New Changes Call For New Clarifications – SBA & Treasury Issue Guidance on PPP

On June 5th, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), which made significant changes to the Paycheck Protection Program (PPP). A summary of the PPPFA is available here. On June 10th, the Treasury Department and the SBA issued a new Interim Final Rule (IFR) and a new PPP Borrower Application that takes into account the new law. On June 16th, the SBA filed another IFR, this will be the 19th IFR to date, which is scheduled to be published on Friday June 19th. The unpublished version of the newest IFR confirms that self-employed, freelancers and independent contractors who took the maximum loan amount based on their 2019 monthly income are eligible for full forgiveness.

This article summarizes the new IFRs and the new Borrower Application. Remember that any guidance from the Treasury or SBA do not carry the force and effect of law.

Covered Period

The covered period governing the PPP loan usage, eligibility and forgiveness is extended from June 30, 2020 to December 31, 2020. Borrowers who received their PPP loans before June 5th can elect to use either an 8-week period or a 24-week period. However, according to the new Borrower Application, those who are applying for a PPP loan after June 5th must use the 24-week covered period.

Although a 24-week covered period provides borrower with more time to spend the PPP funds and satisfy the 60% payroll expense test, the 8-week covered period is advantageous for employers who had to reduce their Full-Time Equivalent employees and/or employee wages and salaries since it is easier to keep the FTE count and wages and salaries for 8 weeks rather than to maintain them throughout the new 24-week period.

Now, for those borrowers whose covered period is 24 weeks, their maximum forgiveness cap is $46,154 ($100,000/52 *24) per individual employee instead of $15,385 ($100,000/52 * 8) per individual employee.

For PPP borrowers who are self-employed, freelancers and independent contractors, the new IFR shows new methods to calculate owner compensation. The calculations depend on whether your loan is under an 8-week or a 24-week covered period. For an 8-week covered period, the owner compensation is 8 weeks’ worth (8/52) of 2019 net profit (up to $15,385). For a 24-week covered period, the owner compensation is 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833). These calculations exclude any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA).

Maturity Date

The PPPFA extended the maturity date for PPP loans to 5 years for loans made on or after June 5, 2020.[1] The maturity date remains 2 years for those borrowers who received their loans prior to June 5, 2020. The IFR confirms that borrowers and lenders can mutually agree to extend the maturity to 5 years. However, I doubt that lenders will jump at the opportunity to continuing servicing these loans for another 3 years, and so the “mutual agreement” may be a problem for some borrowers.

Deferral Period

Previously, the deferral period was 6 months from the date a PPP loan was received. The new law allows borrowers who apply for forgiveness within 10 months after their forgiveness covered period ends, to extend their deferral period through the date on which the SBA remits the loan forgiveness amount to the lender.  Borrowers who do not apply for forgiveness within 10 months must begin paying principal and interest after that period.

Loan Forgiveness – What Do You Have to Spend on Payroll?

The Treasury and the SBA confirmed that spending 60% of your PPP funds on payroll expenses is not a minimum threshold to be eligible for loan forgiveness, despite the language in the PPPFA. Borrowers who spend less than 60% of their PPP funds on payroll expenses during the forgiveness-covered period will continue to be eligible for partial loan forgiveness. This means that to be eligible for full loan forgiveness borrowers must spend at least 60% on payroll expenses and the other 40% on permitted non-payroll expenses.

Last Day to Apply

The IFR confirms that the last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.

The New Application

The new PPP Borrower Application is identical to the previous application except for revisions to the borrower certifications on page 2.  The new certifications change the 8-week covered period to the new 24-week covered period, and reflect the revised 60% payroll cost requirement instead of the original 75% requirement.

[1] A PPP loan is made on the date the SBA assigns a loan number. Hence, in order to find out whether you are considered “a borrower before June 5, 2020” you must contact your lender. Note that this date is important to determine whether the 8-week or the 24-week covered period applies to you, and whether you get a 2 or 5 year loan maturity.

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