Changes Made to Paycheck Protection Program

The latest chapter in Washington’s response to the COVID-19 pandemic is the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”), signed by President Trump on June 5, 2020 (“date of enactment”). The PPPFA will provide additional flexibility to many borrowers attempting to maximize the benefits provided by the Paycheck Protection Program (“PPP”) established as part of the CARES Act.

The following are highlights of the PPPFA:

• The minimum maturity of PPP loans (for the portion not forgiven) is extended from two to not less than five years. This applies only to PPP loans originated on or after the date of enactment of the PPPFA.  However, nothing prohibits lenders and borrowers from mutually agreeing to modify the maturity terms of existing loans to conform to this requirement.   
• The final date on which PPP loan applications can be approved (subject to available funding) remains June 30, 2020.
• The period during which the PPP loan proceeds can be used (“covered period”) is extended from eight weeks to 24 weeks from the date of origination (but not later than December 31, 2020). This allows qualifying expenses paid over a much longer period of time to be eligible for forgiveness. 
• A borrower that received loan proceeds prior to the date of enactment of the PPPFA may elect to end the covered period eight weeks from the date of origination of the loan (same date as under pre-PPPFA law and regulations). Such borrower might prefer the eight-week period so as not to be required to maintain payroll levels for an additional 16 weeks, which could impact the amount of loan forgiveness.
• The CARES Act requires certain reductions in a borrower’s loan forgiveness amount based on reductions in full-time equivalent employees (“FTEs”) or in employee salary and wages during the covered period, subject to a statutory exemption for borrowers who have rehired employees and restored salary and wage levels by June 30, 2020 (with limitations). The PPPFA extends that “safe harbor” date to December 31, 2020.
• Additional safe harbors allowing borrowers to achieve full PPP loan forgiveness are provided for reductions in FTEs due to –
  • Documented inability in good faith to rehire individuals who were employees as of February 15, 2020 and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
  • Documented inability in good faith to return to the same level of business activity as that business was operating at before February 15, 2020, due to compliance with requirements established by various federal agencies during the period from March 1, 2020 through December 31, 2020, related to maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19.
• A statutory requirement is added that at least 60% of the loan amount must be used for eligible payroll costs and up to 40% can be used for eligible mortgage interest, rent and utilities. As clarified by a Joint Statement by the Treasury Secretary and the Small Business Administration Administrator on June 8, 2020, if a borrower uses less than 60% of the loan amount for payroll costs during the covered period, the borrower will continue to be eligible for partial loan forgiveness, “subject to at least 60% of the loan forgiveness amount having been used for payroll costs.”
  • Pre-PPPFA SBA guidance had provided that at least 75% of the loan forgiveness amount must be attributable to payroll costs and up to 25% could be used for eligible mortgage interest, rent and utilities. This rule was administrative; it was not contained in the CARES Act itself. 
• The deferral period on the payment of any principal, interest and fees on a PPP loan is delayed until the date on which the amount of forgiveness is remitted to the lender. The CARES Act had provided for a deferral of not less than six months and not more than one year.
  • If a borrower does not apply for loan forgiveness within ten months after the last day of the covered period, the deferral period ends (and the borrower must then start making payments of principal, interest and fees) no earlier than the date that is ten months after the last day of such covered period.
• The PPPFA eliminates the CARES Act requirement that PPP borrowers that receive any loan forgiveness are ineligible for the employer payroll tax deferral provided in the CARES Act. This provision is effective as if originally included in the CARES Act and applies to any PPP loan.