Over the last month, Congress and the SBA have continued to tinker with the Paycheck Protection Program (PPP), most recently extending the PPP loan application deadline to August 8, 2020. As of June 30, 2020, $132 billion remained available under the PPP. The current lay of the land is this: PPP loan terms and loan forgiveness terms are more attractive to borrowers, and taking a loan is less risky after the SBA walked back enforcement action threats. We expect that many borrowers, including those who returned or didn’t accept proffered PPP loans, will reconsider a PPP loan in light of continued economic uncertainty due to increased COVID-19 infection rates and stalled efforts to re-open businesses.
It is interesting, to say the least, that the PPP morphed from desired, to toxic, and mostly back again in just a few short months. Just for fun, here’s how we got where we are:
- March 27, 2020: The CARES Act amends Section 7(a) of the Small Business Act to add a new paragraph 36, which authorizes the SBA to guarantee up to $349 billion in PPP loans. The CARES Act also specifies the conditions to have all or a portion of the PPP loans forgiven. The Small Business Administration (SBA) scrambles to prepare guidance on the PPP.
- April 2, 2020: The SBA publishes loan application forms the day before applications may be made.
- April 3, 2020: Some banks begin accepting loan applications; others delay because they have no idea what to do or how the PPP works. The SBA publishes its first interim final rule and FAQs about the PPP.
- April 3-23, 2020: Banks figure out how to process loans and, not surprisingly, give priority to their existing, larger customers (like any rational bank would). SBA loan guaranty authority is used up by April 16. Treasury Secretary Mnuchin throws a hissy fit when criticized because large, well-known or public companies got loans; Mnuchin threatens to throw people in jail for fraud; he says he means business. The SBA continues to trickle out guidance in the form of FAQs, interim rules, and letters.
- April 23, 2020: The SBA “clarifies” that companies with other sources of funds probably can’t certify that the PPP loan is “necessary,” despite that the CARES Act specifies that unavailability of other sources of credit is not a requirement for a PPP loan, and says it will review all loans over $2 million to determine if the borrower validly certified that the loan was “necessary.” The SBA gives borrowers until May 7 to repay the loan without repercussions (FAQ 31). It says it means business.
- April 24, 2020: Congress allocates another $310 billion for the PPP, raising the aggregate authorized amount to $659 billion.
- April 24-May 5, 2020: The SBA continues to dribble out guidance.
- May 5, 2020: The SBA extends the deadline to repay PPP loans without repercussions to May 14 (FAQ 43), but says it still means business.
- May 13, 2020: The SBA tells those with loans under $2 million it won’t go after them for representing that their PPP loan was “necessary,” ostensibly to ensure SBA audit resources will be used most effectively. The SBA extends the repayment safe harbor to May 18, 2020 and backs off its threats of enforcement action as long as a borrower repays the loan when the SBA says it didn’t qualify, possibly suggesting it didn’t really mean business earlier and was just caught up in the moment (FAQ 46).
- May 13-15, 2020: The SBA dribbles out more guidance.
- May 15, 2020: The SBA publishes the loan forgiveness application, which answers some basic questions, but leaves others unanswered.
- May 15-June 5, 2020: The SBA dribbles out more guidance, including some interim rules that establish items reflected in the loan forgiveness application, and some other stuff.
- June 5, 2020: The Paycheck Protection Program Flexibility Act provides for a 24-week covered period, creates a safe harbor for FTE reductions based on compliance with federal guidance, reduces the portion of the loan to be spent on payroll to 60%, pushes out the first loan installment repayment date, and, for new borrowers, extends the loan term from two to five years.
- June 5-16 , 2020: The SBA publishes interim final rules and guidance that largely make conforming changes to earlier guidance.
- June 16, 2020: The SBA publishes a revised loan forgiveness application and a new simplified forgiveness application Form EZ for those relying on safe harbor exemptions to forgiveness reduction cutbacks.
- June 16-26, 2020: The SBA issues additional interim final rules and guidance.
- July 5, 2020: Congress extends the deadline for PPP loan applications to August 8, 2020.
- July 6, 2020: After pressure from Congress, the SBA begins to publish information about PPP loan recipients, identifying by name those with loans over $150,000.
The SBA has issued no new rules or guidance since June 26, despite many aspects of the PPP remaining unclear. That may be by design, but it kicks to the SBA review process critical loan forgiveness decisions. (We are not confident the SBA will make uniform decisions, and everyone should be braced for servicing lenders and the SBA to handle the process poorly.) In part because guidance is lacking, we believe most PPP borrowers will take good faith, aggressive positions to have the maximum loan amount forgiven, and that nearly all who reduced FTEs since February 15, 2020, will rely on the “compliance” safe harbor for those reductions. To help those borrowers document that reduced FTEs were due to direct or indirect compliance with federal guidance, we have compiled references to federal and Oregon COVID-19 guidance here.
We have published a number of alerts about the PPP, including our latest on the application deadline extension and recent considerations, here. The Treasury Department’s website, here, remains the best place to go for rules, guidance, and forms. A PPP guide we find useful is here.