Since the Paycheck Protection Program Flexibility Act became law on June 5, 2020, Treasury and the Small Business Administration (“SBA”) have released several new and revised rules for the Paycheck Protection Program (“PPP”). This guidance implements provisions of the PPP Flexibility Act and makes other changes to the program. The updates relate to loan forgiveness, borrower eligibility, and other issues. The new interim rules are available here. View our initial alert on the PPP Flexibility Act here.
Applications for PPP Loans Close June 30
The Paycheck Protection Program will close to new applications on June 30, 2020. Any eligible business considering a PPP loan must apply in the next few days. Treasury has published an updated application for a PPP loan, reflecting the recent program changes.
Potential borrowers can use the SBA’s Lender Match tool to connect with approved small banks as well as nonbank lenders such as Community Development Financial Institutions, Minority Depository Institutions and others.
As of June 20, the SBA reported that there was $128 billion in funding remaining for PPP loans.
Revised PPP Loan Forgiveness Applications
On June 17, 2020, the SBA released new applications for PPP loan forgiveness. The forms and instructions reflect the changes made in the PPP Flexibility Act and the new rules.
- Borrowers can take advantage of the new 24-week “covered period” for spending PPP loan funds. Borrowers who received PPP loans before the PPP Flexibility Act was enacted can opt to use the original eight-week period.
- The new forgiveness applications include the reduction, from 75% to 60%, of the portion of loan funds that must be spent on payroll costs. No more than 40% of loan funds may be spent on permissible nonpayroll costs (mortgage interest, rent and utilities).
- Borrowers may receive partial, proportional loan forgiveness based on the requirement that 60% of the forgiveness amount must be attributable to payroll costs. This flexibility is important in allowing borrowers to distribute PPP funds across allowable uses as needed and still maximize loan forgiveness. This approach is explained in an interim rule.
- A new rule also makes clear that payroll and nonpayroll costs are eligible for forgiveness if they are either incurred or paid within the covered period.
- The forgiveness applications also incorporate exemptions from the PPP Flexibility Act that allow loan forgiveness based on employee availability and level of business activity.
- Both sets of instructions also provide information on documents that must be submitted with the forgiveness application as well as additional documents that must be retained.
The “EZ version” of the forgiveness application is available for use by borrowers that (a) are self-employed and have no employees; (b) did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or (c) experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%. This simpler application requires fewer calculations. The SBA Form 3508EZ is available here. The revised regular application for PPP loan forgiveness (SBA Form 3508) is available here. Borrowers can also use equivalent forms provided by their lenders.
A PPP borrower must apply for forgiveness within ten months after the last day of the covered period for forgiveness purposes.
Changes in Release of Borrower Information
The Paycheck Protection Program continues to evolve in various ways. For instance, Treasury Secretary Mnuchin recently stated that the administration would not release information on PPP borrowers, though the PPP loan application itself explains that information will be released under the Freedom of Information Act (“FOIA”). The next week, on June 19, Secretary Mnuchin and SBA Administrator Jovita Carranza announced that the SBA will disclose information about each business that has borrowed over $150,000, including business name, address, NAICS code, zip code, business type, demographic data, non-profit information, and jobs supported. SBA will also disclose the range of a business’s loan amount, using the following categories: $150,000 to $350,000; $350,000 to $1 million; $1 million to $2 million; $2 million to $5 million; and $5 million to $10 million. For loans below $150,000, aggregated information will be released, including information on loans by zip code, industry, business type, and various demographic categories.
Through June 24, 2020, SBA had published twenty interim final rules on the PPP. In light of the ever-changing program parameters, PPP borrowers should keep up to date on developments affecting forgiveness and other issues. We continue to monitor developments.
