COVID-19 UPDATE: Latest PPP Guidance

The U.S. Small Business Administration (“SBA”) and Treasury released the most recent Paycheck Protection Program (“PPP”) interim final rule (the “Rule”) on June 10, 2020. This most recent rule concerns the Paycheck Program Flexibility Act, which President Trump signed into law last week. The Rule provides some additional guidance about how the new law modifying the initial PPP program will be implemented.

As a brief review, arguably the two most substantial changes in the PPP Flexibility Act were to lower the payroll spending threshold and to extend the covered period. Both changes were designed to enable more borrowers to qualify for full loan forgiveness. The forgiveness threshold for payroll costs was lowered from 75% to 60%. This change allows borrowers seeking full forgiveness to use more of the loan proceeds on authorized non-payroll costs, like rent and utilities. The other major change was to increase the forgiveness covered period from 8 weeks to 24 weeks. This should provide many borrowers an opportunity to achieve full forgiveness of the loan proceeds.

Some of the key takeaways from the Rule include:

  • Application Period: The amendments to the PPP Flexibility Act extended the application period for PPP loans from June 30, 2020 to December 31, 2020.[1] Consistent with that, the Rule extends the application period for PPP loans. SBA also released updated documents reflecting this change.
  • 60% Threshold: Despite initial concerns that the 60% threshold would be treated as a “cliff,” the Rule clarifies that borrowers who spend less than 60% of the loan amount during the covered period will still be eligible for partial loan forgiveness (notwithstanding the plain language of the statute). This change is similar to the initial guidance on the 75% threshold, where a borrower who uses less than 60% of the loan proceeds on payroll costs will have the forgiveness amount reduced such that the amount spent on payroll comprises 60% of the overall forgivable amount.
  • 5-Year Loan Period: Loans made prior to June 5, 2020 still mature in two years. But the borrower can now work with the lender to extend the maturity date to five years. Consistent with the statute, any loan made after June 5, 2020 will automatically have a five-year maturity period.
  • Electable Covered Period: Borrowers, whose loans closed prior to June 5, 2020, will have the option to select the original 8-week forgiveness period or the PPP Flexibility Act’s modified 24-week forgiveness period.[2] Borrowers with loans after June 5, will need to use the 24-week period. The covered period begins on the loan disbursement date.
  • 10-Month (plus 8- or 24-weeks) Deferral Period: The Rule also establishes a soft deadline for submitting a loan forgiveness application. If a borrower has not submitted a loan forgiveness application within ten (10) months of the end of their loan forgiveness period, then they will need to begin making interest and principal payments on their PPP loan.[3] However, if a borrower submits a loan forgiveness application within that time period, then they will not need to make any loan payments until you receive a decision on your loan forgiveness application.

Stay tuned for additional changes. Congress is still talking about further legislation, which might affect various aspects of the PPP program. For now, however, there are still PPP funds available. The application deadline is June 30,

[1] Whether intentional or not, this also explicitly extends the ban on applying for additional PPP loans. Without further legislative changes, all borrowers are limited to a single PPP loan through the current end of the program on December 31, 2020.

[2] Note, this provision also seems to conflict with the plain language of the statute, which eliminated any reference to an 8-week forgiveness period.

[3] Note that the rules are currently unclear about which principal payments would need to be made.

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