New Forgiveness Guidelines for PPP Loan Recipients
On Friday, June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act into law. The bill makes the following changes to the Paycheck Protection Program (PPP):
Extends the PPP loan “covered period” from 8 weeks after loan origination to the earlier of 24 weeks after loan origination or December 31, 2020 (and borrowers that received their loans before the enactment of this change can elect to use their original or alternative payroll 8-week covered period).
Extends the date for the rehire exception from June 30 to December 31, 2020.
Expands the rehire exception based on the non-availability of former employees and to apply the exception when the need for workers is reduced in order to comply with COVID-19 standards. Specifically, PPP loan forgiveness would not be reduced due to a lower number of full-time equivalent (FTE) employees for the following situations:
the employer is unable to rehire individuals who were employed by the employer on February 15, 2020, and
the employer shows the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or
the employer documents its inability to return to the same level of business activity as it had before February 15, 2020, due to having to comply new COVID-19 standards for sanitation, social distancing or other safety requirements during the period of March 1 through December 31, 2020.
Allows up to 40% of the loan proceeds to be used on mortgage interest, rent or utilities, while at least 60% of the PPP funds would have to be used for payroll costs (down from the 75% that was noted in guidance released by the SBA). This applies even if the borrower elects to use the 8-week covered or alternative payroll covered period. The SBA and Treasury clarified on June 8 that the 60% threshold is not a cliff and that partial forgiveness is available under 60%.
Provides a five-year term for all new PPP loans disbursed after these changes (loans disbursed before these changes would retain their original two-year term unless the lender and borrower renegotiate the term).
Changes the six-month deferral period for loan repayments and interest accrual to require payments on any unforgiven amounts to begin on the date on which the SBA remits the amount of forgiveness to the lender.
Loan forgiveness must be requested within 10 months after the end of the borrower's covered period; if it is not, the loan converts to a term loan.
In addition to PPP loan changes, the bill allows all employers, even those with forgiven PPP loans, to defer the payment of 2020 employer’s Social Security taxes, with 50% of the deferred amount being payable by December 31, 2021, and the balance due by December 31, 2022. Previously, the CARES Act prohibited such payroll tax deferral after a borrower’s PPP loan was forgiven.
We anticipate that Treasury will be providing an updated loan forgiveness application in the near future that reflects the changes from this bill.