Recent Changes to the Payroll Protections ProgramAdded by Gwen Thomson in Articles & Publications, Banking Law, Business Law on June 19, 2020
Since the SBA launched the Payroll Protection Program[i] (the “PPP”) on April 3, 2020, over 4.5 million loans totaling $512 billion have been approved. To address the pressing issues presented by COVID-19, the SBA rolled out the PPP very quickly. As a result, there have been a number of subsequent changes to the program rules since the enactment of the CARES Act, making it difficult for borrowers to navigate the process. Most recently, Congress passed the Paycheck Protection Flexibility Act of 2020 (“Flexibility Act”) (Pub. L. 116-142), which was signed into law on June 5, 2020, and resulted in the following changes to the PPP:
- The period for which borrowers are allowed to use the loan proceeds for PPP purposes (counting toward loan forgiveness) has been extended from 8 weeks after loan disbursement to 24 weeks after loan disbursement. Borrowers that received PPP loans before June 5, 2020 may elect to use either the original 8-week period or the new 24-week period.
- The percentage of PPP loan funds that must be used by borrowers on payroll and still be eligible for loan forgiveness has been reduced from 75% to 60%. If borrower uses less than 60% toward payroll costs, the borrower is still eligible for partial loan forgiveness (assuming all factors are established).
- For loans approved on or after June 5, 2020, the maturity date of the loans has been increased from 2 years to 5 years. Lenders and borrowers may mutually agree to modify PPP loans made prior to June 5, 2020, to reflect the longer maturity date.
- The period in which payments are deferred under the loan has been increased from 6 months to the earlier of the date SBA remits the loan forgiveness to the lender or 10 months.
- The time for borrowers to rehire full-time equivalent employees and still qualify for no reduction in loan forgiveness due to rehiring has been extended from June 30, 2020 to December 31, 2020.
- There will be no reduction in the loan forgiveness for borrowers who cannot rehire employees due to worker or customer safety requirements issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration by December 31, 2020.
- There will be no reduction in loan forgiveness for borrowers who were unable to rehire individuals who were employees on February 15, 2020, if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31 2020.
- SBA’s authority to guarantee PPP loans still expires on June 30, 2020. Therefore, the last day on which a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.
As of June 16, 2020, the SBA issued a revised the PPP Loan Forgiveness Calculation Form, reflecting the changes from the Flexibility Act, and published a PPP Loan Forgiveness Application Form 3508EZ . The EZ application requires fewer calculations and less documentation for eligible borrowers, and can be used by borrowers that:
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number of employees or the average paid hours of employees; OR
- Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.
It is important to note that borrowers will still be required to keep detailed records to support the certifications and calculations in their loan forgiveness applications, regardless of which form is used.
With the expiration of authority to guaranty, new PPP loans will cease to be approved under the PPP loan program after June 30, 2020. In connection with any loan forgiveness application, borrowers are encouraged to keep detailed records and remain in close contact with lenders and their legal and accounting professional advisors to stay current on new developments.
[i] The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (Pub. L. 116 136) was enacted on March 27, 2020, and included the establishment of the Paycheck Protection Program, which is a SBA 7(a) loan guaranteed 100% by the SBA with up to the full principal amount eligible for possible forgiveness. The SBA began accepting PPP loan applications on April 3, 2020.
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