PPP Loan Update – President signs bill significantly enhancing borrowers’ ability to receive full PPP loan forgiveness
Today, President Trump signed into law the Paycheck Protection Program Flexibility Act (the Act), which significantly loosens the spending limitations and forgiveness requirements for Paycheck Protection Program (PPP) loan recipients. Ultimately, this Act makes it considerably easier for borrowers to have its PPP loan fully forgiven by extending the covered period, reducing restrictions on non-payroll spending, expanding the deferral period and loan term, and extending the rehiring deadline. Some lawmakers have indicated that further changes streamlining the process and correcting “inadvertent technical errors” may be addressed in future legislation or SBA regulations. The summary below highlights the critical changes Congress has made to enhance PPP loan forgiveness.
- Extended Covered Period: Borrowers are now allowed 24 weeks to spend their loan proceeds (until December 31), instead of the 8-weeks initially included in the CARES Act. Borrowers now have much more time to spend their PPP loan proceeds, though borrowers receiving a PPP loan before June 5, 2020 can elect to keep the original 8-week covered period if they desire.
- Forgiven Payroll Expenses Reduced to 60%: Borrowers now only need to spend at least 60% of loan proceeds on payroll costs to receive full forgiveness rather than 75%. This means up to 40% of the loan may be used on non-payroll expenses, such as rent, mortgage interest, and utilities. Although initially creating an absolute bar to forgiveness—the SBA and U.S. Treasury issued a joint statement clarifying that partial loan forgiveness will be available for borrowers who spend more than 40% on non-payroll expenses.
- Extended Minimum Maturity Term: Originally, PPP loans were for a term of 2 years. Now, borrowers may extend their PPP loan maturity to 5 years. For new borrowers that have yet to apply for a loan, the 5-year maturity term will automatically apply. For existing borrowers, the maturity date can be extended by mutual agreement with your lender.
- More time to restore employee headcount and salary reductions: Borrowers now have until December 31, 2020 to restore full-time equivalent headcount or salary reductions to pre-pandemic levels for full forgiveness (previously June 30, 2020). The bill also provides safe harbors from forgiveness reductions for employers who are unable to return to pre-pandemic business operations due to governmental health and safety requirements, or are unable to re-hire prior employees or hire qualified candidates for unfilled positions.
- Payroll Tax Deferral: Borrowers can now take advantage of deferring their employer’s share of FICA payroll taxes for two years while also receiving full forgiveness. Payment of 50% of payroll taxes are deferred until Dec. 31, 2021 with the balance deferred until Dec. 31, 2022. Previously, borrowers seeking forgiveness were not eligible to defer these payments.
- Extended Payment Deferral – The bill modifies the original 6-month deferral period so borrowers will not have to make payments until the SBA issues a final decision on loan forgiveness to the lender, as long as the borrower applies for forgiveness within 10 months after the last day of the covered period. If borrowers do not apply for forgiveness within that time frame, they must begin making loan payments at the expiration of the 10-month period.
If you have any questions concerning the new Payroll Protection Flexibility Act or other questions related to the PPP loan program, please contact your Buckingham attorney. The PPP Loan program, as originally enacted, is summarized in our previous Client Alert. If you have other questions related to COVID-19, please visit our resource page here.