Congress Passes Major Favorable Changes to PPP Loan Forgiveness Rules

NOTICE – This article has not been updated to reflect new legislation passed by Congress on December 21, 2020.  That legislation could significantly affect the content of this article.  We plan to update this article during January 2021 to reflect the impact of the new legislation.

June 8, 2020

Mike Batts, CPA

On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020, dramatically liberalizing the rules for Paycheck Protection Program (PPP) loans…particularly the rules related to loan forgiveness. President Trump signed the Bill into law on June 5, 2020.

Following is a summary of the significant changes to the PPP loan rules made by the new law:

  • Eligible organizations that have not already done so may still obtain PPP loans, but only through June 30, 2020. (Media reports indicate that more than $100 billion of PPP loan funds remain available for distribution.)

  • New PPP loans made on or after June 5, 2020 will have a minimum 5-year maturity and a maximum 10-year maturity vs. the 2 years set by the SBA for loans made previously. (Loans made prior to June 5, 2020 can be modified by mutual agreement between the borrower and the lender, but neither borrowers nor lenders are apparently under any legal obligation to extend the maturity dates of existing loans.)

  • The “Covered Period” (the period during which PPP loan funds must be spent in order to qualify for forgiveness) is now a period beginning on the loan funding date and ending on the date 24 weeks later or December 31, 2020, whichever is earlier. (Previous law set the Covered Period to end at the earlier of 8 weeks after the loan funding date or June 30, 2020). Borrowers who received PPP loans prior to June 5, 2020 can elect to have an 8-week Covered Period apply if they wish.

  • The Small Business Administration’s regulatory requirement that at least 75% of loan funds be used for payroll costs no longer applies. The new law (as applied by the SBA) provides that at least 60% of the loan amount forgiven must be for payroll costs.

  • Borrowers who document that they have an “inability” to rehire former employees or similarly qualified employees for unfilled positions by December 31, 2020 are exempt from loan forgiveness reduction in connection with FTE reduction. We expect more guidance to come addressing the manner in which borrowers must document such inability.

  • Borrowers are exempt from loan forgiveness reduction in connection with FTE reduction if they document that they have an “inability” to return to the same level of business activity at which they were operating before February 15, 2020, due to compliance with requirements established 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 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. We expect more guidance to come addressing the manner in which borrowers must document such inability.

  • PPP loan payments (including interest) are deferred until the approved loan forgiveness amount is actually funded by the SBA (i.e., the SBA transfers payment of the forgiveness amount to the lender).

  • A borrower that does not apply for forgiveness within 10 months after the end of its Covered Period must begin making loan payments as of the date which is 10 months after the end of its Covered Period.

  • The provision in the CARES Act that permits employers to defer payment of employer Social Security taxes during the period from March 27, 2020 through December 31, 2020 is modified. Under original provisions of the CARES Act, the opportunity to defer payment of such taxes ended once any part of a borrower’s PPP loan was forgiven. Under the new law, deferral of payment is permitted for employer Social Security tax obligations that arise through the remainder of 2020, regardless of whether or not the organization has a PPP loan amount forgiven. Payment of amounts deferred are still required…half by the end of 2021 and half by the end of 2022.

Our firm consistently revises its PPP Loan Forgiveness Summary and CARES Act Summary to reflect changes such as those mentioned above. Those summaries may be accessed here.

We Are Here for You

The BMWL COVID-19 Task Force stands ready to assist our clients in addressing these matters. We are currently accepting engagements for the preparation of PPP loan forgiveness applications and related documents. Our Task Force may be reached at [email protected].

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