Paycheck Protection Program Forgiveness Expanded; Economic Injury Disaster Loan Reopened

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”) was signed into law. The Treasury Department then published revisions to its rules relating to the Paycheck Protection Program on June 11, 2020, clarifying how the Flexibility Act will be interpreted as there has been some confusion regarding its application. There are a few changes that are important for small businesses to keep in mind when developing their financial plans related to their PPP loans and applying for forgiveness. First, the Flexibility Act expanded the forgiveness period from 8 weeks to 24 weeks from the date of origination (or December 31, 2020 if earlier) but retains the option for pre-June 5 borrowers to choose between the 8-week or the 24-week covered period. Second, the Flexibility Act requires only 60% of the loan to be used towards payroll costs, as opposed to 75%. This is not a condition of forgiveness as previously thought but, rather, it means that spending less than 60% of the loan on payroll will reduce the amount of the loan that can be forgiven. Third, the Flexibility Act extends the period in which borrowers must restore FTEs from June 30, 2020 to December 31, 2020. Fourth, the Flexibility Act provides two exceptions to the requirement that borrowers must restore FTEs to February 15, 2020 levels: (1) if a borrower cannot find qualified employees for unfilled positions and 2) if the borrower cannot restore operations to comparable levels of business activity due to social distancing needs and other practicalities of operating within customer and worker safety guidelines established due to COVID-19. Fifth, for borrowers whose loans originated June 5 or later (where ‘origination’ means the date on which the SBA assigns a loan number), the borrower will have 5 years to repay the loan and will only need to start repayment of the loan from the date the loan forgiveness amount is determined. For borrowers whose loans originated prior to June 5, the deferment period remains 6 months and those borrowers still only have 2 years to repay the loans. Finally, the Flexibility Act allows PPP borrowers to utilize the existing payroll tax deferrals permitted under the CARES Act, which was previously only available to businesses not participating in PPP, and which enables borrowers to defer 50% of the employer’s share of payroll taxes until 2021 and the remaining 50% until 2022.

The deadline to apply for a PPP Loan is still June 30, 2020. Loan forgiveness applications are due within ten months following the end of the 8- or 24- week covered period.

The SBA announced on June 8, 2020 that it would issue new rules and guidance, a modified borrower application form and a modified loan forgiveness application. The SBA published a modified borrower application but has not yet published a modified loan forgiveness application.

On June 10, there was a Senate Committee meeting, in which the participants discussed, among other things, a simplified application for forgiveness, which is hopefully coming soon. Extending the PPP program was also a topic of discussion but at this point the June 30 deadline remains the applicable deadline.

Additionally, the SBA announced on June 15 that it has reopened the Economic Injury Disaster Loan to all eligible applicants experiencing economic impacts due to COVID-19. You can apply here: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance.