Updated June 5, 2020
In the wake of the massive economic disruption caused by the Coronavirus outbreak, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The Payroll Protection Program (PPP), which is part of the CARES Act, provides aid to qualifying small businesses in the form of loans with terms favorable to borrowers, including, in particular, provisions that allow potentially the entire loan amount to be forgiven if the proceeds are spent on payroll and other qualifying expenses. Since then, Morrison and Foerster has covered the evolution of implementing regulations closely through its Coronavirus Resource Center.
Now, Congress has passed new legislation, the Paycheck Protection Program Flexibility Act, which President Trump signed earlier today. The Act extends the time borrowers have to spend PPP funds from 8 weeks after origination to the earlier of 24 weeks after origination or December 31, 2020, and reduces the overall percentage that must be spent on payroll costs, from 60% to 75%. Also, the legislation adds additional flexibility for businesses that are unable to rehire individuals or return to the same level of business activity at which such business was operating before February 15, 2020, because of COVID-19 restrictions.
|New Rule||Old Rule|
|How long do I have to apply for the loan?||June 30, 2020||June 30, 2020|
|How many weeks do I have to spend the money and have the loan forgiven?||24 weeks after loan origination OR until December 31, 2020||8 weeks after loan disbursement|
|How much of the money has to be spent on payroll costs?||60%||75%|
|As I reopen, can I rehire fewer employees without penalty?||Yes, if employees let go after February 15, 2020, refuse offer of rehire AND no other qualified candidates available by December 31, 2020, OR the business is unable to return to former levels of business activity due to social distancing requirements and other COVID-19 related restrictions||Yes, if employees let go after February 15, 2020, refuse offer of rehire|
|When can I apply for loan forgiveness?||Within 10 months of the last day of the covered period (covered period meaning 24 weeks after loan origination or December 31, 2020)||Within 6 months of the last day of the covered period|
|How long can I defer repayment?||Until the date of which the determined forgiveness amount is remitted to the lender||Not less than 6 months, but not more than 1 year|
|What is the maturity date of my loan if there is a remaining balance after application of forgiveness?||Minimum of 5 years and maximum of 10 years||2 years|
|If I have a PPP loan, can I also qualify for tax credit to defer payroll taxes?||Yes||No|
From the outset of the PPP program, applicants have assumed that the list of recipients would become public. It appears that day may be coming sooner rather than later, as the Chairman and Ranking Member of the Senate Committee on Small Business and Entrepreneurship co-signed a letter to Treasury Secretary Mnuchin and Small Businesses Administrator Carranza requesting, among other items, that “[i]n adherence to the SBA’s current disclosure practices of “frequently requested information,” the SBA should begin making available on its website the following PPP information for all loans approved since the program began . . . Name of business or nonprofit borrower and address, lender and address, loan or grant amount, business type, Congressional District, number of jobs supported.”
We anticipate further updates as the Small Business Administration (SBA) issues guidance on these changes. Find analysis of SBA’s current rules on PPP loan forgiveness here.