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Senate Passes Paycheck Protection Program Flexibility Act of 2020 Bill

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On Wednesday, the Senate passed, by unanimous consent, H.R. 7010, the same bill that was passed by the House last week to provide for changes to the Paycheck Protection Program (PPP). The bill now goes to the White House to be signed, which is expected to occur soon. This bill results in significant changes to the PPP and provides much needed relief to borrowers.

The major impacts relating to the PPP loan forgiveness program in the bill are the same as noted in our previous BP Blast, with additional details noted as follows:

Increases the “forgiveness period” from 8 weeks to 24 weeks.

The covered period is extended to the earlier of 24 weeks after the date of loan origination or December 31, 2020. Increasing the window from 8-weeks to 24-weeks allows companies a significant extension of time to incur payroll costs, which is much needed, especially for those businesses who have had to remain either fully or partially closed to comply with individual state or local mandated reopening phases and guidance.

For those businesses who received a PPP loan early in “Round 1,” the original 8-week covered period is coming to an end. This new bill does not preclude a borrower from electing to use the 8-week covered period. A company may move forward with the original forgiveness process if the business has already planned for, spent PPP proceeds on payroll and other allowable expenses, and maintained the appropriate documentation.

Decreases the requirement that 75% of the loan be used for payroll costs to 60%.

The new bill provides that the amount spent on payroll must be at least 60% of the loan proceeds, a decrease from the previous 75%. The remaining 40% can be used for payment of interest on covered mortgage obligations, rent payments and utility payments. The decrease in payroll threshold, combined with the extension from 8 to 24 weeks presumably will make it possible for most businesses to incur enough payroll costs to allow for the loan to be fully forgiven. However, the new bill appears to create a cliff, whereby if the borrower doesn’t spend at least 60% of the proceeds on payroll costs, none of the borrowings are forgiven. This could be clarified in future Treasury/SBA guidance, but it is something to be aware of.

Expands the repayment period for unforgiven loans from 2 years to 5 years.

Although the bill extends the repayment period to 5 years on any new loans made, lenders and borrowers are permitted to modify the maturity terms of existing loans to conform with the new guidance. Additionally, any payment of principal and interest can be deferred until the date the lender receives the forgiveness decision from the SBA. This will likely be longer than the six months previously authorized under the CARES Act.

Extends the June 30 “safe harbor” deadline to rehire workers.

Companies now have until December 31, 2020 to rehire workers and restore FTE counts. However, any company that is not able to fully restore workers and can document, in good faith, that there was an inability to either rehire workers or return to the same levels of business (both before February 15, 2020), due to complying with health guidelines and regulations, that there shall be no reduction in the calculation for forgiveness.

In the new bill, forgiveness must be applied for within 10 months after the end of the covered period (24 weeks from funding) or December 31, 2020.

The last significant provision of the bill allows companies who received PPP loans to conserve cash by deferring remittance of the employer’s portion (6.2%) of the Social Security payroll tax on wages paid from March 27, 2020 through December 31, 2020. (Link to BP Blast on 4/20).

The amount deferred under this provision is due 50% by December 31, 2021 and the remaining 50% by December 31, 2022. Previously, this deferral was only available until the employer received a decision from its lender that its PPP loan is forgiven.

A total of $659 billion was authorized to be distributed under the PPP, of which $510 billion has been approved through May 30, 2020, leaving approximately $149 billion remaining. Now that the forgiveness allows for additional flexibility, both on time allotted to spend funds (8 weeks previously to 24 weeks now), as well as on the rehiring requirements, companies that have not already applied for a PPP loan may want to consider applying, if they have need. Currently, the authorized funds are set to expire on June 30, 2020, so if you wish to apply, contact your lender.

All of the previous guidance provided by BP regarding documentation of need and maintaining excellent recordkeeping still apply, even with the pending changes. Additionally, the BP team is here to assist with questions and can provide assistance with the forgiveness calculation and review of forgiveness documentation at the end of the covered period. We will be sending out information on those services later today.

The BP team will continue to provide updates as information is released with respect to PPP loan forgiveness. Additional forgiveness guidance in the form of FAQ’s is expected to be released in the near future which should help to clarify questions. For example, it is expected that for those individuals paid in excess of $100k, the forgiveness will be increased from 8/52 (or $15,385) to 24/52 (or $46,154). We expect items such as this will be addressed in future guidance. At this time, we advise patience in awaiting official guidance. The easing of the covered period combined with the reduction in payroll threshold should allow the majority of companies to refocus and make good decisions on how to safely reopen and appropriately staff their businesses without making payroll decisions primarily for the purpose of achieving PPP forgiveness.

Berntson Porter is here to help you navigate these unprecedented times. Visit our online Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.