On June 5, 2020, President Trump signed House Bill 7010, called the Paycheck Protection Flexibility Act (the “Bill”), which modifies provisions relating to the forgiveness of loans to small businesses under the Paycheck Protection Program (“PPP”). The Bill can be found at https://www.congress.gov/bill/116th-congress/house-bill/7010/text.
On June 11, 2020, The Small Business Association (“SBA”) released guidance related to the Bill in the form of an Interim Final Rule. The Interim Final Rule can be found at https://home.treasury.gov/system/files/136/PPP-IFR-Revisions-to-First-Interim-Final-Rule.pdf.
Below are a few key takeaways for employers that have taken advantage of the PPP loans. Generally, the Bill extends the time allotted for small businesses and other PPP loan recipients to spend the PPP funds and still qualify for forgiveness of the loans.
- Borrowers can choose to extend the eight-week period (when proceeds must be spent for loans to be forgiven) to twenty-four weeks, but the covered period cannot extend beyond December 31, 2020.
- The payroll expenditure requirement drops to 60% from 75%. Previously, a borrower was required to reduce the amount eligible for forgiveness if less than 75% of eligible funds were used for payroll costs. That percentage has been reduced to 60% allowing borrowers with higher overhead more flexibility to achieve forgiveness.
- Previously, the loan forgiveness rules contained a provision which generally reduced forgiveness in proportion to the reduction of the loan recipient’s workforce during the eight-week period, if the same number of employees were not hired or rehired by June 30, 2020. The Bill extends the rehire date to December 31, 2020.
- The Bill also provides an exemption from a reduction in loan forgiveness for employers that have reduced their workforce if, during the period beginning on February 15, 2020, and ending on December 31, 2020, the employer, in good faith, is able to document one of the following:
- An inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and
- An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- 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 new provisions extend the period for repayment of loans, after reduction for expenses that qualify for forgiveness, from two (2) years to five (5) years. For loans made before June 5, 2020, the maturity is two (2) years; however, borrowers and lenders may mutually agree to extend the maturity of such loans to five (5) years.
- The Bill allows businesses that took a PPP loan to delay payment of their payroll taxes, which was prohibited under the CARES Act.
- The Bill extends the deferral period for payments of principal, interest, and fees on PPP loans to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
The attorneys at Reno & Zahm LLP continue to monitor the SBA guidance and will provide regular updates on this and other aspects of the Paycheck Protection Program. Please contact us with any questions. We are here to help you make it through these challenging times.