Updated Client Alert – The Paycheck Protection Program Loan Program Extended and Loan Data Released
This memorandum updates our previously published Client Alerts concerning relief for small businesses impacted by the COVID-19 pandemic (available here and available here). On June 3, 2020, the Senate approved the House-passed Paycheck Protection Program Flexibility Act of 2020 (the “Act”),[i] which the President signed into law on June 5, 2020. The Act, discussed further below, dramatically alters some of the key provisions of the U.S. Small Business Administration’s (“SBA”) recently-enacted Paycheck Protection Plan (“PPP”). On July 4, 2020, the President signed a new law extending the deadline for applying for a PPP loan from June 30 to August 8, 2020, after both houses of Congress approved the extension unanimously earlier in the week.
By way of background, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)[ii] became law on March 27, 2020, affording small businesses an opportunity to borrow an amount equal to two and one-half times its monthly payroll. The PPP provided that the borrowed sum may be forgivable if certain employee retention and other criteria are met. Due to overwhelming demand, PPP funding was exhausted around mid-April of 2020. On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “Enhancement Act”),[iii] a second round of emergency economic stimulus funding, became law. The Enhancement Act, a $484 billion economic relief package, included replenishment funds for the PPP, the Economic Injury Disaster Loan (“EIDL”), emergency grant programs, and also earmarked funding for healthcare providers to assist in treating and testing for COVID-19.
The Paycheck Protection Program Flexibility Act provides new flexibility to borrowers. Some of the Act’s key provisions include:
- Extension of Deadline to Use Loan Proceeds: The Act changes the “covered period” which borrowers are able to use PPP loans to qualify for loan forgiveness from 8 weeks after the loan is disbursed to 24 weeks from loan disbursement, or December 31, 2020, whichever comes earlier.
- Uses of Loan Proceeds: The Act provides that 60% of loan proceeds must be used for payroll costs to qualify for loan forgiveness, thereby raising the cap on the amount of forgivable loan proceeds that borrowers may use on non-payroll expenses from 25% to 40%.
- Additional Time to Replace Full Time Employees/Restore Salaries: Loan forgiveness remains subject to reduction with respect to reduction of employees or salary cuts. However, the Act will extend the CARES Act’s June 30, 2020 deadline to rehire employees and reverse salary cuts of greater than 25% to December 31, 2020.
- Loan Maturity: The Act extends the minimum loan term for any portion of the loan that is not forgiven, from 2 to 5 years. The change applies to any PPP loans disbursed after the Act’s enactment; however, nothing in the Act prohibits lenders and borrowers from mutually agreeing to modify the maturity terms to match the permitted 5-year period.
- Payroll Tax Deferral: PPP fund recipients are allowed to defer 2020 Social Security payroll taxes obligations into 2021 and 2022, even if the loan is forgiven on or before December 31, 2020.
While the Act aims to address certain borrower frustrations, it is expected that further guidance on the Act will be provided by the Department of the Treasury and the SBA. Indeed, since enactment of the Paycheck Protection Program Flexibility Act, the SBA issued a number of Interim Final Rules addressing, among other things, loan forgiveness.[iv]
On July 6, 2020, the SBA and the Treasury Department released the complete database of all PPP loans issued to date. In a July 6 press release issued by the SBA, Treasury Secretary Steven T. Mnuchin stated, “The average loan size is approximately $100,000, demonstrating that the program is serving the smallest of businesses.”[v]
For more information regarding options for your business during this unprecedented time, please contact Hector D. Ruiz at [email protected] or (973) 757-1019, Christopher Hemrick at [email protected] or (973) 757-1033, Sydney Darling at [email protected] or (973) 757-1034, or Joseph L. Linares at [email protected] or (973) 757-1025.
[i] Paycheck Protection Program Flexibility Act of 2020, H.R. 7010, 116th Cong. (2020).
[ii] Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, 116th Cong. (2020).
[iii] Paycheck Protection Program and Health Care Enhancement Act, H.R. 266, 116th Cong. (2020).
[iv] Interim Final Rule on Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule (posted June 22, 2020).
[v] Press Release, SBA and Treasury Announce Release of Paycheck Protection Program Loan Data (July 6, 2020).
Walsh Pizzi O’Reilly Falanga LLP has prepared the content of this alert for general informational purposes. The content should not be considered advice, recommendations, or an offer to perform services. You should not act upon any information provided in this alert without seeking professional legal counsel from an attorney licensed to practice law in your jurisdiction. No representations are being made as to the completeness or accuracy of the information contained herein.