The US Small Business Administration (SBA) released more guidance on Wednesday, October 7, 2020.

The new guidance clarifies how the changes made by the Paycheck Protection Flexibility Act of 2020 affect the payment deferral period on loans that were funded before June 5, 2020.  It states that the extended deferral period for payments on the principal, interest, and fees applies to all Paycheck Protection Program (PPP) loans, even if the executed promissory note indicates only a six-month deferral.  This means that lenders must comply with the Flexibility Act's extended deferral period and notify PPPL borrowers of the change.

 

The Flexibility Act of 2020 extended the deferral period for loan payments to either:

1. The date that SBA remits the borrower’s loan forgiveness amount to the lender, or

2. If the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period.

 

Pre-Flexibility Act, the deferral period could end after six months, and many loan documents had specific language to this effect. While the Flexibility Act extended the deferral period, it did not specify whether lenders and borrowers had to modify promissory notes used for PPP loans to reflect the extended deferral period.

 

Because the first PPP loans were awarded in April, some PPP borrowers recently received notices from lenders that payments on their PPP loans were coming due. The new guidance, found in question No. 52 in the SBA’s frequently asked questions document, clarifies that the deferral period extension automatically applies to all loans, and there is no requirement from the SBA that the lender should formally modify the PPPL promissory note.

 

 

This is good news, and it may indirectly answer other questions related to how the Flexibility Act alters existing loan agreements.  Some loan documents specifically mention the original 8-week covered period, as well as the time frame related to applying for forgiveness.  This new FAQ could be extended to these other issues, as well, which would indicate that the loan agreement does not need to be modified for the borrower to take advantage of the extended 24-week covered period, and time to apply for forgiveness.

 

The PPPL program has been frustrating for borrowers and advisors alike, due to the slow release of guidance.  We continue to get our questions answered, but many borrowers have now completed their extended 24-week period and are looking to file the forgiveness application.  The SBA has received and approved some applications already.  However, for borrowers with more complicated situations, forgiveness may not come any time soon.

 

We are also anxiously awaiting whatever new stimulus package may be passed by Congress.  It may contain some automatic forgiveness applications and may clean up some of the areas of the law that have been open to much interpretation.  

 

We are available to help you navigate the forgiveness process.  Please contact us, and we'll help guide you through.