Stephen Bonder & Miryam Wisnicki | June 9, 2020
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.”
Highlights of the bill’s modifications include:
Repayment terms for amounts not forgiven
- A minimum maturity of five years for a paycheck protection loan with a remaining balance after forgiveness.
- Allows recipients to defer payments until the date on which the amount of the forgiveness is determined and remitted to the lender. Recipients who do not apply for forgiveness shall have 10 months after the last day of the covered period before the first payment is required.
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.
Extension of Covered Period
- Extends the covered period to 24 weeks from 8 weeks, during which a loan recipient may use the funds for certain expenses while remaining eligible for forgiveness. Any business that borrowed its PPP loan prior to the date the bill is signed into law can elect to use the 8-week period beginning on the date it received the funds.
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.
- The statute seemed to extend the covered period for purposes of attaining a loan until December 31, 2020. However, in a Joint Statement released by Treasury and the SBA on June 8,2020, it was clarified that “new rules would confirm that June 30, 2020 would remain the last date on which a PPP loan application can be approved,”
Use of Loan Proceeds
- Provides that to receive loan forgiveness, an eligible recipient shall use at least 60% of the covered loan amount for payroll costs and may use 40% for the non-payroll portion (covered mortgage interest, covered rent, and covered utilities) of a forgivable covered loan.
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.”
Loan Forgiveness Reduction Relief
- Extends the period to December 31, 2020, in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan.
- The forgivable amount will be determined without regard to a reduction in the number of employees if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees, or (2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.
Payroll Tax Deferral
- Amends the CARES Act to allow PPP borrowers (even those that receive forgiveness), to take advantage of the payroll tax deferral provisions.
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.
For more information on our loan forgiveness services, please contact us here:
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.
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.
