On April 3, 2020, the United States Small Business Administration (“SBA”) by way of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) began accepting loan applications for its expanded United States Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) to offer payroll protection loans. Most of the criticism of the program came from the service industry, like restaurants, who were forced to shut down and only now may begin moving towards full capacity. After much criticism from industries across the spectrum, the House offered a bipartisan bill called the Paycheck Protection Program Flexibility Act (H.R. 7010) in an attempt to fix some of the flaws of the program and allow more flexibility for the small businesses receiving the loans.
On June 3, 2020, the Senate passed the bill and it was signed by the President on June 5th. (Link to the bill.) Here are some of the key provisions:
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The “covered period” for forgiveness related to the loan funds has been increased from eight (8) weeks to twenty-four (24) weeks.
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Forgivable expenses that are not “payroll costs,” including rent, utilities, mortgage payments, and other interest, are now permitted to amount to up to forty percent (40%) of the forgivable amount, an increase from twenty-five percent (25%) under the original PPP.
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The deferral on payments has been extended from six (6) months to twelve (12) months.
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All new PPP loans originated after the enactment shall have five (5) year maturity, an increase from two (2) years under the original PPP. Lenders shall have the ability to modify the existing loan terms to increase the maturity to five (5) years.
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It allows an exemption to the loan forgiveness penalty for reduction in FTE employees by allowing a borrower to document and certify in good-faith:
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An inability to rehire individuals who were employees of the eligible recipient on Feb. 15, 2020 and an inability to rehire similarly qualified individuals by December 31, 2020 – an increase from June 30, 2020;
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An inability to return to the same level of business activity as such business was operating at before February 15, 2020, because of 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.
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PPP borrowers that were previously unable to take advantage of payroll tax deferral options permitted under the CARES Act are now specifically permitted to do so.
All employers with PPP loans are encouraged to review these changes so they may alter their use of the PPP funds to maximize forgiveness.
