By Robert T. Smith
On June 3, the Senate approved the version of the Paycheck Protection Program Flexibility Act (Flexibility Act) as adopted by the House of Representatives last week. The Flexibility Act provides additional flexibility to borrowers in using PPP loan proceeds and qualifying for forgiveness. The bill is now on its way to President Donald Trump for his signature.
The primary provisions of the legislation are as follows:
- SBA previously required that all PPP loans mature in 2-years. The Flexibility Act will require newly issued PPP loan contain a minimum maturity of five (5) years. This provision would not impact existing loans and would apply only prospectively.
- The time period in which PPP loans may be originated, and the date to "cure" certain reductions in employees and salary on wages, will be extended from June 30 to December 31, 2020.
- The “covered period” in which forgivable payments may be made will be extended from 8-weeks to 24-weeks on all existing and new PPP loans, provided that any existing borrower may elect to use an 8-week covered period.
- The law would create a new exemption for reductions in FTE employees. A borrower would not be penalized for reductions in staff if it can document either of the following as of December 31, 2020:
- the borrower was unable to rehire previously laid off workers or similarly qualified workers as replacements; or
- the borrower is unable to return to the same level of business activity (as existed on February 15) due to compliance with governmental requirements or guidance related to social distancing, sanitation standards or any other worker or customer safety requirements related to COVID-19.
- The Flexibility Act would decrease the percentage of PPP funds required to be used for payroll costs from 75 percent to 60 percent. However, no amount of a borrower's PPP loan would be forgiven if more than 40 percent of the PPP loan is used for non-payroll expenses.
- The Flexibility Act would extend the deferral period of PPP loans from 6-months to 1-year. This provision is stated as applying to all PPP loans, including existing loans. It is unclear how this provision would be implemented given that most lenders set up PPP loans to require debt service beginning after 6-months.
- The law would require a borrower to begin its PPP loan after 10-months if it has not requested forgiveness by that time
- Companies that received a PPP loan will also be eligible to defer payment of payroll taxes under the Flexibility Act.
We are advising both lenders and borrowers as they navigate the PPP forgiveness process. Please contact one of our attorneys for assistance.
Robert T. Smith heads the Finance and Commercial Transactions Practice Group. His diverse corporate practice focuses on representing companies and financial institutions in general business, transactional, securities and regulatory matters.
Disclaimer: The information included here is provided for general informational purposes only and should not be a substitute for legal advice nor is it intended to be a substitute for legal counsel. For more information or if you have further questions, please contact one of our Attorneys.