THE EVER-EVOLVING WORLD OF THE PPP LOAN
On Friday, June 5, 2020 the President signed the Paycheck Protection Flexibility Act (PPF), which modifies certain provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and Paycheck Protection Program (PPP).

Key provisions of this bill are:
  • A change in the "Maturity for Loans with a Remaining Balance After Application of Forgiveness". Initially, the PPP language indicated a maximum maturity of 10 years for a covered loan. The U.S. Treasury (Treasury) and Small Business Administration (SBA) then issued an Interim Final Rule (April 15, 2020) indicating the maturity for these loans would be two years. The new PPF modifies the maturity to be "a minimum of 5 years and a maximum maturity of 10 years". So, an indication of additional time to pay back any unspent PPP loan funds.
  • It is unclear how this change in the term of a loan will be applied to existing PPP loans. The PPF states, this change shall apply to any loan made on or after the enactment of the PPF and that lenders and borrowers are not prohibited from mutually agreeing to modify the maturity terms of a covered loan. So, it may be up to you and the bank to negotiate a new term.
  • A change in the "covered period". To date, the covered period has been described as the eight weeks (56 days) after distribution of PPP loan proceeds. Subsequent Frequently Asked Questions, Interim Final Rules and the Loan Forgiveness Application have provided varying definitions of the covered period to include costs incurred and payments made within and subsequent to the eight-week period. The PPF now extends the eight-week period to the earlier of twenty-four (24) weeks or December 31, 2020. This provides borrowers with a much longer window to use the PPP loan funds and thus increased the potential amount of loan forgiveness.
  • This new covered period (24 weeks) appears to apply to all PPP loans existing prior to the PPF or originated after. The PPF language indicates a borrower who received a PPP loan prior to the PPF may elect to use an eight-week period. This seems to be an indication that twenty-four weeks will be the covered period utilized unless a borrower chooses otherwise.
  • With the extension of the covered period, the PPF also extended the measurement date for one of the Full-Time Equivalent Safe Harbors from June 30, 2020 to December 31, 2020.
  • The PPF adds new "exemptions" to the reduction in loan forgiveness if in "good faith":
    • The borrower is able to document an inability to rehire individuals who were employees of the borrower on 2/15/2020, and
    • The borrower is able to document an inability to hire similarly qualified employees for unfilled positions on or before 12/31/2020.
    • The borrower is able to document an inability to return to the same level of business activity as such business was operating at before 2/15/2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Direct of Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on 3/1/2020 and ending 12/31/2020, related to the maintenance of standards for sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
  • The PPP initially included no restrictions on the portion of PPP loan funds that had to be spent on payroll costs versus non-payroll costs (interest, rent and utilities) to be considered for loan forgiveness. The Treasury and SBA, in their Interim Final Rule (April 15, 2020) implemented a 75/25 split of PPP loan funds requirement for loan forgiveness. The PPF revises the 75/25 split to 60/40. This revision appears to apply to both existing and new PPP loans, as there is no effective date associated with this revision.
  • The PPF increased the "Deferral Period" for a PPP loan
    • Initially the CARES Act provided for a deferral period of between 6 months and 1 year for payment of principal, interest and fees on a PPP loan.
    • The PPF now indicates the Deferral Period will be "until the date on which the amount of forgiveness determined under section 1106 of the CARES Act is remitted to the lender." This seems to indicate a borrower can defer principal, interest and fees on a PPP loan until after approval of their application for loan forgiveness by the SBA.
    • In a prior Interim Final Rule, the SBA indicated the loan forgiveness process will provide the lender with 60 days to review and approve a borrower's application, then the SBA will have 90 days to review (if it so chooses or the PPP loan is in excess of $2 million) the loan forgiveness amount determined.
    • Thus, the deferral period appears to be at least 150 days after December 31, 2020 (the last safe harbor measurement date for a PPP loan forgiveness reduction). With the following caveat. 

  • The PPF also indicates a due date for applying for loan forgiveness. The due date will be within ten (10) months after the last day of the covered period. Failing to apply for loan forgiveness within this window of time will result in loan payments starting at the expiration of the 10th month.

If we can assist you in explaining the programs' provisions, analyzing the potential benefits or helping you with gathering the needed information, please call any Sponsel CPA Group Team member or our colleagues listed below.
             Jason Thompson-Direct at 317-608-6694 or [email protected]
             Eric Woodruff-Direct at 317-613-7850 or [email protected]
             Lisa Blankman-Direct at 317-613-7856 or [email protected]

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

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