Jun 04, 2020

Congress Passes Bill Amending PPP Loan Forgiveness Requirements

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Congress recently passed and the President is expected to sign into law the “Paycheck Protection Program Flexibility Act of 2020”, which amends certain requirements of the Paycheck Protection Program (“PPP”) passed under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The new law is primarily intended to make it easier for PPP loan recipients to achieve loan forgiveness under the program. For those who have received or will be applying for PPP funds, below is a summary of the key changes that you should know:

Congress Passes Bill Amending PPP Loan Forgiveness Requirements:

Time to Repay Extended. The term for repayment is now five years as opposed to two years.

Covered Period Extended. Borrowers will have a period (called the “covered period”) of 24 weeks from the date of the loan, but not beyond December 31, 2020, for incurring costs eligible toward loan forgiveness. Previously, the covered period was eight weeks from the date of the loan. Borrowers who already have a PPP loan may still elect to have the covered period end on the date that is eight weeks after the date the PPP loan was originated.

Time to Re-hire and Restore Salary Reductions is Extended. Borrowers will have until December 31, 2020, instead of June 30, 2020, to rehire employees or eliminate salary reductions to receive full loan forgiveness.

New Exemption to Loan Forgiveness Reduction. The amount of loan forgiveness will not take into account reductions in the number of full-time equivalent employees if the borrower can in good faith document either

(1) an inability to rehire individuals who were employees on February 15, 2020 and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or

(2) an inability to return to the same level of business activity as the borrower was operating at before February 15, 2020 due to compliance with requirements or guidance of the Dept. of Health and Human Services, the CDC, or OSHA between March 1, 2020 and December 31, 2020 pertaining to maintaining health and safety standards related to COVID-19.

Use of Proceeds Required to be Used for Payroll Costs is Lowered to Sixty Percent. To be eligible for loan forgiveness, the original requirement under the CARES Act that at least 75% of loan proceeds be used for “payroll costs” has been lowered to 60%. Forty percent of the proceeds may be used for payment of interest on any covered mortgage obligation and rent and utility payments.

Deferral Period Extended. Borrowers may defer payment of principal, interest, and fees until the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender. Borrowers that do not apply for loan forgiveness will have at least ten months after the end of the covered period before payment would be due. Previously, the PPP provided for a payment deferral of at least six months but not more than one year.

Delay of Payment of Employer Payroll Taxes. Employers who receive loan forgiveness can now participate in the deferral of payment of social security taxes under the CARES Act. Previously under the CARES Act, those employers were prohibited from deferring those payments.

As always, we expect the Treasury Department to issue clarifying guidance regarding these changes. Please check our blog frequently for additional client alerts on these matters.

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