On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act. The act provides modifications that will allow businesses more flexibility in using the loan funds and qualifying for forgiveness.
On June 8, 2020, Treasury Secretary Steve Mnuchin and SBA Administrator Jovita Carranza released a Joint Statement regarding the enactment of the Paycheck Protection Program Flexibility Act. The Statement indicates that the SBA will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP. Notably, the Joint Statement clarifies that partial loan forgiveness will still remain available under the new 60% threshold, despite statutory language that could have been interpreted to produce an all or nothing effect. For more information, see “Use of Loan Proceeds” below.
In addition, the Joint Statement clarified that despite the statutory extension of the PPP covered period to December 31, 2020 under the Act, the extension would not apply for purposes of attaining a loan. The Statement indicates that “new rules would confirm that June 30, 2020 would remain the last date on which a PPP loan application can be approved.”
blum insight: Initially, the SBA provided for a 2-year maturity term for the portion of a PPP loan that was not forgiven. This provision extends that period to 5 years, but only for loans that are made after the date that these amendments are signed into law. However, borrowers and lenders may mutually agree to modify the maturity terms of loans made prior to enactment of this provision to conform.
blum insight: This provision will be helpful for all borrowers in attaining forgiveness on their PPP loans. It is especially important for those PPP borrowers who are reaching the end of their 8-week covered period and have not yet been able to open their businesses.
blum insight: As currently drafted, the provision appears to inadvertently eliminate the option for partial forgiveness by requiring 60% usage on payroll costs to receive any forgiveness. However, on June 8, 2020, Treasury and the SBA indicated in a Joint Statement that future guidance will provide that “ If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”
blum insight: Under the CARES Act, PPP borrowers were only able to take advantage of the employer payroll tax deferral provision until they received notice of forgiveness. This provision allows PPP borrowers to take advantage of the deferral provision even after receiving forgiveness on their PPP loan.
On balance, the PPP Flexibility Act contains some useful changes for every borrower, although certain businesses will derive more benefit than others. As with prior changes to the PPP, the SBA has promised to promptly issue rules, guidance, and a modified loan forgiveness application. For now, let’s just give thanks for the additional flexibility.
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Disclaimer: The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.