Here are the issues raised in the SBA’s updated guidance conforming present PPP loan guidance with the new PPP Flexibility Act’s amendments to the PPP program.
The Small Business Administration (“SBA”) has issued two Interim Final Rules amending the Interim Final Rule they’d issued back in April. These new rules implement changes to the Paycheck Protection Program (“PPP”) made by the Paycheck Protection Program Flexibility Act.
The first update effectuates the following changes for PPP loans (old and new):
- Extends the covered period for the loan – The old covered period ran to June 30, 2020, and that period is now extended to December 31, 2020. This means that loan recipients that have not yet spent their loan proceeds will get to use those proceeds through December 31, 2020 rather than needing to expend them by June 30.
- Repayment deferral – A loan recipient submitting forgiveness paperwork (updated applications for PPP loan forgiveness should be posted soon) can forestall loan payments. The recipient receives a deferral of those payments while the application is considered, provided it submits an application for forgiveness within 10 months from the termination of their covered period (24 weeks from the time the loan is disbursed (or 8 weeks if a recipient getting a loan before June 5 wants to use the 8-week period and not the new 24-week period)). If an application for forgiveness is not filed 10-months after the covered period, then repayment begins.
- 60% payroll – The previous mandate that a percentage of the loan be used to pay for payroll has been reduced to 60% of the loan proceeds. The new guidance clarifies that the 60% goal is not an absolute bar to forgiveness and that obtaining partial forgiveness is a possibility for those utilizing less than 60% for payroll but meeting other criteria.
- Five Year Loans – loans under PPP issued on June 5 and after are 5 year loans.
The second update effectuates the following changes for PPP loans:
- Criminal history bar to loan is amended – The prior rule implemented a requirement regarding what type of criminal background and history would operate as a bar to receiving loan proceeds. Some significant litigation arose regarding this “morals” requirement and the updated guidance changes the requirement. Now 20% equity owners currently incarcerated/on probation or under indictment or who have been convicted of a felony involving fraud, bribery, false statements or embezzlement within the past 5 years or any other felony within the past year
We will work to keep you posted as the new forms and any updated requirements or guidance amendments come out.