- On Monday, June 8, 2020, Treasury Secretary Steven T. Mnuchin and Small Business Administration (“SBA”) Administrator Jovita Carranza issued a statement following the enactment of the Paycheck Protection Program Flexibility Act. The statement indicated that SBA, in consultation with Treasury, will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP. In addition, the statement provided that “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 welcome news for borrowers, who were concerned about a potential “forgiveness cliff,” whereby none of their loan would be forgiven, if they failed to spend at least 60% of the loan amount on payroll.
- On Friday, June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act legislation into law.
- On Wednesday, June 3, 2020, the Senate passed H.R. 7010 by a unanimous voice vote.
On Friday, May 28, 2020, the U.S. House of Representatives overwhelmingly passed H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the “Act”) in a 417 to 1 bipartisan vote. The Act, co-sponsored by Rep. Dean Phillips (D-MN) and Rep. Chip Roy (R-TX), provides for a number of technical changes to the terms and conditions of the Paycheck Protection Program (“PPP”) to make it easier for small businesses who have received loans to use these funds. The U.S. Senate is expected to take up the legislation this week.
The Act contains the following changes:
- The minimum maturity of PPP loans increases from two years to a “minimum maturity of five years” for any loans made on or after the date of the enactment of this Act [June 5, 2020]. In addition, borrowers and lenders will not be prohibited from mutually agreeing to modify the maturity terms of any PPP loans previously disbursed.
- The covered period for using PPP loans is extended from June 30, 2020 to December 31, 2020.
- For purposes of loan forgiveness, the covered period is extended from eight weeks from the date of origination of a covered loan to the earlier of 24 weeks from the date of origination or December 31, 2020. Borrowers who received loans prior to the enactment of this Act [June 5, 2020] can continue using the eight-week covered period originally provided for in the CARES Act.
- For purposes of determining reductions in loan forgiveness due to the number of full-time equivalent (“FTE”) employees, the deadline to rehire employees or restore hours related to the period February 15 to April 26, 2020 is extended from June 30, 2020 to December 31, 2020. There shall be no reduction in the amount of loan forgiveness related to reductions in the number of FTE employees during the period February 15 to December 31, 2020, if the borrower is able to in good-faith (1) document their inability to rehire employees who had been employed on February 15, 2020 or hire similarly qualified employees for unfilled positions on or before December 31, 2020 or (2) document their inability to return to the same level of business activity due to compliance with government safety requirements.
- To receive loan forgiveness, a borrower shall use at least 60% of the PPP loan amount for payroll costs, and may now use up to 40% of loan proceeds for payments of non-payroll costs (i.e., payments of interest on covered mortgage obligations, covered rent obligations, covered utility payments). This change allows borrowers to increase the amount of non-payroll costs eligible for loan forgiveness from 25% to 40% of the PPP loan amount.
- For purposes of repaying any amount of principal, interest and fees on PPP loans, the deferment period is extended from six months to the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender. Additionally, any borrower who fails to apply for loan forgiveness with ten months after the end of the covered period (earlier of 24 weeks from date of origination or December 31, 2020) must begin making payments of principal, interest and fees on their PPP loan.
- The deferral of payment of the 6.2% employer portion of the social security tax can continue to be deferred by a borrower after their PPP loan is forgiven. Previously, a borrower could not continue to defer payments of social security after they received a decision from their lender that their loan was forgiven.
Please note that the Act has been passed only by the House of Representatives. This legislation, or a similar measure, still needs to be considered by the Senate, which is scheduled to return to Washington on June 1, unless the current unrest in the nation’s Capitol prevents them from holding sessions. These provisions are very favorable for borrowers and will provide additional flexibility related to the use of PPP loan proceeds, forgiveness and repayment terms. These changes, if passed by the Senate and signed into law by the President of the United States, cannot come at a better time for borrowers, especially those whose eight-week covered period is quickly coming to a close.
For the latest updates on Paycheck Protection Program legislative developments, please visit our COVID-19 Resource Center on our website or follow Tronconi Segarra & Associates on LinkedIn. If you have any questions, please contact your Tronconi Segarra & Associates advisor or a member of our response team at
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