On July 4, 2020, President Trump signed a new law extending the deadline for applying for a Paycheck Protection Program (PPP) loan to August 8, 2020. As the program was initially set to expire on June 30th, this extension provides potential borrowers additional time to access the program under its existing terms. Currently, it is estimated that approximately $130 billion in PPP funding remains available to new borrowers.
Among other recent updates to the program is the Paycheck Protection Flexibility Act of 2020 (Flexibility Act), which became law on June 5, and implemented the following notable changes:
- Extension of the covered period during which PPP loan recipients can spend the funds and still qualify for forgiveness from eight to 24 weeks. The 24-week period applies to all loans made on or after June 5. However, borrowers that received loans prior to June 5 may choose to elect the 8-week period.
- Reduction of the proportion of PPP funds that must be used on payroll costs in order to qualify for maximum forgiveness from 75% to 60%. This provides borrowers increased flexibility to use the funds for qualified non-payroll expenses while maintaining their eligibility to obtain maximum forgiveness.
- Extension of the safe harbor period in which a borrower must eliminate a reduction in employment to December 31, 2020. Additionally, the Flexibility Act provides that a borrower will not experience a reduction in their forgiveness amount due to a decline in the full-time equivalent (FTE) employee count if the borrower, in good faith, can document:
- an inability to rehire individuals who were employees of the borrower as of February 15, 2020; and
- an inability to hire similarly qualified employees of the borrower for unfilled positions on or before December 31, 2020; or
- an inability to return to the same level of business activity at which the borrower was operating before February 15, 2020, due to compliance with the requirements 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 on December 31, 2020.
- Expansion of the term for new loans from two years to five years. Borrowers who received loans prior to June 5 may extend their loan term to five years subject to agreement from their lender.
Loan Forgiveness Updates
Additionally, it was recently declared that PPP recipients may apply early for loan forgiveness. However, borrowers seeking to apply early for forgiveness should exercise caution as they may incur additional costs or reductions in forgiveness by doing so. Specifically, if a borrower applies for loan forgiveness before the end of their covered period and has reduced any employees’ salary or wages by more than the 25% allowed for full forgiveness, the borrower must account for the excess salary reduction for the full eight- or 24-week covered period (whichever applies to its loan).
Based on this guidance, borrowers that apply early for forgiveness forfeit a safe-harbor provision that permits them to restore salaries or wages by December 31, 2020 and avoid reductions in the loan forgiveness they receive. As an example: if a borrower has a 24-week covered period that expires in November, but wants to apply for forgiveness in September, any wage reduction in excess of 25% as of the date of the application in September would be calculated for the entire 24-week covered period, even if the borrower ultimately restores salaries by December 31, 2020.
FLB’s attorneys have extensive experience with all matters relating to the PPP and the CARES Act. We are here to provide guidance to businesses and business owners facing the unique issues brought about by the COVID-19 pandemic, including loan forgiveness.