Congress Approves Relaxation of PPP Loan Forgiveness Requirements
By: Richard Colella, Partner
Congress has now approved a formal amendment to the Paycheck Protection Program (“PPP”) loans, which provides greater flexibility for the forgiveness of the loans. The bill was signed by the President on June 5, 2020, meaning this amendment will have the following effects on the PPP loan program:
- Current PPP borrowers are able to extend the 8-week spend-down period to 24 weeks, or they can keep the original eight-week “covered period,” but the covered period cannot extend beyond Dec. 31, 2020. This will help those businesses that were shut down by government order or lack of demand this Spring, because they will be better able to use the PPP loan proceeds for forgivable purposes over this longer period. Of course, this change is not much help to borrowers who have already used the funds to pay employees that were not working.
- Under the language in the new law, the payroll expenditure requirement drops from 75% to 60%, but there is now uncertainty as to what will happen if this requirement is not met. Such a failure could either disqualify all forgiveness, or just a pro rata portion of the PPP loan based on how close the payroll expenditures are to the minimum percentage threshold. We will have to wait for some clarification on that point, but for most borrowers the payroll expenditure requirement should be much easier to meet with the expanded 24-week period now allowed.
- Borrowers have a longer period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, 2020, which reflects a change from the previous deadline of June 30.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they do not fully restore their workforce. Previous guidance from the SBA already allowed borrowers to exclude from those calculations employees who turned down good faith written offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers a similar exemption because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- New borrowers will have up to 5 years to repay the loan instead of 2. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%. Also, payments on unforgiven amounts of the loan will be deferred for up to 10 months.
- PPP borrowers are now permitted to delay paying the employer’s share of 2020 payroll taxes. One-half of the employer’s share of payroll taxes are now due December 31, 2021 and remaining half will be due December 31, 2022. PPP borrowers can now enjoy this deferral even if they have their PPP loan forgiven. Previously, PPP borrowers were denied this benefit once their loans were forgiven.
As with all of the PPP loan provisions and amendments, we expect further guidance to be issued that will help application of the law in more practical circumstances. In addition, the previously issued PPP loan forgiveness application form will likely need to change.
In addition, press reports indicate that a bank lobby group is pushing for blanket forgiveness of any PPP loan under $150,000, which would expedite the process of closing out PPP loans both for borrowers and banks. This change is not included in the legislation discussed above, but could be on the horizon.
There are still limited PPP funds available, and the rules keep improving for borrowers, so it remains an attractive funding option for any business that has not yet applied.
**This information is offered for discussion, marketing and news purposes and is not intended to constitute legal advice.**