House & Senate Fixes Underway for the Paycheck Protection Program
Federal agencies and regulators continue to provide additional clarifications and guidance to help ensure the Coronavirus Aid, Relief, and Security Act (CARES Act) and the U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP) are working as intended. It has become apparent that reopening the economy and the challenges of social distancing may require modifications to aid packages first approved in March.
On May 28, 2020, the House of Representatives overwhelmingly passed a bill, H.R.7010 – Paycheck Protection Program Flexibility Act of 2020, which would make the following updates:
- Any portion of the PPP loan that is not forgiven would have a five-year minimum maturity period instead of the current two-year term. This change would apply only to PPP loans received after date of enactment of this bill; however, borrowers and lenders with existing PPP loans can modify the terms of those loans to correspond to the new maturity terms
- Allow forgiveness for expenses beyond the eight-week covered period to the shorter of 24 weeks after loan issuance or December 31, 2020. Borrowers with existing loans could elect to retain the existing eight weeks
- Safe harbor restoration deadline date provisions (FTE and salary/wage reduction) would be moved to December 31, 2020, from June 30, 2020
- Would reduce the existing 75 percent requirement for minimum spend on payroll costs to 60 percent. Note: Remember the existing 75 percent limitation is derived by dividing total payroll costs by 75 percent
- Extend the deadline to apply for a PPP loan from June 30, 2020, to December 31, 2020
- Ensure full access to payroll tax deferment for businesses that take PPP loans. Currently, the deferral is only available up to the date that any portion of the loan is forgiven
- Add another new safe harbor provision to remove the FTE reduction in forgiveness. Requirements to meet the new safe harbor are that the borrower can document:
- Inability to rehire individuals who were employees on February 15, 2020, and inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or
- Inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the secretary of the U.S. Department of Health and Human Services, director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration during the period beginning March 1, 2020, and ending December 31, 2020, relating to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19
- Allow PPP borrowers to defer their principal and interest payments until the SBA compensates lenders for any forgiven amounts. The program currently has a six-month deferral period
- Borrowers would be required to request loan forgiveness within 10 months from December 31, 2020, or payments would begin at that time
The Senate has its own legislation, S.3833. While the text of that bill is currently unavailable, it contains similar provisions to H.R.7010, with the most notable difference being the Senate bill would only extend the covered period from eight weeks to 16 weeks. The Senate adjourned last week without considering S.3833. It may consider this bill when it returns from recess on Monday, June 1, or it may bring up H.R.7010 under unanimous consent procedures.
BKD will continue to follow this developing situation. As with most topics related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication. Visit BKD’s COVID-19 Resource Center to learn more. If you have questions about these changes, contact your BKD Trusted Advisor™ today.