On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (“PPPFA”) in an attempt to provide businesses with more time to maximize forgiveness of loans received under the Paycheck Protection Program (“PPP”), which we address in a previous alert, Coronavirus Aid, Relief and Economic Security Act – “Cares” Act. Specifically, the PPPFA provides forgiveness relief by making changes to the length of the covered period in which PPP borrowers must spend PPP funds to qualify for forgiveness, along with altering the mandated proportions in which PPP funds must be spent in order to qualify for loan forgiveness.
Key Provisions of the Law
The following is a summary of the main provisions of the PPPFA and the resulting material changes to the PPP:
- The PPP Application Deadline is Extended. The PPPFA extends the deadline by which PPP loans can be applied for and disbursed from June 30, 2020 to December 31, 2020. However, a congressional letter was added to the record to clarify that applications for new PPP loans must be made by June 30, 2020. Although the SBA or Treasury Department may provide further guidance on whether applications will be accepted until December 31, 2020, employers seeking to apply for loans should err on the side of caution and apply prior to June 30, 2020.
- The Repayment Term is Extended. The PPPFA extends the repayment term for unforgiven portions of PPP loans to five years for all new loans. Existing PPP loans retain their two-year term; however, lenders and borrowers can negotiate a longer term.
- The Forgiveness Period is Extended. The PPPFA extends the period during which borrowers may receive forgiveness from repayment if they use the proceeds of a PPP loan for covered expenses from eight weeks after the loan disbursement date to 24 weeks after the date of disbursement of the PPP loan to the borrower, but in no event ending later than December 31, 2020.
- The Minimum Required Use of Proceeds for Payroll Costs is Reduced. The PPPFA reduces the minimum percentage of loan proceeds required to be used for covered payroll costs to qualify for loan forgiveness from 75% to 60%, thus increasing the amount of funds available for other expenses. However, under PPPFA, the 60% requirement is a “Cliff” that must be met for any of the PPP loan amount to be forgiven. If a borrower fails to spend at least 60% of the loan amount on covered payroll expenses during the covered period, none of the loan will be forgiven. Before enactment of the PPPFA, if a borrower spent less than the 75% of the loan amount on covered payroll expenses, the borrower could still receive forgiveness on covered payroll expenses.
- Rehire Requirements are Eased. The PPPFA extends the time a PPP borrower has to eliminate a reduction in employment, salary and wages that would otherwise reduce the forgivable amount of its PPP loan from June 30, 2020 to December 31, 2020. Additionally, under the PPPFA, the forgiveness amount of the loan will not be affected by a reduction in full-time equivalent employees if the borrower is able to document (A) that it is not able to rehire individuals who had been employees of the borrower on February 15, 2020; and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or (B) that it is unable to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with regulatory requirements or guidance established by the Department of Health and Human Services, the Center for Disease Control and Prevention, or the Occupational Safety and Health Administration between March 15, 2020 and December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
- Payment Deferral is Extended. Under the PPP, the PPP loan’s principal and interest payments were to be deferred six months after the loan’s funding date. However, the PPPFA extends the deferral period to the “date on which the amount of forgiveness determined under Section 1106 of the CARES Act is remitted by the lender.” The PPPFA further provides that a PPP borrower that fails to apply for forgiveness within 10 months after the last day of the 24-week forgiveness period must begin making principal and interest payments on a date that is 10 months after the ending date of the forgiveness period.
Takeaway for Employers
The PPPFA makes substantial changes to the PPP, particularly the PPP’s forgiveness provisions, and guidance previously provided by the SBA and the Department of Treasury. As a result, employers who have PPP loans should review the provisions of the PPPFA since the law changes various provisions related to forgiveness, including principal and interest deferment, rehiring requirements, and the amount of loan proceeds that must be used for payroll costs. Employers with existing PPP loans can try to negotiate a longer payment term, up to five years, with lenders.
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If you have any questions regarding this alert, please do not hesitate to contact us.
|These materials have been prepared by Putney, Twombly, Hall & Hirson LLP for informational purposes only and are not intended as legal advice or advertisement of legal services. Transmission of the information is not confidential and is not intended to create, and receipt does not constitute, an attorney-client privilege. You should not act upon any of the information contained in these materials without seeking the advice of your own professional legal counsel.|