Tag Archives: paycheck protection program

PPP Flexibility Act Guidance

On May 28, 2020, the U.S. House of Representatives approved the Paycheck Protection Flexibility Act to give more time and flexibility to employers who receive or have received forgivable loans under the Small Business Administration’s Paycheck Protection Program (“PPP”).  On June 3, 2020, the Act passed the Senate by unanimous consent.  The Act was signed and put into effect by President Trump on June 5, 2020.

Period eligible for loan forgiveness extended

Critically, the PPP Flexibility Act extends the time PPP recipients have to spend their funds and still be entitled to receive forgiveness of the loan from eight weeks to the earlier of 24 weeks or December 31, 2020.  However, borrowers that have received their loans prior to the PPP Flexibility Act’s enactment may still elect to use their funds over the original 8-week period and the related obligation to maintain payroll levels only through June 30, 2020.  Borrowers using the new covered period will be obligated to maintain payroll levels for an extra 16 weeks.

Exemption for reduced forgiveness amounts

Relatedly, the Act creates a new forgiveness exemption based on employee availability during the period from February 15, 2020 through December 31, 2020.  Under this provision, loan forgiveness will be determined without regard to a proportional reduction in the number of full-time equivalent employees if a borrower documents in good faith both the inability to rehire individuals who were employees on February 15, 2020 and the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.  This exemption also extends to borrowers whom in good faith are able to document the inability to return to the same level of business activity at which the borrower operated on or before February 15, 2020, due to compliance with regulatory standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 and promulgated between March 1, 2020 and December 31, 2020 (the Act specifically identifies guidance issued by Department of Health and Human Services, the Centers for Disease Control and Prevention, and the Occupational Safety and Health Administration).

75/25 rule now 60/40

Another significant provision from the Act lowers the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%.  This means that 40% of the loan may now be spent on covered non-payroll costs (i.e., rent, mortgage interest and utilities), as opposed to the prior 25% requirement.

Deferral period extended

The Act also extends the existing 6-month loan payment deferral period until the date on which the amount of forgiveness determined is remitted to the lender.  Further, if a borrower fails to apply for forgiveness within 10 months of the last day of the covered period, payments of principal, interest, and fees will begin no earlier than 10 months after the last day of such covered period.

New minimum maturity date

The Act also extends the existing 6-month loan payment deferral period until the date on which the amount of forgiveness determined is remitted to the lender.  Further, if a borrower fails to apply for forgiveness within 10 months of the last day of the covered period, payments of principal, interest, and fees will begin no earlier than 10 months after the last day of such covered period.

Further, the Act also creates a new five-year minimum maturity date (applicable only to post-enactment loans) and provides that nothing shall be construed to limit lenders and pre-enactment borrowers from mutually agreeing to modify the maturity terms to conform with this change.

Adjustment to delay of employer payroll taxes

Lastly, the Act now permits borrowers whose loans were forgiven in whole or in part to delay the payment of employer payroll taxes until December 31, 2021 (with respect to up to 50% of the amounts due) and December 31, 2022 (with respect to the remaining amounts due up to 50%).  Borrowers who received forgiveness were previously prohibited from taking advantage of this benefit.

Stubbs Alderton Authors:

Garett Hill

Jeffrey Gersh

Caroline Cherkassky

For more information on worker’s rights and business liability, visit our COVID-19 Preccelerator Resource Center
https://preccelerator.com/category/covid-19-resources/

Paycheck Protection Program: Guidance On Forgiveness

May 29, 2020 marks 8 weeks since Paycheck Protection Program (PPP) loans were first made available and thus the beginning of borrowers’ eligibility to apply for loan forgiveness.  On May 22, 2020, the SBA released two rules to help clarify various aspects of loan forgiveness and inform on the SBA’s review process, discussed below.

Loan Forgiveness Process:  Lenders determine loan forgiveness on a borrower-by-borrower basis.  To receive loan forgiveness, borrowers must complete and submit the Loan Forgiveness Application (or a lender’s equivalent) to their lenders.  Lenders have 60 days from the date the Loan Forgiveness Application is submitted to issue its decision to the SBA, which in turn has 90 days to remit the appropriate forgiveness amount to the lender.  (For a more detailed discussion on what costs qualify as forgivable, see our prior post here.)

