On June 5, 2020, the Paycheck Protection Program Flexibility Law of 2020 (the “Flexibility Law”) was enacted, amending the main provisions of the Paycheck Protection Program (“PPP”). under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). Many of these changes benefit PPP loan borrowers and modify key elements of the interim final rules implemented by the Small Business Administration (“SBA”) following the passage of the CARES Act. The changes include:
- Extended loan term: The Flexibilty Act provides for a minimum term of 5 years for a PPP loan. While the CARES law allowed a maximum maturity of 10 years, the SBA’s provisional final rule published on April 2, 2020 limited the maturity of a PPP loan to two years. From now on, the part of PPP loans that are not canceled will have a minimum maturity of five years. Although this new minimum maturity only applies to loans issued on or after June 5, 2020, lenders and borrowers are allowed to mutually agree to change the 2-year maturities of existing PPP loans in accordance with the maturity date. minimum and longer.
- More time to use the loan proceeds: The Flexibility Law extends the “covered period” for the authorized use of loan proceeds from June 30, 2020 to December 31, 2020. Now borrowers can use the loan proceeds for authorized purposes (as defined in the ‘article 1102 of the CARES law) via December 31, 2020whether or not the borrower requests a loan forgiveness. However, to be excusable, the borrower must use the proceeds of the PPP loan at the latest the earliest of the following dates: (i) 24 weeks according to the date of granting of the loan; or (ii) December 31, 2020. A borrower who received a PPP loan before the enactment of the Flexibility Act can choose to have the “covered period” of the loan end after the initial 8 week period.
- Extension of the PPP loan application deadline: The extension of the period covered until December 31, 2020 means that eligible borrowers will be able to apply for PPP loans after the original deadline of June 30, 2020. Note, however, that the loans continue to be offered on the basis of “ first come, first served ”, and as of May 30, 2020, the SBA reported approved PPP loans totaling more than $ 510 billion of the $ 659 billion allocated to the program. Accordingly, businesses still interested in applying for a PPP loan should do so without delay.
- Modification of the limitation on the use of loan proceeds for non-salary costs: The Flexibility Act also amended the limitation of the SBA Interim Final Rule dated April 2, 2020 that “no more than 25% of the amount of the loan cancellation may be attributable to non-salary costs”. Instead, to be eligible for loan cancellation, the Flexibility Act requires borrowers to use at least 60% of the loan amount covered for “compensation costs,” and up to 40% can now be used. be used to cover interest payments on covered mortgage obligations payment on covered rent obligations and covered utility payments. Note that the Flexibility Act did not expressly override the SBA’s requirement that 75% of the PPP loan proceeds be used for labor costs (whether or not the borrower requests a loan forgiveness). However, at least for borrowers requesting loan forgiveness, it would be inconsistent to apply this 75% requirement in light of this new 60% requirement.
- Additional exemptions from loan forgiveness reductions: The CARES Act provided for the PPP loan forgiveness amount for certain reductions in the number of full-time equivalent employees and / or wages and salaries during the forgiveness period. The CARES law provided that the reduction penalty would not apply insofar as a borrower who downsized from February 15, 2020 to April 26, 2020 restores the workforce and salaries / wages to the level in effect on February 15, 2020 before June 30. 2020. The Flexibility Act further extended this restoration period until December 31, 2020, so that the reduction penalty will not apply as long as by December 31, 2020 the borrower re-establishes its workforce. and his wages / salaries at the prevailing level. February 15, 2020.
In addition, the Flexibility Act added additional exemptions to the reduction in the amount of loan forgiveness. From now on, the amount of the loan forgiveness will not be reduced based on a decrease in the number of full-time equivalent employees if the borrower, in good faith:
- Can document that the borrower is (i) unable to rehire persons who were employees of the borrower on February 15, 2020; and (ii) unable to hire employees of similar qualification for unfilled positions no later than December 31, 2020; or
- May document an inability to return to the same level of business activity that existed prior to February 15, 2020, due to compliance with COVID-related health and safety guidelines (for example, sanitation or social distancing standards) during the period from March 1, 2020 to December 31, 2020.
- Extension of the deferral period: While the CARES Act provided that the principal, interest and charges on a PPP loan would be deferred for at least six months, the Flexibility Act revised this to require that the principal, interest and charges be deferred until the date on which the amount of the discount has been determined. is returned to the lender. However, if a borrower does not request a loan forgiveness within 10 months of the end of the forgiveness period, the borrower is required to start paying principal, interest, and fees at that time. Therefore, we encourage you to take the time necessary to assess and ensure that your documents and loan forgiveness application support are in good condition.
- Late payment of employers’ social charges: The Flexibility Act allows PPP borrowers who receive a discount to continue to delay payment of employer payroll taxes, as described in Section 2302 (a) of the CARES Act. Originally, the CARES Act prohibited additional deferrals for employers who had obtained a loan forgiveness under the PPP.