PPP Updates

SOUTHERN PINES, NC - Updates to the PPP Program

Last evening, the Senate passed H. R. 7010, as passed by the House last week, and it goes to President Trump for his signature.  It was passed almost unanimously in the House and by voice vote in the Senate so it is widely expected that the President will sign it promptly.  The bill modifies certain provisions of the Payroll Protection Program in the CARES Act.

  1. Loan Maturity.  Extends the minimum maturity of PPP loans to five years for PPP loans made after the President signs the bill and it becomes law.  However, the bill doesn’t prevent lenders and borrowers from mutually agreeing to modify the maturity terms of existing PPP loans.
  1. Covered Period
    1. Extends the covered period for operation of PPP loans from June 30, 2020 to December 31, 2020.
    2. Extends the covered period for PPP loan forgiveness from eight weeks from the date of origination (funding) to the earlier of (a) 24 weeks from the origination date or (b) December 31, 2020.  However, a borrower who received a loan before the bill’s enactment can elect to continue using the 8-week covered period set forth in the CARES Act.
  1. Re-hire Deadline.  Extends the deadline for the re-hire exception to forgiveness reduction from June 30, 2020 to December 31, 2020.
  1. FTEEs
    1. Provides that the amount of loan forgiveness will not be reduced by a reduction in the number of full-time equivalent employees if, with respect to the period from February 15, 2020 to December 31, 2020, the borrower is able to document in good faith (i) an inability to (A) rehire employees who had been employed on February 15, 2020 and (B) an inability to hire similarly qualified employees for unfilled positions by December 31, 2020 or (ii) an inability to return to the same level of business activity at which the borrower was operating before February 15, 2020 due to compliance with requirements or guidance from the Secretary of Health and Human Services, the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration set forth between March 1, 2020 and December 31, 2020 relating to standards of sanitation, social distancing or other worker or customer safety requirements due to COVID-19.  This is clearly a rather vague standard, as many employers will maintain a reduced staff for a range of reasons, including indirectly by reason of federal government requirements or guidance, and many employers will need to conserve cash.
    2. The new SBA rule that requires employers to alert unemployment authorities about their employees who decline to return to work remains in effect.
  1. Required Payroll Threshold.  Provides that at least 60% of PPP loan proceeds must be used for payroll costs (wages, health insurance premiums, and retirement contributions) to receive loan forgiveness (this overturns the 75% standard discussed by the Small Business Administration).  This is a cliff provision, so failure to spend at least 60% of the PPP loan on payroll will disqualify the entire PPP loan from forgiveness.  We note that Senate Small Business Committee Chairman Marco Rubio expressed concerns about this provision so it is possible that it may be the subject of further action.
  1. Repayment.  Eliminates the six-month deferral of payments due under PPP loans and replaces it with deferral until the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender.  However, if a borrower fails to apply for forgiveness within 10 months after the last day of the PPP loan forgiveness covered period (i.e., the earlier of 24 weeks from origination or December 31, 2020), the borrower must then begin to make payments of principal, interest, and fees on its PPP loan.
  1. Payroll Tax Deferral.  Allows all employers, regardless of whether they have had a PPP loan forgiven, to take advantage of the CARES Act deferral of the 6.2% employer portion of Social Security payroll taxes (50% of these taxes must be paid in 2021 and the remaining 50% in 2022).
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