PPP Loan Guidance Update

On June 3, 2020, the United States Senate passed the House version of the Paycheck Protection Program Flexibility Act (“PPPFA”). The PPPFA amends the original Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to loosen restrictions placed on PPP loans, making them potentially more favorable for borrowers. The significant changes to the PPP loan program are highlighted below:

Extended covered period for PPP loan forgiveness. The bill extends the eight-week covered period to the earlier of 24 weeks or December 31, 2020. Borrowers can choose to keep the original eight-week period as well. The flexibility is designed to make it easier for more borrowers to reach full loan forgiveness.

Reduction of the payroll expenditure requirement from 75% to 60%. However, the 60% now becomes a cliff, meaning that borrowers must spend at least 60% of the loan proceeds on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount of eligible forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met. This new cliff is based on the wording of the PPPFA, but some congressional leaders are hoping this can be corrected through Small Business Administration (“SBA”) regulation.

Increased PPP loan maturity. Borrowers will have 5 years to pay back the remaining balances on PPP loans after forgiveness. Currently, the maturity period is 2 years. The interest rate of 1% remains unchanged.

Longer payment deferral period. Payments due on PPP loans will be deferred until the date that the loan forgiveness amount is remitted to the lender. This extends the current deferral period of a fixed 6 months from the date proceeds were received.

Extended safe harbor cutoff date. Borrowers will have longer to rehire full-time equivalent (“FTE”) employees and eliminate prior salary/wage reductions to pre-pandemic levels required for full forgiveness. The bill extends the cutoff date to December 31, 2020, from June 30, 2020.

New loan forgiveness exemptions. The bill creates two new exemptions allowing borrowers to achieve full loan forgiveness even if they don’t restore FTE counts to pre-pandemic levels. Borrowers can adjust their FTE reduction calculation if they (i) cannot find qualified employees to hire/rehire or (ii) are unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.

Ability to delay payment of employer payroll taxes. The new legislation allows a PPP borrower to utilize the payroll tax deferral provision under the CARES Act. PPP borrowers are currently disallowed to take advantage of this provision if they receive forgiveness on their loan.

The Senate approval of the PPPFA sends the House bill to President Donald Trump, who is expected to sign it into law. Formal guidance is expected to be posted by the SBA sometime after. We will continue to monitor changes to the program and provide updates accordingly. As always, please contact your Siegfried Advisory Relationship coordinator with any questions, as the above summary is just that—a summary—and not meant to function as financial or tax advice.