On June 3, 2020, the Senate passed the Paycheck Protection Program Flexibility Act of 2020, which amends the Paycheck Protection Program (PPP) to modify provisions related to the forgiveness of loans under the program. This bipartisan bill was passed by the House on May 28 and now will go to the President for his signature.
Recognizing the impacts of CDC guidance and state and local stay-at-home orders in place to control the spread of COVID-19 on the ability of businesses to reopen by June 30, this Act provides flexibility to small businesses who have been required to remain shuttered or operating in a limited capacity, preventing them from obtaining full forgiveness under the PPP’s current requirements. This legislation makes the forgiveness terms more favorable to borrowers by increasing the length of time that the PPP loan can be used while still qualifying for forgiveness, relaxing the rehiring requirements for those businesses that can demonstrate an inability to operate at the same capacity as it did before February 15, 2020, and lowering the amount of the loan that must be used for payroll expenses from 75% to 60%.
This legislation also extends the period to obtain loans to December 31, 2020, extends the period during which businesses can apply for forgiveness, and extends the loan terms on any unforgiven portions to five years. It also allows small businesses that receive a PPP loan to also qualify for the recently enacted tax credit to defer payroll taxes under Section 2302 of the CARES Act.
As with the initial PPP program, should this legislation be enacted into law, the Small Business Administration and the Treasury Department will be tasked with issuing implementing regulations and guidance.
Amendments to PPP Loan Forgiveness
This Act makes a number of key changes to the PPP loan forgiveness guidelines. If enacted into law, these amendments to the PPP would apply to all PPP loan recipients, regardless of when they obtained their loan. This Act would:
- Extend the “covered period” from 8 weeks from the origination of the loan to the earlier of 24 weeks from the origination of the loan or December 31, 2020.
- Extend the period of time for recipients to rehire employees to December 31, 2020, and allow recipients to obtain full loan forgiveness without a reduction due to an inability to rehire employees, if the recipient can, in good faith, (i) document an inability to rehire former employees or similarly qualified employees for unfilled positions, or (ii) document that requirements or guidance issued by the CDC and other health-related agencies has prevented the business from operating at the same capacity as it had prior to February 15, 2020.
- Reduce the cap on non-payroll expenses from 75% to 60%, giving recipients greater flexibility to use PPP funds to pay interest on covered mortgage obligations, covered rent obligations, and covered utility payments.
Changes to Loan Maturity and Deferral Period
The Act would also extend the maturity of the loan, time to apply for forgiveness, and deferral period, giving business who do not receive full loan forgiveness additional time to repay unforgiven portions. Specifically, the Act would:
- Extend the maturity for loans with a remaining balance after the application of forgiveness from two years to a minimum of five years.
- Extend the deferral period from 6 months from the loan disbursement to the date on which the amount of forgiveness is remitted to the lender, addressing the situation under the current law and implementing regulations where a borrower could be required to begin repayment of the loan before a final determination on forgiveness was determined.
- Extend the period for a recipient to apply for loan forgiveness before making payments on principal, interest, and fees from 6 months to 10 months from the last day of the covered period.
If you have any questions regarding the PPP loan program, please contact Berenzweig Leonard’s attorneys for additional information.
DISCLAIMER: This article was written on June 4, 2020, and represents Berenzweig Leonard’s interpretation of the law and circumstances at the time of publication. As the situation surrounding the COVID-19 pandemic is changing on a daily basis, new or additional developments may impact matters discussed in this article. Please contact Berenzweig Leonard’s attorneys for up-to-date information.