- June 4, 2020
- Alerts
Overhaul To Paycheck Protection Program
On June 3rd, the Senate passed the Paycheck Protection Program Flexibility Act of 2020 (the “Bill”), which was previously passed by the House. This Bill, if signed by the President, will amend the Paycheck Protection Program (“PPP”) in certain significant ways, some of which are detailed below.
The Bill sets a minimum maturity date for new PPP loans of five (5) years, as compared to the two (2) year maturity date previously mandated. This new maturity date applies only to PPP loans made on or after the date of enactment of the Bill. However, the Bill states that nothing in the Bill, the CARES Act, or the Paycheck Protection Program and Health Care Enhancement Act “shall be construed to prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of [an existing PPP loan].”
This is the only section which applies only to new PPP loans. The changes discussed below apply to all PPP loans, including existing PPP loans, and are effective as if they were included originally in the CARES Act.
The Bill extends the covered period for use of loan proceeds from June 30, 2020 to December 31, 2020 and extends the covered period for forgiveness from eight (8) weeks following the origination date of a PPP loan to the earlier of: (a) twenty-four (24) weeks following the origination date of a PPP loan or (b) December 31, 2020. A borrower who received a PPP loan prior to the enactment of the Act may still elect to have their covered period for forgiveness end on the date that is eight (8) weeks following their loan origination date.
The Bill also extends the time to rehire or re-adjust employee salaries in order to avoid a reduction in forgiveness from June 30, 2020 to December 31, 2020.
The Bill provides an exemption to the reduction in forgiveness caused by a reduction in full-time equivalent employees, if a borrower, in good faith:
The Bill further provides that borrowers must use at least 60% of their loan amounts for payroll costs to be eligible for forgiveness (as opposed to the existing 75% threshold) and may use up to 40% of their loan amount for allowable non-payroll costs. This means that a borrower who fails to use at least 60% of their loan amount for payroll costs will not be eligible for ANY forgiveness.
The Bill also extends the payment deferment period to the date that the amount of forgiveness is paid to the lender by the SBA or, in the event a borrower does not apply for forgiveness, for ten (10) months following the end of the borrower’s covered period for forgiveness.
Finally, the Bill amends the CARES Act to allow employers who have a PPP loan forgiven to also defer payment of their payroll taxes, which was previously prohibited.
Should you have any questions regarding the above, please contact the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.
The Bill sets a minimum maturity date for new PPP loans of five (5) years, as compared to the two (2) year maturity date previously mandated. This new maturity date applies only to PPP loans made on or after the date of enactment of the Bill. However, the Bill states that nothing in the Bill, the CARES Act, or the Paycheck Protection Program and Health Care Enhancement Act “shall be construed to prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of [an existing PPP loan].”
This is the only section which applies only to new PPP loans. The changes discussed below apply to all PPP loans, including existing PPP loans, and are effective as if they were included originally in the CARES Act.
The Bill extends the covered period for use of loan proceeds from June 30, 2020 to December 31, 2020 and extends the covered period for forgiveness from eight (8) weeks following the origination date of a PPP loan to the earlier of: (a) twenty-four (24) weeks following the origination date of a PPP loan or (b) December 31, 2020. A borrower who received a PPP loan prior to the enactment of the Act may still elect to have their covered period for forgiveness end on the date that is eight (8) weeks following their loan origination date.
The Bill also extends the time to rehire or re-adjust employee salaries in order to avoid a reduction in forgiveness from June 30, 2020 to December 31, 2020.
The Bill provides an exemption to the reduction in forgiveness caused by a reduction in full-time equivalent employees, if a borrower, in good faith:
- Is able to document an inability to rehire employees who were employed by the employer on February 15, 2020 and is also unable to hire similarly qualified employees for unfilled positions prior to December 31, 2020; or
- Is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance 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 during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
The Bill further provides that borrowers must use at least 60% of their loan amounts for payroll costs to be eligible for forgiveness (as opposed to the existing 75% threshold) and may use up to 40% of their loan amount for allowable non-payroll costs. This means that a borrower who fails to use at least 60% of their loan amount for payroll costs will not be eligible for ANY forgiveness.
The Bill also extends the payment deferment period to the date that the amount of forgiveness is paid to the lender by the SBA or, in the event a borrower does not apply for forgiveness, for ten (10) months following the end of the borrower’s covered period for forgiveness.
Finally, the Bill amends the CARES Act to allow employers who have a PPP loan forgiven to also defer payment of their payroll taxes, which was previously prohibited.
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Should you have any questions regarding the above, please contact the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.