On June 8, 2020, a joint statement regarding the enactment of the Paycheck Protection Program Flexibility Act (Flexibility Act) was issued by the Secretary of the Treasury and the Administrator of the Small Business Administration (SBA). The Flexibility Act was signed into law on June 5, 2020.
The joint statement noted that the SBA will promptly issue rules and guidance implementing the following changes encompassed in the Flexibility Act:
- Extension of the covered period for loan forgiveness from 8 weeks to 24 weeks from the date of disbursement
- Sixty percent of the loan proceeds must be used on eligible payroll costs, down from 75 percent from the original CARES Act. The joint statement also confirmed that the 60 percent threshold will apply to the forgiveness amount and not the total loan proceeds. The borrower will be eligible for partial forgiveness, subject to the 60 percent threshold of the forgiveness amount having been spent on payroll costs. For example, a borrower receiving a $1 million loan that spends $450,000 in payroll costs could have $750,000 of forgiveness (assuming an additional $300,000 in eligible non-payroll costs were actually incurred or paid during the covered period). Under previous SBA guidance, the borrower spending $450,000 in payroll costs would have expected a maximum of $600,000 in forgiveness.
- Providing additional safe harbors from reductions in loan forgiveness when decreases in full-time equivalent employees occurred if:
- The borrower is unable to return to the same level of business activity it was operating at on Feb. 15, 2020 due to compliance with certain Federal Agency’s guidance related to COVID-19 worker and customer safety requirements.
- The borrower can demonstrate that it is unable to rehire employees who were employed as of Feb. 15, 2020 or unable to hire similarly qualified employees to fill those same positions by December 31, 2020.
- Increasing the maturity date of PPP loans to five years for loans with an SBA loan number assigned on or after June 5, 2020
- Extending the deferral period for payments of interest and principal on PPP loans to the date that the forgiveness amount is remitted to the lender. This change will ensure that borrowers do not overpay principal and interest to the lender as the amount of the loan that will be unforgiven and subject to repayment will be known by the date payments begin. If a borrower does not apply for forgiveness, payment will begin 10 months after the end of the borrower’s covered period.
The joint statement noted that the new rules will reconfirm that applications for PPP loans will not be approved after June 30, 2020 and did not provide a timeline for when to expect the new rules and guidance implementing the Flexibility Act.
For questions or additional information about the PPP application process and other guidance issued by the Treasury and the SBA, please contact us at CARESActQuestions@dhg.com.