Paycheck Protection Program:  new legislation clarifies rules and extends period to use funds

Last week the President signed legislation that clarifies the terms of Paycheck Protection Program loans and makes those terms more favorable to small business. The bill is called the Paycheck Protection Program Flexibility Act of 2020 and passed Congress with bipartisan support after many businesses expressed concern about the guidelines for using PPP funds and the likelihood of getting loan forgiveness.  The new law will:

• Extend the “covered period” under which small businesses can spend the loan proceeds from eight weeks to 24 weeks, or until Dec. 31.
• Remove the limits on loan forgiveness for small businesses that were unable to rehire employees, hire new employees or return to the same level of business activity as before the virus.
• Expand the 25% cap to use PPP funds on nonpayroll expenses, such as rent, mortgage interest and utilities, to 40% of the total loan. That lowers the 75% requirement for payroll expenses to 60% to get maximum forgiveness.
• Allow small businesses to take a PPP loan and also qualify for a separate, recently enacted tax credit to defer payroll taxes, currently prohibited to prevent “double dipping.”
• Extend the loan terms for any unforgiven portions that need to be repaid from two years to five years, at 1% interest.
• Give small businesses more time to rehire employees or obtain forgiveness for the loan if social-distancing guidelines and health-related actions from the Centers for Disease Control and Prevention or other agencies prevented the business from operating at the same capacity as it had before March 1.
• Extend the period for when a business can apply for loan forgiveness, from within six months to within 10 months of the last day of the covered period, before it must start making interest and principal payments. Under the new bill, PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.

In May the SBA and the Treasury Department had issued guidelines, as well as a loan forgiveness application, for the program. In light of this new legislation, expect revised guidelines and a new forgiveness application in coming weeks, so stay tuned for more information or contact your lender.

For more information, contact Mark Spitz at 720-575-0440 or mark@spitzlegalcounsel.com.