On May 28, 2020, we wrote about the Paycheck Protection Program Flexibility Act (the Act), a new piece of legislation introduced in the House of Representatives. The Act’s intended purpose was to give employers more latitude regarding the use of their Paycheck Protection Program (PPP) loans while also increasing loan forgiveness in order to stimulate the economy. Since then, the Senate has passed the Act and President Trump signed it into law. 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 Act. Treasury and SBA’s proposed enactment makes some significant changes from the Act itself.

Most notable among the legal deviations is that PPP borrowers will no longer be ineligible for loan forgiveness if they use less than 60% of their loan for payroll purposes. The Act was originally written to lower the required payroll threshold from 75% to 60%, but it made it so that if a borrower failed to meet the 60% standard, they would lose all forgiveness. Luckily, the statement released by the Treasury and SBA last night will allow businesses to receive partial loan forgiveness should they not meet the 60% quota. This change will provide even more flexibility for companies to use PPP loans as they see fit.

The other major clarification of the Act is that a PPP loan approved after June 5, 2020 will have a five-year payback period. Not the two-year period based upon the prior guidance. The period applicable to your loan will be based upon the date the recipient received a loan number from the SBA. While loans issued before June 5, 2020 will still be subject to a two-year payback period, the statement from last night makes it clear that banks are allowed to extend that to five years if they so desire (so talk to your banks!). This change will also be welcomed by many borrowers, since it gives them much more time to pay back the loan than they would have had before.

It seems likely that Treasury and SBA may make other changes to the Act as it is implemented. PilieroMazza is monitoring these rapid changes and will provide updates when more guidance is released by the government.