COVID-19-related laws and regulations continue to remain a moving target. The President signed into law the Paycheck Protection Program Flexibility Act (the “Act”) on June 5, 2020, and we posted the highlights on June 9, 2020. A mere ten days after the passage of that Act, things have already changed, largely due to the U.S. Treasury issuing regulations on June 11th.
Here is a summary of some of the Paycheck Protection Program changes as of June 18, 2020, with the caveat that things will likely change again.
Extension to Apply? Not so Fast
The Act appeared to extend the application deadline for PPP loans from June 30, 2020 to December 31, 2020. However, in a joint statement issued on June 8, 2020 by the Small Business Administration (the “SBA”) Administrator Jovita Carranza and the U.S. Treasury Secretary Steven T. Mnuchin, June 30, 2020 will remain the last date the SBA will approve a PPP loan application.
The Use Period is Not Optional
The Act also changed the time period for borrowers to use PPP loan funds from eight weeks to twenty-four weeks. Experts initially interpreted the Act as permitting borrowers to elect either the eight-week period or the twenty-four-week period. This understanding has since changed.
Borrowers who received their loans prior to June 5, 2020 are permitted to use either the eight-week or twenty-four-week period. However, borrowers who received their loans after June 5, 2020 are required to use the twenty-four week period. This restriction is perhaps an error that will be later corrected as it seems contrary to Congressional intent to provide more flexibility to borrowers (not to mention entirely arbitrary).
Additionally, the requirement that the borrowers use the funds by December 31, 2020 remains. Some borrowers will then have a use period of longer than eight weeks but shorter than twenty-four weeks, depending on when their loan funds.
The New 60% Use Rule is Apparently Not a Cliff
of the funds for payroll-related expenses to qualify for full forgiveness of their loan. The forgiveness was reduced, but not eliminated, if the borrower utilized less than 75% of funds for said payroll costs. The Act changed that requirement to 60%, but early interpretations of the Act concluded that it was now a cliff (meaning that there was no availability of partial forgiveness).
This is apparently not the case. Instead, the First Interim Final Rule provides that a borrower will still qualify for partial forgiveness if they use less than 60% of their loan funds for payroll-related expenses.
Spin the Wheel, Get a Maturity Date!
In another turn of events, also hopefully in error, there are now two minimum maturity dates for PPP loans. The Act extended the minimum maturity from two years to five years, apparently for all borrowers. Unfortunately, this appears to not be the case anymore.
The First Interim Final Rule issued guidance to lenders that loans approved
- before June 5, 2020 will have a two-year maturity
- on or after June 5, 2020 will have a five-year maturity.
- Note: The approval is based on the date SBA assigns a loan number to the loan.
For borrowers who do not qualify for the new five-year minimum maturity date, banks and borrowers can agree to extend the maturity date on the loans to a period longer than two years. However, it is counterintuitive to permit two different maturity dates for the same loan program and, of course, puts all the power in the hands of the banks who already are anxious to get these loans off their books.
Ex-Felons May Now Apply
Prior to June 12, 2020, individuals who had felony convictions within the past five years did not qualify for a PPP loan. Now individuals with felony convictions can apply so long as the conviction was not within the past year.
However, the five-year restriction remains for those individuals who were charged for certain types of financial crimes, including, but not limited to, robbery, embezzlement, fraud, making a false statement on a loan application, or making a false statement on an application for federal financial assistance. If the borrower is an entity, the prohibition applies if an ex-felon owns more than 20% of the entity.
Although these may not be the last of the Paycheck Protection Program changes, rest assured that we will continue updating you with what you need to know.