Please note that another set of interim final rules has been released, amending the first interim rules, for the Paycheck Protection Program, to reflect modifications effected by the Paycheck Protection Program Flexibility Act of 2020 enacted on June 5, 2020. Most of this is reiteration of the Flexibility Act – one notable point is #5, below, which provides that the SBA will apply the 60% payroll costs requirement as a proportional limit as opposed to a threshold (meaning that forgiveness of the entire loan amount is not in jeopardy because you fail to use 60% of the PPP loan proceeds during the loan forgiveness covered period; forgiveness will, however, be reduced).
Specifically, these rules provide:
- The “covered period” for a PPP loan (under Section 1102 of the CARES Act), distinguished from the forgiveness covered period under Section 1106 of the CARES Act, governing loan use, loan eligibility and related requirements has been extended to December 31, 2020 (from June 30, 2020).
- The maturity date for loans made after June 5, 2020, will have a maturity of 5 years. The maturity date for loans made before June 5, 2020 will remain 2 years – however, borrowers and lenders may mutually agree to extend the maturity of such loans to 5 years. A loan is ‘made’ when the SBA assigns a loan number to the PPP loan. While the CARES Act contemplates a maximum maturity of 10 years, the SBABA has determined that a 5-year term is sufficient.
- The deferral period for payment of principal and interest on PPP loans has been extended – if borrowers submit their loan forgiveness application within 10 months after the end of their loan forgiveness covered period, borrowers will not have to make any payments of principal or interest on loans before the date on which the SBA determines whether or not forgiveness is allowed (and if allowed, until the SBA remits the loan forgiveness amount to the applicable lender). Note that interest continues to accrue during this deferment period. Note that if a loan forgiveness application is not submitted within 10 months after the end of the loan forgiveness covered period, such borrower must begin paying principal and interest after such 10-month period.
- Loan forgiveness ‘covered period’ (as defined in Section 1106 of the CARES Act), which had been 8 weeks from the date of loan origination, has been extended to the 24-week period beginning on the date your PPP loan is disbursed. Note that the Flexibility Act states that it’s should be the end on the earlier of such 24-week period or December 31, 2020. The rules reiterate that borrowers who received loans prior to June 5, 2020 may elect to use the earlier 8-week ‘covered period’.
- Payroll costs requirement has been reduced to 60% of the PPP loan – the rules provide that the SBA will interpret this requirement as a proportional limit on nonpayroll costs, and not a threshold for receiving any loan forgiveness. That is, it contemplates that partial loan forgiveness may apply for borrowers who did not use at least 60% of the PPP loan for payroll costs.
- The SBA signaled that it will issue revisions to its interim final rules on loan forgiveness and loan review procedures to address revisions effected by the Flexibility Act.
The Rules emphasize that the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.
- The Rules update borrower certifications, including intended use of funds to comport with the CARES Act and the Rules (including specifically that not more than 40% of loan proceeds are used for nonpayroll costs), and reiterates the requirement that documentation verifying the number of full-time equivalent employees on payroll, dollar amounts of payroll costs, covered mortgage payments, covered rent payments, and covered utility payments will be provided to lender.