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COVID-19: SBA Updates PPP Rule to Implement New Flexibility Provisions

On June 11, 2020, the Small Business Administration (SBA) released a revised interim final rule to implement changes made by the Paycheck Protection Program (PPP) Flexibility Act. The Act, which we covered in detail in an alert last week, makes several modifications to the PPP intended to provide borrowers more flexibility in how and when they spend loan proceeds. The following is an overview of the changes in the new rule and their implications for borrowers.

  • 24-Week period for forgiveness. For loans issued prior to June 5, 2020, a business may elect to apply the original eight-week covered period for purposes of forgiveness, or a 24-week period beginning on the date loan proceeds are received. For loans made after June 5, 2020, businesses will have 24-weeks from receipt of the loan in which to spend the proceeds in order to qualify for loan forgiveness.

    For borrowers using the 24-week period, it is unclear whether they are required to wait the entire 24-week period before applying for forgiveness, or can apply during the 24-week period (assuming they have already maximized their forgiveness).  Informal conversations with SBA indicate that borrowers will be allowed to apply during their 24-week period, and we anticipate formal guidance, including the forthcoming forgiveness application, will provide such a rule.

  • Forgiveness reduced proportional to payroll spend. The rule clarifies that borrowers will be eligible for proportionally-reduced forgiveness if they spend less than 60% of the loan proceeds on payroll, rather than no forgiveness – the law itself was not clear on this point, and many commentators believed that a “cliff” applied if the 60% threshold is not met. SBA has indicated it will revise its rules on PPP loan forgiveness to further address this issue.

  • Safe harbor for re-hiring extended to December 31, 2020. While new loan recipients must spend their loan proceeds within 24 weeks to be eligible for forgiveness, SBA has extended the re-hiring safe harbor until December 31, 2020. In other words, businesses will have until December 31, 2020 to restore hiring numbers and be eligible for full forgiveness, even if their 24-week period expires sooner.

  • Calculating loan forgiveness. The rule further clarifies that borrowers must use at least 60% of the PPP loan for payroll costs, and not more than 40% of the loan forgiveness amount may be attributable to non-payroll costs. The rule provides a helpful example of how SBA will calculate the forgiveness amount:

    • If a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in non-payroll costs constituting 40 percent of the forgiveness amount). 

  • Loans issued on or after June 5, 2020, mature in five years. Consistent with the new law, the rule implements a five-year maturity period for new loans, and clarifies that loans issued before June 5, 2020, will continue to have a two-year maturity period for any portion of the loan not forgiven. The rule further confirms that borrowers with a two-year term may seek to negotiate with their lender to extend the period to five years, subject to the lender’s discretion. Our conversations with lenders indicate that they generally will review each request for a loan modification on a case-by-case basis. 

  • Final deadline to apply for a loan. Eligible businesses have until June 30, 2020, to apply for a PPP loan. As of the end of last week more than $100 billion was still available under the program.

©2022 Pierce Atwood LLP. All rights reserved.National Law Review, Volume X, Number 163

About this Author

Kris J. Eimicke, tax lawyer, Pierce Atwood

Kris Eimicke concentrates his practice on tax issues and economic development programs, with a special emphasis on state and federal new markets tax credit (NMTC) programs, renewable energy tax credits, historic rehabilitation tax credits, and the newly created opportunity zone program. Kris also regularly advises businesses, tax-exempt organizations, and individuals on tax issues related to a variety of business transactions, as well as representation before the Internal Revenue Service, state revenue agencies, and the courts on tax matters. 

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Christopher E. Howard Corporate Finance Attorney Pierce Atwood Law Firm Portland Maine

Chris Howard has a unique combination of technical legal skills and hands-on business and finance experience, enabling him to integrate these disciplines into strategies that match client objectives and provide clients with a competitive advantage. His forte is in managing complex commercial transactions and development projects in time-sensitive environments, and in accessing all sectors of the capital markets.

Chris' practice has four areas of focus:

  • Corporate finance and transactional representation...

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Robert Ravenelle, Pierce Atwood Law Firm, Portland, Tax Law Attorney

As head of Pierce Atwood's Federal Income Tax practice, Rob Ravenelle has extensive experience in the planning, negotiation and tax structuring for mergers and acquisitions. He works closely with members of our Business Practice Group to ensure that clients obtain the most economic and tax efficient transaction results possible. Rob's prior experience practicing as a Certified Public Accountant brings unique skills that enhance the value of our services in deal transactions, from mergers to renewable energy tax equity financing to succession planning of closely held...

Elizabeth Frazier Govt Relations Attorney Pierce Atwood Law Firm

Elizabeth Frazier focuses her practice on government relations, dividing her time between Pierce Atwood’s Portland and Augusta, Maine offices.

A native of Maine, Elizabeth grew up around her family’s small business, working on all aspects of business growth and management. She has an intimate understanding of the realities and requirements of running a business in Maine.

Additionally, she has worked in government and politics throughout her career. In 2008, Elizabeth worked as a grass roots coordinator for Obama for President in New Hampshire. Elizabeth then followed her...