On June 10, 2020, the U.S. Small Business Administration (the “SBA”) released a revised interim final rule (the “Revised Rule”) that amends the interim final rule the SBA previously issued on April 2, 2020. The Revised Rule addresses key changes that the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) makes to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), particularly the changes to the provisions of the CARES Act that establish the Paycheck Protection Program (the “PPP”).
The Revised Rule’s key provisions provide:
- Covered Period—A PPP borrower whose loan is made on or after June 5, 2020, will have a 24-week covered period from the date of receipt of the loan proceeds to use the proceeds and qualify for forgiveness, but the covered period cannot extend past December 31, 2020. A borrower whose loan was made before June 5, 2020, can choose to extend the 8-week period to 24 weeks or keep the original 8-week period.
- Maturity Date—A PPP borrower whose loan is made on or after June 5, 2020, may repay the loan in 5 years. A borrower whose loan is made before June 5, 2020, must obtain consent from their lender to receive an extension of the loan period to 5 years.
- Deferral Period—A PPP borrower who submits a loan forgiveness application within 10 months after the end of their loan forgiveness covered period (same as “covered period” discussed above) will not have to make any payments of principal or interest on their loan before the date on which the SBA remits the loan forgiveness amount on their loan to their lender or notifies the lender that no loan forgiveness is allowed. A borrower who does not submit a loan forgiveness application to their lender within 10 months after the end of their loan forgiveness covered period must begin paying principal and interest after that period.
- Loan Forgiveness—A PPP borrower must spend at least 60% of their loan proceeds on payroll costs and no more than 40% of their loan proceeds on approved non-payroll costs if they want to have the entire amount of their loan forgiven. The Revised Rule clarifies that the 60% requirement is not a forgiveness threshold, and a borrower who does not meet the 60% requirement will still be eligible for partial loan forgiveness.
- Loan Forgiveness Safe Harbors—The Revised Rule leaves intact the new safe harbor exceptions provided by the Flexibility Act. Borrowers who do not fully restore their workforces can still receive full loan forgiveness if they can document in good faith:
(1) an inability to rehire individuals who were employees of the borrower on February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
(2) an inability to return to the same level of business activity that the business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued 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, and related to worker or customer safety requirements made necessary by the pandemic.
- Payroll Tax Deferral—The Revised Rule also leaves intact the Flexibility Act’s provision allowing borrowers who receive loan forgiveness to apply to defer payment of their payroll taxes.
To visit our COVID-19 Business Resource Center, including our previous Tax Law Alerts, click here.