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Congress Passes Paycheck Protection Program Fix

Joseph Most, J.D.

6.5.20 | Client Alert – COVID-19 Update

This week Congress passed, and the President signed into law, the Paycheck Protection Program Flexibility Act (the “Act”), which institutes major reforms to the Paycheck Protection Program (“PPP”), particularly to the loan forgiveness provisions. This law addresses some of the concerns that industry groups expressed over the PPP as originally written and directly overrides some of the guidance that the SBA has already issued. Below is a summary of the Act:

  • The minimum maturity date for PPP loans is now 5 years. This applies to loans originated after the date of inaction of the Act but allows for lenders and borrowers to mutually agree to amend the terms of existing loans. Previously, the SBA announced that the loan maturity date for all PPP loans would be 2 years.
  • The last day to use PPP funds has been extended from June 30, 2020 to December 31, 2020.
  • The Covered Period for loan forgiveness has been extended from 8 weeks to the earlier of 24 weeks or December 31, 2020.
  • The safe harbors which allow borrowers to make up for a full time employee (FTE) reduction or a salary/hourly wage reduction have been extended to December 31, 2020. Previously, if a borrower had a FTE reduction between February 15, 2020 and April 26, 2020, it could make up for that reduction by restoring its FTE count as of June 30, 2020 and not have any FTE reduction applied to its loan forgiveness amount. Similarly, if the salary or hourly wage of an employee was reduced during that time period it could be restored as of June 30, 2020. The date for restoration of these amounts is now extended to the end of the year.
  • Additional relief is now available where borrowers have experienced FTE reductions:
    • If a borrower can document an inability to rehire an individual who was employed on February 15, 2020 and terminated thereafter, or hire a similarly qualified employee for the unfilled position, by December 31, 2020, there will be no FTE reduction related to that position.
    • If a borrower can document an inability to return to the same level of business activity it was engaged in before February 15, 2020 due to compliance with COVID-19 related HHS, CDC or OSHA guidance during the period from March 1, 2020 to December 31, 2020, it will not have an FTE reduction.
  • The act requires that at least 60% of the PPP loan amount be spent on payroll costs. This supersedes a rule created by the SBA which set a 75% threshold.
  • Loan repayment deferral (including principal, interest and fees) has been extended. Borrowers are not required to repay unforgiven loans until the date that the forgiveness amount is remitted by the government to the lender. A borrower who does not apply for PPP loan forgiveness within 10 months of the end of the Covered Period may be required to start repaying their loan at that time.
  • Borrowers are now allowed to apply for both loan forgiveness and defer payroll tax payments under section 2302 of the CARES Act. Previously, that provision prohibited payroll tax deferral once a PPP borrower submitted a loan forgiveness application.

We expect that new guidance will need to be issued by the SBA to both interpret this new law and to remedy inconsistencies from existing guidance. As always, we will be monitoring any updates.

Please contact your Berdon advisor if you have any questions relating to the Paycheck Protection Program.

For more information on this topic or any other matter related to the COVID-19 pandemic, please contact your Berdon Advisor.

Berdon LLP New York Accountants