Congress Passes Legislation With Substantial Changes To PPP Loan Forgiveness

Troutman Pepper
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Pepper Hamilton LLP

[co-authors: James Stevens, Matthew Roberts, Lindsay Austin, Jeremy Tomes]*

Lingering questions pertaining to loan forgiveness, a key feature under the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) created by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), have been addressed in legislation passed by Congress. On May 28, 2020, the House of Representatives passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) (PPPFA) by a vote of 417-1, and the bill was promptly sent to the U.S. Senate for further consideration. Although there were initial objections from some Senators, ultimately, the Senate passed the PPPFA by a unanimous voice vote on June 3, 2020. The bill now heads to the President for his signature.

The PPPFA was passed with bipartisan support as the ticking clock on the initial eight-week covered period recently expired for the first recipients of PPP loans. The bill provides forgiveness relief by, among other ways, making changes to the length of the covered period in which PPP borrowers must spend PPP funds to qualify for forgiveness and altering the mandated proportions in which PPP funds must be spent in order to qualify for loan forgiveness.

The following is a summary of the PPPFA’s main provisions:

  • Extends the repayment term for unforgiven portions of PPP loans to 5 years for all new loans. Existing loans retain their 2-year term, though the bill permits lenders and borrowers to negotiate a longer term.

  • Extends the last date of the period during which PPP loans can be applied for and disbursed from June 30, 2020, to December 31, 2020 (although the application deadline is anticipated to remain as June 30, 2020, as noted below).

  • Extends the period during which borrowers must use the proceeds of a PPP loan from 8 weeks after the loan disbursement date to the earlier of (i) 24 weeks after the loan disbursement date and (ii) December 31, 2020 (the “use and forgiveness covered period”)).

  • Lowers the minimum percentage of loan proceeds required to be used for covered payroll costs to qualify for loan forgiveness from 75% to 60%.

  • Expands the exemption to forgiveness reduction tied to reductions of full-time equivalent employees based on employee availability. Specifically, the forgiveness amount will not be affected by a reduction in full-time equivalent employees if the borrower is able to document an inability to rehire individuals, to hire similarly qualified employees, or to return to the same level of business activity as it was operating at before February 15, 2020, due to compliance with regulatory requirements or guidance established by the Department of Health and Human Services, the Center for Disease Control and Prevention, or the Occupational Safety and Health Administration between March 15, 2020, and December 31, 2020, and related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

  • Requires borrowers to apply for loan forgiveness within 10 months after the end of borrower’s use and forgiveness period if forgiveness is to be sought.

  • Ensures full access to payroll tax deferment for businesses that take PPP loans.

  • Extends the rehiring and restoration of salary and wage reductions deadline from June 30, 2020, to December 31, 2020, to offset the effect of enhanced Unemployment Insurance.

  • Extends payment deferrals to the date that the forgiveness amount is remitted to the lender by the SBA or 10 months after the use and forgiveness covered period.

  • Bill text can be found at www.govtrack.us.

Senator Ron Johnson (R-Wisc.) initially blocked an attempt to pass the bill swiftly, but we understand that he later agreed to not oppose passage after receiving a letter from Small Business Committee negotiators clarifying that the program extension to December 31, 2020, only applies to spending (i.e. forgiveness), and not to PPP applications. Based upon this, we anticipate that the PPP application deadline will remain June 30, 2020.

Key Takeaways

The PPPFA makes substantial changes to the PPP loan forgiveness rules and guidance that have been previously provided by the Department of Treasury () and SBA, the effect of which will be to permit borrowers to have more of their PPP loans forgiven. When the PPPFA is signed into law by the President, PPP lenders will likely need additional guidance from the Treasury and SBA to effectively implement the changes. PPP borrowers will be best served by communicating with their respective PPP lenders to determine their best course of action with respect to applying for loan forgiveness. Also, once the PPPFA is signed into law, the current Loan Forgiveness Application (SBA Form 3508) provided by the SBA will need to undergo revisions in order comply with the changes in the PPPFA. As an immediate step, PPP borrowers who can currently file for forgiveness should continue to delay such filings until the PPPFA is signed into law and additional guidance is provided by the Treasury and SBA in connection therewith.

* Troutman Sanders

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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