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Paycheck Protection Program Flexibility Act of 2020 – Lisa Crocker

Update June 24 – R Accounting

The last few days have seen a number of new forms and guidance from the SBA, as well as a better understanding on our part about some of the PPP loan forgiveness information.

First, last Wednesday (June 17, 2020) the SBA released a newly revised Form 3508, which reflects the new 60% forgiveness requirement that was changed by the June 5, 2020 PPPFA (Payroll Protection Program Forgiveness Act) from the old 75% requirement.

Second, on June 8 the SBA Director and the IRS stated that the new 60% forgiveness percentage was not a cliff (pass / fail), but rather a limit of 40% forgiveness on non-payroll costs.

Third, on June 16th, the SBA issued SBA-2020-0035 that implements their June 8 statement, thus making it official that the 60% rule still allows for some forgiveness even if the payroll percentage does not reach 60% of the PPP loan amount.

Fourth, also last Wednesday (June 17, 2020) the SBA released new Form 3508EZ, which allows an employer that meets any 1 of 3 exceptions to use the abbreviated forgiveness form. The simplified version is helpful because it doesn’t require the complicated forgiveness reduction calculations or excessive forms attachments that were previously required.

The 3 situations where the short form may be used are:
The Borrower did not reduce salaries or hourly wages by more than 25 percent for any employee during the Covered Period or Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020. For purposes of this certification, the term “employee” includes only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.
The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, and reductions in an employee’s hours that a borrower offered to restore and were refused).
The Borrower was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
Relying on the 3rd exception may be difficult because the borrowers relied on state or local restrictions, which do not meet this standard.

Fifth, when Congress passed the PPPFA, they extended the period of forgiveness for loans on or after June 5, 2020 to a 24-week period, while allowing loans received before June 5 to use their choice of an 8 or 24 week forgiveness period. At the same time, the FTE safe harbor rule was extended until December 31, 2020, which could be a good or a bad thing, depending on the employer’s situation. This is now clarified in that the FTE safe Harbor is now the earlier of the application date for forgiveness or December 31, 2020.

The PPP Flexibility Bill that had been passed by the Senate – today (June 5) the President signed this bill and it is now enacted into law.

The content below includes a summary of the key points of this new law. It is important to note that most of the items in the PPP Flexibility Act are ‘retro-active’, meaning it can apply to PPP Loans that were originated prior to today’s date. However, the minimum maturity date as revised by this act only covers loans originated between today and June 30 (the last day lenders can process PPP Loans).

Originally, the SBA assigned a 2 year maturity date for all PPP Loans. Any portion of the PPP loan that is not forgiven is to be paid in full within 2 years at a 1% interest rate. The PPP Flexibility Act requires all new PPP Loans have a 5 year minimum maturity. However, lenders and borrowers may mutually agree to amend the terms of existing loans to conform with these terms.

The new deferral period for borrowers to begin paying principle & interest does apply to all PPP Loans. Originally the deferral period was 6 months from the date of the loan. According to the National Law Review, “The PPP Flexibility Act extends the deferral period to the date the lender receives the forgiven amount from SBA. If a borrower does not apply for loan forgiveness within 10 months following the end of the covered period, the deferral period will end on the date that is 10 months after the last day of the covered period.”

Borrowers are encouraged to work with their lenders to amend their loan documentation to conform with the terms as provided in the PPP Flexibility Act for repayment of any unforgiven amount of their loan.

One question I received from several clients was in regard to the extension of the covered period. Originally the covered period – the time allotted to use the PPP funds on qualified expenses – was 8 weeks from the day the loan was funded. The PPP Flexibility Act allows the covered period to be extended to 24 weeks, not to extend beyond Dec 31, 2020. Borrowers who received their PPP funds prior to today have the option to use the extended covered period (24 weeks) or keep their original 8 week covered period.

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As mentioned in the content below, I would expect a revised Application to Apply For Forgiveness to be issued – at some point.

Original Content

I hope this is good news for most of you! (I did have a few clients who expressed disappointment that this measure was not enacted sooner because they would have utilized the funds differently and they are now near the end of their original 8 week period.)

Last night (June 3) a new bill, previously passed through the House (5/28), was unanimously passed by the Senate and is now awaiting Presidential signature before it will be enacted as law.

This bill is: H.R.7010 – Paycheck Protection Program Flexibility Act of 2020

A quick summary:

  • Extension of covered period from 8 weeks to 24 weeks or Dec 31, 2020, whichever is earliest
  • Exemption based on employee availability – documentation will be required
  • Limitation on Forgiveness – previously 75% was to be used for payroll, this bill changes the amount to 60% payroll and 40% other allowable expenses
  • Extension of deferral payment – if borrower has not applied for forgiveness within 10 months after the end of the covered period, borrower shall make payments on principle, interest and fees beginning on a day that is not less than 10 months after the last day of the covered period.

I know many businesses have already or are getting close to the end of their initial 8 week covered period. You do have the option to keep the 8 weeks as your covered time period and apply for forgiveness; however, many businesses will likely find these new (*proposed) parameters very beneficial in how they use their PPP Funds. This is especially beneficial for businesses that have not yet increased their business operations to 100% since they have the opportunity to use the funds for employees as they are able to increase their operations.

*As of right now, I do not see confirmation that the President has signed this bill, so the above will not take effect until/unless it is signed and enacted.

When / if this bill is signed in to law, I would expect a revised application to apply for forgiveness to be issued so these new parameters are addressed in the application / worksheets.