Bruce Claassen

June 9, 2020

We have continued to monitor the legislative and other changes that affect the Paycheck Protection Program (PPP).  Just when it seems like it's time to post another update, we become aware of potentially more changes coming.  This makes it hard to know when to update you, and when to wait.  We feel that it's important to provide you an update on where things are at, and also to let you know what's still coming.   The fact is that the flurry of changes over the last several weeks answered many questions, but now there are more questions that need to be answered by the SBA.

 

Recent legislation (titled HR7010) has passed, offering adjustments to PPP loans—particularly regarding forgiveness calculations. The law was passed hurriedly, and like the CARES Act, was poorly drafted and pretty basic in its language.  This means that the SBA will need to provide detailed guidance soon. This legislation changed the PPP in a number of ways.  The key changes are as follows:

 

• Covered time period extended—The period of time to use loan money has been extended from 8 to 24 weeks. This means that you have more time to apply funds to qualified expenses that maximize loan forgiveness.   This is one area needing guidance from the SBA.  Current PPP loan documents may state when the covered period ends, or when the borrower is required to submit their forgiveness application.   The SBA needs to provide guidance on how this will be reconciled with the covered period extension provided in the new legislation.
  
  

• Social Security payments deferred—Originally under the Cares Act, employers who received the PPP Loan could not also defer employer social security tax payments. HR7010 adjusted this. Now, any employer with social security payments due between March 27, 2020 and December 31, 2020 can pay half of the amount due by the end of 2021 and the remainder by the end of 2022.
  This feature can be enticing, but we encourage you to call us before taking advantage of this.  Eventually, the tax will need to be paid, and if current cash flow can support paying it now, it might be wise not to use this feature of the new law.
  
  

• Loan payment deferral extended—The original 6-month deferral for repayment of PPP loans has been extended to 10 months. Payments are only required on the amount of the loan that is not forgiven.  This is another problematic area because many loan documents also state when payments must start.  Further guidance is needed here, as well.
  
  

• Payroll threshold adjusted—Originally, the Department of Treasury and the SBA determined that 75 percent of a PPP loan had to be used for payroll in order for the loan to be forgiven. The 75 percent threshold has been adjusted to 60 percent. The language of the new law indicates that this is now a "cliff."  If you don't achieve 60%, then you get no forgiveness, whereas the CARES Act originally allowed a pro-rated amount of forgiveness if you were under 75%. 
  
  A joint statement Monday from SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin clarified that partial loan forgiveness will also be available under the 60% threshold. Specifically, if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.  This is very good news for borrowers.
  
  

• Safe harbor date extended—The original Cares Act included safe harbor exceptions to restore or attempt to restore full-time employees and any pay reductions by June 30, 2020. These exceptions still exist, but the date to restore has been adjusted to December 31, 2020.
  
  

• Loan term date extended—All new PPP loans effective after the passing of HR7010 will have a five-year term. Businesses that received a loan prior to the new legislation can adjust the loan term from two to five years. Individuals will need to work with their lender to amend loan terms.

 

We hope this update helps. Again, we will continue to closely monitor new legislation and inform you on the key changes that may affect your PPP loan.

 

Please call us with any questions.