On June 11, the Treasury Department clarified a loan forgiveness provision of the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) (the PPPFA) in an interim final rule (IFR). (The PPPFA adopts a number of significant changes to the Paycheck Protection Program (PPP) promulgated under the CARES Act, as outlined in an earlier Hirschler client alert.) The SBA also published an updated application form for borrowers for loans made on or after June 5, 2020.
1. Failure to meet the 60% payroll expense requirement is not a “cliff” but rather reduces loan forgiveness pro rata. The PPPFA changed from 75% to 60% the amount of the original PPP loan amount that must be spent on qualified payroll expenses to secure full loan forgiveness. However, under the original interpretation of the PPPFA, the 60% threshold appeared to be an all-or-nothing rule – failure to satisfy the 60% rule resulted in no loan forgiveness. The extension of the covered period from 8 weeks to 24 weeks mitigated, but did not eliminate, the potentially adverse consequences of this new all-or-nothing approach. The IFR restores proportional loan forgiveness for a borrower that fails to expend at least 60% of the original loan amount on qualified payroll expenses. For example, if a borrower receives a $200,000 PPP loan, and during the covered period the borrower spends $100,000 (or 50%) of its loan on payroll costs, then because the borrower used less than 60% of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $166,667 (with $100,000 in payroll costs constituting 60% of the forgiveness amount and $66,667 in non-payroll costs constituting 40% of the forgiveness amount).
2. Maturity Date of Unforgiven Amounts. The IFR also clarified that for PPP loans made after June 5, 2020 the maturity date for unforgiven loan amounts is five years. For loans made before June 5, 2020 the borrower’s loan currently matures in two years for unforgiven amounts, but the borrower and lender may agree to a five year maturity.
3. PPP loan applications end June 30, 2020. The IFR also contains a reminder that the last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020. There appear to still be PPP loan funds available for those businesses considering applying, but applicants are running out of time.
Have questions about the PPPFA? Contact a member of the Hirschler PPP task force to help you navigate the PPP application, qualified expenditures and the loan forgiveness process.
Luis F. Ruiz