PPP Loan Forgiveness: June 4, 2020 Update

PPP Loan Forgiveness: June 4, 2020 Update

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Payroll Protection Program was established to provide relief to small businesses during the coronavirus pandemic. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund loans to qualifying businesses to spend on payroll costs, mortgage interest, rent, and utilities.

Late Wednesday night, the U.S. Senate unanimously passed an updated version of the PPP legislation that had been proposed by the House of Representatives, entitled the “Paycheck Protection Flexibility Act”. As Americans around the country scramble to reconfigure their businesses, reinstate their workforce, and attempt to return to normalcy via their PPP loan, a collection of major changes to the initial law now exist.

The following is a summary of the legislation’s main points:

  • PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
  • The payroll expenditure requirement drops to 60% from 75%. However, there is now a cliff, meaning that borrowers must now spend at least 60% on payroll or none of the loan will be forgiven.
  • Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust their workforce headcount calculation because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020 levels due to COVID-19 related operating restrictions.
  • Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
  • The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

The House and Senate passed legislation will now be sent to President Trump and he is expected to sign it.  Please be aware that there are still questions that exist and further guidance is expected as well as an updated Loan Forgiveness Application.  As further guidance is released, we will continue to update our clients on all of the necessary details.

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