From
Paycheck Protection Program Flexibility Act Update
On June 5, 2020, President Trump signed into law H.R. 7010, the Paycheck Protection Program Flexibility Act (PPP Flexibility Act), amends Pub. L. No 116-136 (CARES Act), to provide businesses with greater flexibility and more time to maximize forgiveness of loans received under the Paycheck Protection Program (PPP).
Here is a summary of the Paycheck Protection Program Flexibility (PPP Flexibility) Act made to the Paycheck Protection Program:
Here is a summary of the Paycheck Protection Program Flexibility (PPP Flexibility) Act made to the Paycheck Protection Program:
- Change in Loan Maturity: The PPP Flexibility Act extends the maturity date to at least a minimum of five (5) years for PPP loans disbursed on or after the date of the enactment of the Act. For PPP loans disbursed before the enactment of the PPP Flexibility Act, the Act explicitly permits PPP borrowers and lenders to mutually agree and modify the existing maturity terms to conform with the new minimum of five (5) years maturity for any remaining outstanding balance of a PPP loan after determination of forgiveness.
- Covered Period Extension for PPP Loan: The PPP Flexibility has modified the covered period in the PPP loan program definition found in the Small Business Act §7(a)(36)(A)(iii) to change the ending date from June 30, 2020, to December 31, 2020. The covered period in the PPP Flexibility Act now runs from February 15, 2020, to December 31, 2020. A covered loan is a loan made under this program during the covered period, and this covered period is referenced in other portions of the PPP loan provisions found in the CARES Act Section 1102.
- Forgiveness Changes: Before enactment of the PPP Flexibility Act, a PPP borrower could apply for loan forgiveness for up to the amount of PPP loan proceeds expended on authorized uses during the eight (8) weeks immediately following receipt of the loan. The PPP Flexibility Act extends this 8-week “forgiveness period” to 24 weeks after the date of disbursement of the PPP loan to the PPP borrower, but in no event ending later than December 31, 2020.
- Extension of Deferral Period: Before the enactment of the PPP Flexibility Act, principal and interest payments on each PPP loan were to be deferred until the date that was six months after such a loan’s funding date. The PPP Flexibility Act extends the deferral period to the date on which the lender remits the amount of forgiveness determined under Section 1106 of the CARES Act”. The Act further provides that a PPP borrower that fails to apply for forgiveness within ten months after the last day of the 24-week forgiveness period must begin making principal and interest payments on the date that is ten months after the ending date of the forgiveness period.
- The requirement to spend 60 percent of loan proceeds on payroll costs: Before the enactment of the PPP Flexibility Act, a PPP borrower was required to utilize at least 75% of the PPP loan proceeds it used towards “payroll costs” (as such term is defined in the CARES Act). The PPP Flexibility Act has relaxed this requirement by reducing the minimum percentage to 60%. The PPP Flexibility Act also states, whether intentional or not, that to be eligible for any forgiveness, a PPP borrower must spend at least 60% of its total PPP loan proceeds towards “payroll costs.” Regulatory guidance issued to date has been equivocal as to whether a PPP borrower is obligated to expend a minimum amount of its PPP loan proceeds. A PPP borrower is now technically ineligible for forgiveness if it spends less than 60% of its total PPP loan amount.
- PPP Application deadline: The PPP Flexibility Act extends the period during which prospective PPP borrowers are entitled to apply for PPP loan from June 30, 2020, to December 31, 2020. However, certain members of the U.S. Congress1 have published a Letter of Congressional Intent, indicating this would be a misinterpretation of the PPP Flexibility Act. The Letter of Congressional Intent states that the extension of the “covered period” as defined in section 1102(a) of the CARES Act, as amended by the PPP Flexibility Act, should not be construed to permit SBA to continue accepting PPP applications for loans after June 30, 2020. The Letter of Congressional Intent reasoned that the law intends that, consistent with the CARES Act as amended by the PPP Flexibility Act when the authorization of funds to guarantee new PPP loans expires on June 30, 2020, further, the SBA and participating lenders will stop accepting and approving applications for PPP loans, regardless of whether the authorized PPP loan commitment level has been reached.
1U.S. Senators Mike Lee (R-UT), Marco Rubio (R-FL), Ron Johnson (R-WI) and Ben Cardin (D-MD), along with U.S. Representatives Dean Phillips (D-MN) and Chip Roy (R-TX).