The CARES Act created the Paycheck Protection Program (“PPP”), which amended the Small Business Act (“SBA”) to provide short term loans to companies with fewer than 500 employees and other companies (such as those in the restaurant and hospitality industry). Such loans may be eligible for full forgiveness if used for payroll and other business expenses and all other statutory requirements are met. The SBA continues to issue guidance on a rolling basis, which can impact a company’s eligibility for the loan, use of the loan, and the level of forgiveness.
On May 28, 2020, the U.S. House of Representatives approved a bill by a bipartisan vote of 417 to 1 called the Paycheck Protection Flexibility Act, H.R., 7010, which makes it easier for recipients of the PPP to qualify for forgiveness. Before becoming law, the bill must be passed by the U.S. Senate and signed into law by the President. The House bill provides for the following amendments to the PPP:
- Extension of maturity of the loan from 2 years to 5 years.
- Extension of covered period for allowable uses of the loan from June 30, 2020 to December 31, 2020.
- Extension of covered period for forgiveness from 8 weeks to 24 weeks, or December 31, 2020, whichever is earlier (but gives the borrower the option to choose the 8-week period if the borrower received the loan prior to the enactment of the amendments).
- Changes safe harbor period for rehires from June 30, 2020 to December 31, 2020.
- Adds the following new exemption based on employee availability:
- During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of full-time equivalent employees if an eligible recipient, in good faith, is able to document: (i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
- The exemption also applies if the borrower, in good faith, is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued 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 during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
- Changes 75 percent payroll requirement to 60 percent.
- Extension of deferral period from 6 months to the date on which the amount of forgiveness is determined or 10 months after the last day of the covered period if the borrower fails to apply for forgiveness within 10 months.
- Allowance for borrowers who applied for PPP forgiveness to take advantage of Section 2302 of the CARES Act, which allows companies to delay the payment of payroll taxes.
FordHarrison's PPP team will continue to monitor the release of new guidance and provide updates on a regular basis as guidance continues to roll out.