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Amendments to the PPP Loan Program

President Donald Trump signed H.R. 7010, also known as the Paycheck Protection Program Flexibility Act of 2020 on Friday, June 5, 2020. 

Following are some key components of the bill and highlights of changes to the Paycheck Protection Program (PPP) program:

Extension of covered period

The Coronavirus Aid, Relief and Economic Security (CARES) Act granted borrowers eight weeks from the date of disbursement of the loan pay expenses eligible for forgiveness. H.R. 7010, however, extends that “covered period” to 24 weeks from the date of the loan’s origination, or December 31, 2020, whichever comes earlier. (A borrower can elect to use the previously stated eight-week period and submit for loan forgiveness after the eight-week period and not wait for the expiration of the new 24-week period.)

75% requirement for payroll expense is lowered to 60%

The new bill provides that the 25% cap for non-payroll costs is raised to 40%, which is great news for borrowers. Borrowers now have 24 weeks to use loan proceeds primarily for payroll costs. It is important to note that the 60% to be spent on payroll costs is mandatory — if 60% of the loan is not spent on payroll costs, then none of the loan will be subject to forgiveness.

June 30, 2020, date for rehiring has been extended to December 31, 2020

The CARES Act provided for a reduction in the amount of loan forgiveness if businesses had fewer employees or reduced wages during the loan covered period as opposed to pre-pandemic levels. Businesses could avoid the reduction if they rehired or increased wages to pre-pandemic levels by June 30, 2020. This should assist businesses who are now beginning to reopen and have not previously been able to justify rehirings or wage increases.

Relief for businesses that remain partially or fully closed through the end of the year who are unable to rehire employees

For businesses that have lost employees during the coronavirus pandemic and have been unable to rehire those employees to avoid a reduction in PPP loan forgiveness, the bill provides some relief. During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness will not be reduced when a borrower experiences a loss of full-time employees if the borrower, in good faith, is able to document any of the below:

  • There was an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020;
  • There was an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
  • There was an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of U.S. Department of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or Occupational Safety and Health Administration from March 21, 2020, to 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.

This provision enables restaurant borrowers and similarly situated borrowers to avoid a loss of forgiveness that might otherwise apply in situations where the business cannot rehire up to full pre-pandemic staffing due to limits on operations imposed by COVID-19 safety measures required by the government.

Payment and interest deferral terms are extended

Before the bill, the U.S. Department of the Treasury provided that the repayment term of any amount of the PPP loan that was not forgiven would be two years. The new bill specifies a five-year maturity date. Before the bill, interest on the loan was deferred for a period of six months. The new bill allows for deferral until the date the lender receives the forgiveness amount from the Small Business Administration (SBA), a substantially longer period.

There is still additional guidance expected from SBA and Treasury Department on the forgiveness aspects of PPP loans.

Williams D. Shaughnessy, Jr.
410-576-4092 • wshaughnessy@gfrlaw.com

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