31, 2020, loan forgiveness is determined without regard to a proportional reduction in the number of FTE employees if the borrower in good faith is able to document:
- Its inability to rehire individuals who were employees as of February 15, 2020; and its inability to rehire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- The borrower is able to document its inability to return to the same level of business activity that the business was operating at before February 15, 2020, due to compliance with federal requirements or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID-19.
Limitation on Forgiveness
Under the PPP Flexibility Act, a borrower must use at least 60 percent of the covered loan for payroll costs in order to receive loan forgiveness, down from 75 percent as required by the first Interim Final Rule issued by SBA. The Act also explains that borrowers may use up to 40 percent of the loan amount for any payment of interest on any covered mortgage obligation, any payment on any covered rent obligation or any covered utility payment.
The Joint Statement clarifies that if a borrower uses less than 60 percent 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 percent of the loan forgiveness amount having been used for payroll costs.
Extension of Deferral Period
The PPP Flexibility Act extends the deferral period from a period of not less than six months to the date on which the amount of forgiveness is remitted to the lender. In other words, the Borrower will not be required to make interest payments with respect to a PPP loan until this date. Additionally, the Act specifies that if a borrower fails to apply for forgiveness of the covered loan within 10 months after the last day of the loan forgiveness covered period, the borrower must start making payments of principal, interest and fees on the covered loan.
Delay of Payment of Employer Payroll Taxes
The PPP Flexibility Act eliminates the provision of Section 2303(a) of the CARES Act which specifies that PPP borrowers who have PPP debt forgiven are ineligible to defer payroll tax payments.
For assistance with specific PPP loan questions, please contact your Fredrikson & Byron attorney.