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Paycheck Protection Program: SBA Releases New PPP Loan Guidance

June 16, 2020

By Robert T. Smith and Blake D. Lewis

Last week the U.S. Small Business Administration released revisions to the Paycheck Protection Program – First Interim Final Rule in response to the enactment of the Paycheck Protection Program Flexibility Act (Flexibility Act), H.R. 7010. 

These revisions implemented the following changes:

  • Maturity Date. For loans made before June 5, 2020, the maturity date remains two years; however, borrowers and lenders may mutually agree to extend the maturity of those loans to five years. For loans made on or after June 5, the maturity is five years.
  • Deferral Period. The deferral period for all loans is extended from 6-months after the loan was made to 10-months after the end of the borrower's covered period.
  • Use of Loan Proceeds. The Flexibility Act reduced the amount of PPP loan proceeds a borrower is required to use on payroll expenses from 75% to 60%. The revisions clarify that the 60% threshold is not a "cliff", so a borrower may still receive proportional forgiveness even if the borrower uses less than 60% of the PPP loan proceeds for payroll costs.

For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in nonpayroll costs constituting 40 percent of the forgiveness amount).

  • Upcoming Guidance. The revisions state that SBA will be issuing revised rules on loan forgiveness and loan review procedures as well as guidance on advance purchases.

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.

Blake D. Lewis is an associate in the firm's Mergers and Acquisitions Practice Group. Blake's practice focuses on taxation, mergers and acquisitions, real estate transactions, tax controversies, entity formation and governance, and franchising.

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.

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