Expect Changes & Flexibility to the Paycheck Protection Program

Wednesday evening, June 3^rd, the Senate passed the House’s version of Paycheck Protection Program Flexibility Act of 2020 and now awaits President Trump’s signature.   The bill passed unanimously Wednesday evening in the Senate and 471-1 last week in the House.  Designed to make it easier for borrowers to get full, or almost full, forgiveness, the bill allows for flexibility in time and how dollars can be spent and still qualify for forgiveness.  Key provisions are:

• Option to extend the 8-week covered period to 24 weeks (but not beyond December 31, 2020), or maintain the borrower’s original 8-week period. It appears that a company must either select the 24-week period or the original 8-week period, so it is not merely an extension.  Importantly, it appears the headcount rule will apply for whichever covered period is selected.
  • This will require consideration of borrowers if they plan to make staffing or other operational changes in the near future.

• To be forgiven, borrowers must use at least 60% of the loan for payroll costs. This is down from the previous sliding scale requiring a reduction in forgiveness if less than 75% of eligible funds were used on payroll costs.  However, a big change is that the language in the new bill creates a cliff on forgiveness requiring borrowers to spend at least 60% of the loan proceeds on payroll costs, whereas previously forgiveness was not eliminated if the 75% was not met.  Technical corrections could be made after the bill is signed into law to reinstate the sliding scale at the 60% level, per legislative intention according to Senators Rubio and Collins.
  • Update June 8^th – The SBA and Treasury issued a joint statement
  • To be forgiven, 60% of the forgivable amount must be used on payroll costs, down from the previous 75%.  The statement clarifies the lower 60% usage for payroll is not a cliff and that if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness.  At least 60% of the loan forgiveness amount must be used for payroll costs. 

• Workforces can be restored in the 24-week period (up through December 31, 2020) to pre-pandemic levels to trigger the exception to the headcount reduction for forgiveness. The previous deadline to restore workers was June 30.

• Additional exceptions were added to the forgiveness reduction related to laying off workers, even if jobs are not restored by the end of the covered period if:

• Borrowers could not find qualified employees for unfilled positions.
• Borrowers were unable to restore business operations to February 15, 2020 levels due to COVID-19 related restrictions.
  • Supporting documentation in this area presumably will be key.

• For new loans, amounts not forgiven will have five years to repay the loan vs. the previous two years, and can be extended up to another five years if agreed by both lender and borrower. Interest stays at 1%.  Payments are deferred until forgiveness is received, or until 10 months after the recipients last day of the covered period if the borrower doesn’t request forgiveness.  Loans issued prior to this legislation could be modified by the lender to include these payment terms.
  • Borrowers should reach out to their bank related to potential modifications.

• Allows borrowers to also delay payroll tax payments (a provision in the CARES act) that was not originally allowed for PPP loan recipients.

Note that this legislation does not contain the needed guidance on the deductibility of the expenses paid with PPP loan proceeds that are forgiven.

This information is for general guidance. If you have any specific questions, please reach out to our team at MWB on anything above or ANY impact you are seeing to your business during this time.