CARES ACT: THE SBA’S PAYCHECK PROTECTION PROGRAM—CONGRESS PASSES THE PAYCHECK PROTECTION FLEXIBILITY ACT
On June 8, 2020, U.S. Department of the Treasury (Treasury) Secretary Steven Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza issued a statement regarding the enactment of the Paycheck Protection Flexibility Act of 2020 (the Act), which Congress passed on June 3, 2020 and President Trump signed into law on June 5, 2020. The Act eases restrictions on Paycheck Protection Program (PPP) loans and gives business owners more flexibility in spending loan funds. The following are key provisions of the Act, along with clarifications made in the statement by the Treasury and SBA:
- The covered period during which businesses have to use the funds in order to be eligible for forgiveness is extended from 8 weeks to the earlier of (i) 24 weeks or (ii) December 31, 2020.
- Borrowers must spend at least 60% of total loan proceeds on payroll in order to be eligible for forgiveness. While the Act lowered the requirement from 75% to 60%, it also appeared to make the payroll expenditure requirement a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan would be forgiven. However, the statement released by the Treasury and SBA clarified this stating that borrowers can still receive partial loan forgiveness if they do not meet the 60% quota.
- The June 30 deadline to rehire workers is extended to December 31, 2020.
- The Act adds additional loan forgiveness exemptions based on employee availability or an inability to return to normal business levels. The amount of loan forgiveness will be determined without regard to a reduction in the number of full-time equivalent employees if the borrower is able to document:
- It is unable to rehire employees that were employed on February 15, 2020; and
- Unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- It is unable to return to the same level of business activity the business was operating at before February 15, 2020 due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration during the period from March 1, 2020 through December 31, 2020, related to standards of sanitation, social distancing or any other worker or customer safety requirements related to COVID-19.
- The loan maturity is extended from a minimum of 2 years to a minimum of 5 years from the date on which the borrower applies for loan forgiveness.
- The statement by the Treasury and SBA clarifies that the extension of minimum maturity only applies to loans made on or after June 5, 2020. However, lenders and borrowers can mutually agree to modify the maturity terms of a covered loan issued before June 5, 2020 to conform to the new minimum maturity.
- The period for when a borrower can apply for forgiveness is extended from 6 months after the loan origination date to within 10 months of the last day of the covered period. Borrowers are not required to make interest and principal payments until the end of such 10-month period. Additionally, the Act requires lenders to provide complete payment deferment relief for borrowers, including payment of principal, interest and fees, until the date on which the amount of forgiveness is remitted to the lender.
- Allows companies that receive loan forgiveness to defer payroll taxes.