The requirements of the CARES Act’s Paycheck Protection Program (“PPP”), which provided forgivable loans of up to $10 million to small businesses, were loosened on June 5, 2020. Through a new law, known as the Paycheck Protection Program Flexibility Act (“PPPFA”), the PPP was amended to provide additional time for small businesses to use PPP funds and eased restrictions on how funds are to be used.
The PPPFA allows a borrower the earlier of twenty-four (24) weeks after a PPP loan is originated or until December 31, 2020 to use PPP funds for certain expenses, such as payroll costs, continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums, mortgage interest payments, rent payments, and utility payments. Originally, the PPP provided only eight (8) weeks after the date the loan was originated for a borrower to use all of its PPP funds to be eligible for forgiveness.
The PPPFA also amended guidance issued by the Small Business Administration that required a borrower to use at least 75% of PPP funds for payroll costs if the borrower seeks to have the entire PPP loan amount forgiven. Now, a borrower is only required to use 60% of PPP funds for payroll costs and may use up to 40% of such amount for other expenses such as mortgage interest payments, rent obligations, and utility payments.
The PPPFA provides the conditions that the loan is forgiven for borrowers who have reductions in the number of full-time equivalent employees. The PPPFA states that the amount of forgiveness will not be reduced by a reduction in the number of full-time equivalent employees if the borrower in “good faith” is able to document:
- an inability to rehire individuals who were employees of the borrower on February 15, 2020;
- an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- an inability to return to “the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.”
In addition, another reprieve is provided to borrowers who do not intend on seeking full forgiveness of their PPP loan or who have a balance due after forgiveness is sought. The PPPFA provides that a minimum maturity date of five (5) years is to be given to borrowers. The Small Business Administration previously explained that the maturity date for PPP loans was two (2) years from the date of origination.
To read the text of the Bill, click here.
Questions
Kronick attorneys across all of the firm’s practice groups – Public Agencies, Natural Resources, Labor & Employment, and Business/Healthcare – will continue to provide clients and the community with ongoing updates and advice regarding COVID-19 related issues as developments warrant. Please feel free to contact us for assistance with issues arising from the current health crisis.
Bruce Scheidt
bscheidt@kmtg.com | 916.321.4502
Gabriel Herrera
gherrera@kmtg.com | 916.321.4334