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June 2020

Paycheck Protection Program Flexibility Act Passes House and Senate

June 3, 2020

On April 3, 2020, the United States Small Business Administration (“SBA”) by way of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) began accepting loan applications for its expanded United States Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) to offer payroll protection loans. After much criticism from industries across the spectrum, the House offered a bipartisan bill called the Paycheck Protection Program Flexibility Act (H.R. 7010) in an attempt to fix some of the flaws of the program and allow more flexibility for the small businesses receiving the loans.

On June 3, 2020, the Senate passed the bill and will be sending it to the President for signature. The link to the full text of the bill is here.  Some of the key changes are as follows:

  • The “covered period” for forgiveness related to the loan funds has been increased from eight (8) weeks to twenty-four (24) weeks.
  • Forgivable expenses that are not “payroll costs,” including rent, utilities, mortgage payments, and other interest, are now permitted to amount to up to forty percent (40%) of the forgivable amount, an increase from twenty-five percent (25%) under the original PPP.
  • The deferral on payments has been extended from six (6) months to twelve (12) months.
  • All new PPP loans originated after the enactment shall have five (5) year maturity, an increase from two (2) years under the original PPP.  Lenders shall have the ability to modify the existing loan terms to increase the maturity to five (5) years.
  • Allows an exemption to the loan forgiveness penalty for reduction in FTE employees by allowing a borrower to document and certify in good-faith:
    • An inability to rehire individuals who were employees of the eligible recipient on Feb. 15, 2020 and an inability to rehire similarly qualified individuals by December 31, 2020 – an increase from June 30, 2020;
    • 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 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.
  • PPP borrowers that were previously unable to take advantage of payroll tax deferral options permitted under the CARES Act are now specifically permitted to do so.  Here is a summary of some of those payroll tax deferral options.

Given the gravity of these changes, we urge everyone with existing PPP loans to evaluate how the changes affect their spending of PPP loan funds in order to maximize forgiveness.  Additionally, lenders need to evaluate the changes as it will affect forgiveness applications (and subsequent SBA repurchases) and will likely result in modification requests.

Please contact the Gordon Rees Scully Mansukhani team with any questions.

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Banking & Finance

Jonathan M. Boulahanis
W. Kent Carter
Craig S. Heryford

Banking & Finance
Business Transactions