SBA and Treasury Announce PPP Loan Modifications, Based on PPP Flexibility Act

The Small Business Administration (SBA) and Treasury announced on June 8 that they will be issuing guidance and additional rules for the Paycheck Protection Program Flexibility Act passed by Congress on June 3, 2020. Of particular note, the announcement clarified that partial loan forgiveness will be allowed if the 60% payroll costs threshold is not met. The pending guidance will be accompanied by modified application forms for borrowing and for loan forgiveness.

The changes to the PPP rules and modifications to the forms that will be addressed based on the Flexibility Act include:

Extended covered period

Loan forgiveness is extended from the original eight weeks after the date of loan disbursement to 24 weeks. Borrowers who have already received PPP loans may still opt for the eight-week covered period.

 Partial Loan Forgiveness

Borrowers may now use 60% of their PPP loan on payroll costs instead of the previous 75% during the 24-week covered period in order to qualify for loan forgiveness. SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin clarified that if less than 60% of the loan is used on payroll costs, partial loan forgiveness will also be available. This was not clear in the PPP Flexibility Act. In the case of partial forgiveness, they stated that at least 60% of the loan forgiveness amount (not the original loan amount) must have been used for payroll costs.

Safe Harbor

• If borrowers are unable to return to the same level of business activity that they had before February 15, 2020 as a result of compliance with pandemic-related safety requirements or guidance 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, they will be given a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent (FTE) employees. This applies between March 1, 2020 and December 31, 2020.
• Borrowers who are unable to rehire FTE employees (who worked with them before February 15, 2020) or hire similarly-qualified employees by December 31, 2020 will have a safe harbor from reductions in loan forgiveness based on reductions in FTE employees.

Loan maturity

PPP loans approved by the SBA on or after June 5, 2020 can now be paid off in five years instead of the original two-year term.

Deferral period extension

Borrowers will now be given an extension on the deferral period for payment of principal, interest and fees on PPP loans. That period now begins on the date the SBA remits the loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, deferral is extended to 10 months after the end of the loan forgiveness covered period.

Last date for loan approval

June 30, 2020 is still the last date on which a PPP loan application can be approved.

For more information on the PPP Flexibility Act, read our article. For questions regarding PPP loan forgiveness, please contact your Smith and Howard advisor or fill in the form below.