06/11/20 – Paycheck Protection Program Flexibility Act Part 2

After business hours on Wednesday June 10th, the SBA issued their latest guidance on the PPP. Unfortunately, it didn’t answer many of the questions we had in our last post, but it did mention that they are working on revising their previous guidance and updating their application to conform with the Paycheck Protection Program Flexibility Act that the President signed June 5th. See below for a summary of the key provisions.

  • The 60% cliff was eliminated. The Flexibility Act inadvertently stated that borrowers had to spend 60% of the total loan amount on payroll costs or they would receive no forgiveness. The SBA’s latest guidance fixes this error by making the 60% limit a sliding scale again. For example, if a borrower uses 59 percent of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to 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).
  • Borrowers have 24 weeks to spend the funds, and loan forgiveness will be based on 24 weeks’ worth of expenses.
    • The SBA did not address whether the $15,385 payroll cost limitation is increased to $46,153 to reflect the original $100,000 wage limit over 24/52 weeks instead of the original 8/52 weeks.
  • No further updates were made to the principal and interest deferral period. Borrowers can still defer principal and interest payments until the SBA grants loan forgiveness if they apply for forgiveness within 10 months after the end of their 24-week covered period. For example, if a borrower’s PPP loan is disbursed on June 25, 2020, the 24-week period ends on December 10, 2020. If the borrower does not submit a loan forgiveness application to its lender by October 10, 2021, the borrower must begin making payments on or after October 10, 2021.
    • Interest continues to accrue during the deferral period.
    • The amount of loan forgiveness can be the full amount of loan principal and any accrued interest.
  • It looks like employee and compensation levels will need to be maintained for the full covered period (24 weeks), and documentation verifying the number of full-time equivalents as well as the dollar amounts of payroll costs, covered mortgage interest, covered rent, and covered utilities will need to be provided to the lender. We will need further guidance on this issue.
  • The SBA did not address whether borrowers could apply for forgiveness early if all the funds were used by, say, the 12th week.

We hope that future guidance from the SBA will provide more information, but in the meantime, feel free to reach out with any questions you may have.