On July 4, 2020, the President signed S. 4116 into law, extending the date by which eligible borrowers may apply for Paycheck Protection Program (“PPP”) Loans through August 8, 2020. Prior to this extension, the PPP Loan Program’s application deadline of June 30 had effectively rendered the program closed with approximately $130 billion in funds yet available for loans.
In recent weeks, the Small Business Administration (“SBA”) has also issued important clarifying guidance on how the program will operate under the changes implemented through the PPP Flexibility Act, enacted June 5, 2020.
While our June 22, 2020 Client Alert addressed many of the SBA’s issuances, on June 26, the SBA issued a comprehensive interim final rule to update the original SBA “Loan Forgiveness Rule.” The June 26 final rule amends the Loan Forgiveness Final Rule to:
- Reduce the required payroll costs threshold applicable to use of loan proceeds (to qualify for forgiveness) from 75 percent to 60 percent;
- Provide for 5-year loan terms for loans made on or after June 5, and permit borrowers and lenders to negotiate 5-year loan terms for loans made before June 5;
- Explain that when a 24-week covered period is used and a loan forgiveness application is submitted early, any salary/wage-reduction-based loan forgiveness penalty amount must still be calculated based upon a 24-week period;
- Explain that, to the extent a for-profit borrower is otherwise in a position to claim owner compensation in the form of earnings in lieu of a salary as eligible “payroll costs” and applies a 24-week covered period, the maximum potential amount of “payroll costs” for each owner is $20,833, which represents 2.5 months’ of earnings capped at a rate of $100,000 per year; and
- Instruct that for a borrower to apply the PPP Flexibility Act’s new FTE-reduction safe harbor for decreased business activity:
- The borrower must “document in good faith an inability to return to the same level of business activity as [it] was operating at before February 15, 2020, due to compliance with” Department of Health and Human Services, Centers for Disease Control, or Occupational Health and Safety Administration guidelines;
- Compliance with such guidelines includes “indirect” compliance through compliance with “state and local government shutdown orders that are based in part on guidance from the three federal agencies;” and
- The borrower’s “documentation must include copies of applicable COVID Requirements or Guidance for each business location and relevant borrower financial records.”
- Confirm that loan forgiveness applications may be submitted for expended funds at any time before the maturity date of the loan, “including before the end of the covered period;” and
- Clarify that lenders are to make initial loan forgiveness decisions within 60 days of receipt of loan forgiveness applications from borrowers, but that the SBA will then have 90 days to review the lender’s decision before making payment to the lender or questioning the lender’s initial decision.
The SBA further issued interim final rules (i) relaxing restrictions on borrower’s previously convicted of felonies, or the owners of which were previously convicted of felonies, and (ii) clarifying eligibility of crew member payments as “payroll costs” for fishing boat owners.
Finally, another piece of legislation referred to as the “P4 Act,” which would authorize certain eligible borrowers to obtain a second PPP loan, is reportedly under negotiation in the Senate. As currently contemplated, to be eligible under the new P4 loan program, a borrower will have to (i) have 100 employees or less; (ii) have already expended its initial PPP loan or be on pace to exhaust its initial loan; and (iii) show a 50 percent or more loss in revenue due to the COVID-19 Pandemic.
Please do not hesitate to reach out to Michael Glomb and Scott Sheffler should you have questions about:
- Eligibility (including SBA affiliation rules or the “economic need” certification),
- Loan applications (including who constitutes an employee and what constitutes a payroll cost), or
- Use of your PPP Loan or the Loan Forgiveness Application.
Additionally, you may find our PPP Loan Forgiveness Toolkit useful.
 85 Fed. Reg. 38,304 (Jun. 26, 2020).
 U.S. Senate Committee on Small Business and Entrepreneurship, Press Release (Jun. 18, 2020) https://www.sbc.senate.gov/public/index.cfm/2020/6/cardin-coons-shaheen-introduce-legislation-to-get-capital-to-small-businesses-hardest-hit-by-covid-19.