Congress Gives Borrowers More Flexibility with Amendments to Paycheck Protection Program

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (“HR 7010” or the “PPP Amendment”) into law, after the House passed HR 7010 on May 29, 2020 and the Senate adopted HR 7010 by a voice vote without amendment on June 4, 2020. Unlike the prior substantive changes to the PPP that appeared in various FAQs and Interim Final Rules issued by the Treasury Department and the Small Business Administration (which often created even more uncertainty), HR 7010 was enacted by Congress and carries the full force of law. Furthermore, the amendments to the PPP included in HR 7010 give borrowers much needed flexibility in terms of using PPP funds and being able to maximize forgiveness of those funds.

In pertinent part, Congress made the following material changes to the PPP:

  • The “Covered Period” during which borrowers can spend loan proceeds is expanded from eight weeks to the earlier of 24 weeks or December 31, 2020. However, borrowers can elect to use the original eight-week covered period if desired.
  • Subject to certain documentation requirements, the PPP Amendment removes the proportional reductions to loan forgiveness for businesses that were unable to rehire employees, hire new employees, or return to the same level of business activity due to compliance with social distancing guidelines and other health-related guidance and requirements issued by federal agencies (specifically, the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, and the Occupational Safety and Health Administration).
  • The PPP Amendment expands the 25 percent cap on use of PPP funds for non-payroll expenses (such as rent, mortgage interest, and utilities) to 40 percent of the loan amount, and accordingly lowers from 75 percent to 60 percent the amount of loan proceeds that must be spent on payroll expenses to obtain maximum forgiveness.
  • Borrowers can now receive a PPP loan and also qualify for a separate, recently enacted tax credit to defer payroll taxes, which was previously prohibited to prevent “double dipping.”
  • The term of the loan (for any amounts that are not forgiven) is extended from two years to five years, at a 1% interest rate.
  • The period for seeking loan forgiveness is extended from within six months to within 10 months from the last day of the covered period, and interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.

While these changes will be welcomed by most borrowers, we do expect additional action from Congress, as several lawmakers have expressed concerns and interest groups continue to lobby for changes.

Further, on June 8, 2020, SBA and the Treasury Department issued a Joint Statement to notify borrowers that the agencies plan to issue a modified PPP loan application form, a modified loan forgiveness application form, and new rules and guidance to implement the changes set forth in the PPP Amendment. The Joint Statement also addresses confusion regarding whether partial loan forgiveness will be available for borrowers who are unable to spend at least 60 percent of their loan proceeds on payroll costs, stating as follows:

If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.

Thus, it appears that loan forgiveness will be available on a sliding scale, as indicated in existing loan forgiveness rules. The full text of the Joint Statement is available here.

We will monitor any further developments as they occur. If you have questions about any aspect of the PPP Amendment or any of the many other rapid developments related to the COVID-19 pandemic, please contact Tenley A. Carp, Megan P. Mitchell, Henry M. Perlowski, or Mindy S. Planer.