PPP Loan Program Update – June 10, 2020

On Monday, Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza released a Joint Statement regarding enactment of the Paycheck Protection Program Flexibility Act. The Paycheck Protection Program Flexibility Act was signed by the President and became law last Friday (June 5). Below in bolded italics is a copied excerpt from the Joint Statement. The Joint statement in its entirety can be found here.

SBA, in consultation with Treasury, will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP. These modifications will implement the following important changes:

• Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
• Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. 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.
• Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 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, related to worker or customer safety requirements related to COVID–19.
• Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
• Increase to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.
• Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
• In addition, the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.

Acknowledging that each of your businesses has a different set of circumstances that will define the best course of action for you to take, below are some items for you to consider as you process the information provided in the Joint Statement.

1. The information provided by the Joint Statement provides some foresight into the positions that will be taken by the SBA, in consultation with the treasury, as it relates to the Paycheck Protection Program Flexibility Act. When the Act was signed by the President, there was a fair amount of uncertainty around how the SBA would move forward with its contents. The Joint Statement does not eliminate that uncertainty, but it does provide some clarity.
2. The Joint Statement says that rules and guidance will be coming “promptly”. We believe it is advisable in most instances to take a wait and see approach towards the Paycheck Protection Program Flexibility Act until we have received the rules and guidance. If you have a specific set of circumstances that is not conducive to a wait and see approach, please let us know.
3. A modified loan forgiveness application is to be expected.
4. In alignment with the wait and see approach, if you are a business that is at the end of your 8 weeks or close to the end of your 8 weeks, we believe it is advisable to communicate with your lender that you are either A) considering utilizing the 24 week period or B) waiting on the new application before submission based on an 8 week period. Absent the rules and guidance form the SBA, we do not expect your lender will be prepared to give you definitive guidance on next steps, but we do expect they would appreciate your letting them know you are aware of where you are relating to your 8 week period.
5. One concern with the Act signed by the President was that it contained what many referred to as the “60/40 Cliff”. As written, the Act said that at least 60% of loan proceeds had to be used for payroll costs in order to receive forgiveness. The Joint Statement thankfully clarifies that the intent of the 60/40 rule is not to be a cliff but rather a potential limitation on the amount of non-payroll costs eligible for forgiveness.
6. Based on how the Act is written, we interpret that the 60/40 rule will apply to 8 week and 24 week covered periods. The Joint Statement does not make that position abundantly clear, so please accept our interpretation as being subject to further guidance provided by the SBA.
7. The increased maturity period of a PPP loan to 5 years is only for those loans approved by the SBA after June 5. If your loan was approved before June 5, you can still expect for your maturity period to be 2 years.
8. The exemption based on employee availability does not mention compliance with requirements established or guidance issued by state level government.
9. The deferral period extension of borrower payments of principal, interest, and fees should eliminate the possibility of a business having to make a loan payment before forgiveness is granted.
10. Those companies who have not applied for a PPP loan have until June 30 to apply. As of the end of last week, there are limited funds still available. The Joint Statement says that a modified borrower application form will be promptly issued. If you are interested in applying, we encourage you to be in contact with your lender to determine if they will accept the existing application or if they want you to wait until the modified form is available.

The Walz Group Team remains committed to serving you as we stay abreast on the most recent information relating to PPP loans available to us. The Paycheck Protection Program Flexibility Act brings about the question as to whether it is in your best interest to extend your covered period from 8 weeks to 24 weeks. If you are uncertain about whether extending to 24 weeks is in your best interest, we welcome the opportunity to have that discussion with you or work through that analysis with you.