Sean Bryan Authors Article on New Extensions for Payroll Protection Program Loans

Sean Bryan column—entitled “New Extensions for PPP Loans ”—addresses extensions for both the application deadline and the cap on highly paid employees.

On June 3,  Congress passed the Paycheck Protection Program Flexibility Act of 2020, which the President is expected to sign shortly and which, once signed, will provide new flexibility to borrowers of Paycheck Protection Program loans.  First, the period in which PPP loans may be applied for will be extended from June 30 to December 31, 2020.  This extension affects both the application deadline and the pro ration of the $100,000 cap on highly paid employees for future loans. 

As of May 30, over $100 billion remains available for new PPP loans; this is actually higher than from the previous report due to some borrowers repaying loans (the number of loans in excess of $2 million fell by almost a thousand).

New PPP loans will have a minimum maturity of 5 years, which changes the 2-year term of existing PPP loans.  This change will apply as of “the date of enactment,” so we hope for quick guidance regarding whether this applies to new loans based on the date of application, the date of approval, or the date of funding.  Borrowers and lenders are not prohibited from agreeing to modify the terms of existing PPP loans to extend the maturity.

The 6-month deferment of principal and interest payments is extended until the date that loan forgiveness is determined and remitted to the lender.  If a borrower does not apply for forgiveness within ten months after the 24-week covered period for forgiveness, then the deferral period terminates at the end of such 10th month.  This change will apply retroactively to all PPP loans.

A number of changes were made to the PPP loan forgiveness provisions and apply to all PPP loans.  First, the minimum portion of PPP loan proceeds that must be spent on payroll to be eligible for forgiveness is reduced from 75% to 60%, thus providing more funds for rent and utilities at a time when employment may not pick up until the fall.  Second, the “covered period” for which forgiveness is available is extended from 8 weeks to the later of 24 weeks or December 31, 2020; existing PPP loan borrowers who have already spent the proceeds in the current 8-week period may elect to use that 8-week period. 

Importantly, the administrative safe harbor to avoid reduction of forgiveness amounts by rehiring employees or restoring reduced hours or salary is made statutory and is extended from June 30 to December 31.  The new provision provides that an employee who is given an offer of rehire and rejects it does not reduce forgiveness (note that the additional provisions of the administrative guidance should still apply, which means this must be reported to state unemployment agencies), and extends the grace period to December 31.  It also applies this exemption to an inability to hire a similarly qualified employee to fill the position, which means if an employer cannot hire the same employees, it must hire others to get back up to the February 15, 2020 number.  Further, the safe harbor is extended to an inability to return to the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued by HHS, CDC, or OSHA “related to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19”.

An additional provision of this legislation is that the provision of the CARES Act that prohibited recipients of loan forgiveness from deferring payment of payroll taxes to 2021 and 2022 is eliminated.  All employers will be able to defer eligible payroll taxes to be paid 50% in 2021 and 50% in 2022.

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