Alternative Payroll Covered Period:  Borrowers are not required to base forgiveness amounts on the 8-week period that begins with the date of disbursement.  Instead, borrowers may opt to use an 8-week period beginning on the first day of the first payroll cycle after loan funds are disbursed (the “alternative payroll covered period”).  For example, if a borrower receives its PPP disbursement on June 1, but the borrower’s first pay cycle after disbursement begins on June 7, the borrower may elect to calculate its loan forgiveness amount by using the period from June 7 to August 1 (8 weeks after June 7).

Costs Incurred but not Paid During Covered (or Alternative Covered) Payroll Period:  Payroll costs incurred during the borrower’s last pay period of the covered period (or alternative payroll covered period) are eligible for forgiveness if paid on or before the next regular payroll date; otherwise, payroll costs must be paid during the covered period (or alternative payroll covered period) to be eligible for forgiveness.  Additionally, non-payroll costs that are otherwise eligible for forgiveness and are incurred within the covered period or alternative covered period and paid on or before the next regular billing date are also eligible for forgiveness.  For example, a rent or utility payment paid after the designated 8-week covered period can still qualify for loan forgiveness to the extent the payments were for rent or utilities incurred during said period.  However, advance payments for interest on mortgage obligations do not qualify for forgiveness.

Payroll Caps:  Payroll costs are forgivable to the extent that they cover employees’ salary, wages, or commissions during the covered or alternative covered period and do not exceed a prorated annual salary of $100,000.  This also applies to bonuses, hazard pay, and the salary, wages, or commissions paid to furloughed employees.  Further, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses.

Reductions to Loan Forgiveness Amounts:  The CARES Act provides that a borrower’s loan forgiveness amount will be reduced if a borrower reduces its full-time equivalent (FTE) employees (meaning 40 hours or more of work each week) or reduces any employees’ (who made less than $100,000 in 2019) salary or wages by more than 25%.  The CARES Act also allows borrowers to avoid such reductions if employees are rehired and restored salary and wage levels by June 30, 2020.  The May 22nd interim rules clarify that borrowers may still be entitled to avoid such forgiveness reductions so long as they offer to rehire FTE employees or restore employees’ hours, even if they do not accept.  Such offers must be made in good faith and be for the same salary, wages, and number of hours that the employee earned prior to separation or reduction in hours.  Records of these offers and rejections must also be maintained, and the borrower must inform the applicable state unemployment insurance offer within 30 days of the employee’s rejection.  Moreover, to ensure that borrowers are not doubly penalized, salary/wage reductions apply only to the portion of the decline in employee salary and wages that are not attributable to an FTE employee reduction.  Further, if an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction, then no corresponding loan forgiveness reduction will be imposed.

SBA’s Review Process:  As discussed in our prior post addressing borrowers’ potential liability under the False Claims Act, all PPP loans in excess of $2 million, and any other loans “as appropriate,” will be reviewed by the SBA.  Either way, if the SBA reviews a borrower’s loan, it will look at borrower eligibility, loan amounts and use of proceeds, and loan forgiveness.  Borrowers are required to maintain PPP documentation for six years after the date the loan is forgiven or repaid in full and must permit the SBA access to such files upon request.  If the SBA believes that a borrower may not have been eligible for the loan, the loan amount, or the loan forgiveness amount, the SBA will require the lender to contact the borrower in writing to request additional information and may also request information directly from the borrower.  If the SBA determines that a PPP loan recipient should have been ineligible, no forgiveness will be permitted.  The SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.  Another interim rule will be issued that addresses how recipients ruled ineligible can appeal such a determination.

Modifications Expected:   On May 28, 2020, the U.S. House of Representatives approved legislation (the “Paycheck Protection Flexibility Act,” H.R. 7010), that would extend the time PPP recipients have to spend their funds and receive forgiveness from eight weeks to 24 weeks.  The bill would also lower the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%.  The House bill passed under special rules established to expedite legislation while the House is not in full session, requiring a two-thirds vote for passage instead of a simple majority.  The House bill will now need to pass the Senate before making its way to President Trump’s desk to be signed into effect.  A separate bill advancing through the Senate would double the covered period of forgivable PPP spending to 16 weeks but would not change the 75% payroll cost requirement.  We will continue to track these bills and provide updates accordingly.

Stubbs Alderton Authors:
Caroline Cherkassky
Garett Hill

For more information on worker’s rights and business liability, visit our COVID-19 Preccelerator Resource Center :
https://preccelerator.com/category/covid-19-resources/