President Signs PPP Legislation Into LawJune 5, 2020
On June 5, the President signed into law the Paycheck Protection Program Flexibility Act (H.R. 7010). The measure, having passed both chambers of Congress with significant bipartisan support, includes many changes designed to provide more flexibility for PPP borrowers.
Highlights of H.R. 7010 include the following:
- Increases Loan Term for New Loans - Loans originated on or after the date of enactment would have a minimum maturity of five years, extending the amount of time borrowers are required to repay the loans. Current PPP borrowers would still be subject to the current two-year term, but H.R. 7010 provides that lenders and borrowers may mutually agree to modify the loan term.
- Extends Loan Forgiveness Covered Period - Extends the current eight-week forgiveness covered period to 24 weeks from the loan origination date or December 31, 2020. Borrowers who have already received loans may elect to use the eight-week period.
- Modifies 75% Payroll Rule – To be eligible for forgiveness, H.R. 7010 reduces the payroll cost threshold from 75% to 60%, allowing 40% of the loans to be used for non-payroll costs.
- Increases Deferral Period – Increases the deferral period before borrowers must begin to repay any unforgiven loan funds from six months to 10 months after the last day of the covered period.
- Exemption Based on Employee Availability – During the period between February 15, 2020 and December 31, 2020, the reduction in full-time equivalent (FTE) employees calculation does not apply if the borrower, in good faith, is able to document an inability to rehire individuals who were employees on or before February 15, 2020 and an inability to hire similarly qualified employees for unfilled positions by December 31, 2020. The new law also provides relief to businesses that are unable to return to pre-COVID-19 levels of business activity (prior to February 15, 2020) due to compliance with federal guidelines related to sanitization, social distancing or other safety requirements related to COVID-19.
- FICA Deferral Expanded – H.R. 7010 would allow PPP borrowers to defer the employer portion of FICA tax deposits until the end of 2021 and 2022.
Additional PPP legislative changes are anticipated as concerns have been expressed in the Senate relating to the new 60% payroll cost threshold language in H.R. 7010. Specifically, there is a concern that the language requiring borrowers to use 60% of the loan amount (rather than the eligible forgiveness amount) for payroll costs in order to receive loan forgiveness could be misinterpreted to create a “cliff” or prohibit any loan forgiveness if borrowers do not reach the 60% payroll threshold. A group of Senators and House members has also added a letter into the Congressional Record entitled “Congressional Intent for H.R. 7010.” The letter states that “[t]he extension of the covered period defined in section 1102(a) of the CARES Act should not be construed so as to permit the SBA to continue accepting applications for loans after June 30, 2020.”
Marks Paneth will continue to monitor developments and will provide updates as they become available. Contact your Marks Paneth advisor if you need additional information or assistance or email firstname.lastname@example.org.
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