On May 28, 2020, the U.S. House passed the Paycheck Protection Program (PPP) Flexibility Act with strong bipartisan support. This bill provides new flexibility to PPP borrowers in several key requirements:
- Borrowers can apply for a PPP loan up to December 31, 2020 (assuming PPP funding remains available).
- Instead of an eight-week period to spend PPP funds, borrowers have a 24-week period after the PPP loan is approved or until the end of 2020 (whichever comes first) to spend PPP funds and qualify for loan forgiveness.
- The requirement to spend 75% of a PPP loan on payroll costs for maximum loan forgiveness has been reduced to 60%.
- For new PPP loans approved after the law is passed, the loan term is five years. (Existing PPP loans would still have a loan term of two years.)
- Borrowers can defer payroll taxes on PPP loan proceeds used for payroll.
The U.S. Senate must also pass the bill. A Senate vote is anticipated in early June. If the Senate bill is not identical, the House and Senate will have to confer and approve one single bill before it becomes law.
SBA Posts Interim Final Rules on PPP Loan Forgiveness
On May 21, the Small Business Administration (SBA) posted an interim final rule (IFR) on PPP loan forgiveness. Much of the IFR is a restatement of policies and form instructions issued over the past few weeks, but a few issues are newly clarified in the IFR:
- Forgiveness for payments from PPP loan funds to “owner-employees” is limited to $15,385, or 8/52 of total 2019 compensation, whichever is less, including all businesses.
- Owners of multiple businesses cannot simply pay themselves from PPP loans an amount equal to their total compensation from each business.
- Salaries and wages paid to furloughed employees during the covered period are eligible for loan forgiveness, subject to the $100,000 prorated limit. The IFR sets out a specific methodology for calculating full-time employees (FTE), which the SBA defines as an employee working on average 40 hours or more per week. The IFR provides a detailed procedure for borrowers to follow so that the forgiveness amount is not impacted by those employees who do not accept an offer to return to their previous positions
SBA Posts New Interim Final Rules on PPP Loan Review
Another recently-posted SBA IFR formalizes the announced “review” options the SBA may pursue. Reflecting previous statements, the SBA focuses on issues always subject to review:
- Overall eligibility, in terms of employee count, nature of the business, and other qualifying factors, is always subject to review, regardless of the size of the loan.
- The calculation of the loan amount and the use of the forgiven portion of the loan is always subject to review, regardless of the size of the loan.
- The borrower, and not the lender, has responsibility for the accuracy of any data submitted in connection with the PPP application.
- The borrower must retain documentation regarding the PPP loan for six years.
- The borrower will have the opportunity to respond to the SBA if the loan review raises questions.
Interestingly, this IFR does not specifically address the review of the certification of need for the loan. The SBA has previously announced that every PPP loan greater than $2 million will be reviewed for the adequacy of the borrower certification of need for the PPP loan. The method, timing or standards the SBA will apply to such reviews are not detailed in this IFR.
The SBA IFRs describe certain key issues. The IFR detail reinforces that all PPP borrowers should carefully document all aspects of the loan application process, including the certification of need, as well as the use of the PPP loan proceeds and the basis of the application for forgiveness, and retain these records for six years.