Key Changes to the Paycheck Protection Program - Updated July 8, 2020
Paycheck Protection Program Extended through August 8, 2020 and Recap of June 24, 25 Changes
The Paycheck Protection Program reopened for applications on July 6, 2020 and will remain open (pending availability of funds) through August 8, 2020. As of July 6, 2020 roughly $521 billion in Paycheck Protection Program Loans had been disbursed out of the $659 billion allocated.
The SBA has also made data on loans available to the public, disclosing loan size, business type and location, number of jobs retained, NAICS Code, and certain demographic data for loans under $150,000, and disclosing the same data plus business name, address and range of loan size for loans over $150,000.1 The SBA noted in the release an interest in striking a balance between the public’s interest in information and the SBA’s interest not to harm businesses who took out loans.
New Interim Final Rule on Loan Forgiveness and Application Forms – June 24, 2020
Prior to the re-opening of the program, the SBA released an Interim Final Rule on June 24, 2020 implementing certain changes from the Flexibility Act and updating certain requirements and calculations pursuant to the Paycheck Protection Program loan forgiveness application forms.
Now Borrowers may seek forgiveness of PPP loans before the end of the “Covered Period” (or “Alternative Covered Period”2), so long as all proceeds of the PPP loan which are eligible for forgiveness have been spent. However, if a borrower applying for forgiveness before the end of the Covered Period will be subject to a reduction in the loan amount due to a reduction of salaries or wages in excess of 25% (the “Salary Reduction”), the borrower will be required to account for that excess salary reduction for the full Covered Period when making its reduction calculation.3 Any portion of the loan amount not forgiven due to a Salary Reduction must be repaid before the maturity date of the loan.4
The rule also provides examples of documentation that can be used to verify to whether a borrower meets one of the Salary Reduction safe harbors:5
The first safe harbor provides relief from the Salary Reduction where the borrower can document, in good faith, that it is unable to rehire the same or similarly qualified individuals as those that were employees before February 15, 2020; this safe harbor may be evidenced by “the written offer to rehire an individual, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified individual.”6 Borrowers are also required to inform their state’s unemployment insurance office of such a rejection within 30 days of receipt.
The second safe harbor provides relief from the Salary Reduction where the relevant reductions in salary were due to compliance with CDC or OSHA, “standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19”, and “must include copies of applicable COVID Requirements or Guidance for each business location and relevant borrower financial records.”7 (emphasis added)
The rule did not modify the requirements for a reduction of forgiveness based on a reduction of full time equivalent employees.
The Paycheck Protection Program forgiveness applications can be found here:
Form 3508EZ – For applicants who are self-employed or independent contractors, those who will not be subject to loan forgiveness reductions because there was no reduction of salary or full time equivalent employees, or those who fall under a safe harbor from the loan forgiveness reduction provisions.
Form 3508 – For all other applicants.
New Frequently Asked Questions – June 25, 2020
On June 25, 2020, the Department of the Treasury released updated Frequently Asked Questions for the Paycheck Protection Program implementing certain changes to the program. These changes include the following:
Broadening eligibility by limiting the type of prior criminal history which would result in an exclusion from the program;8
Clarifying the beginning of the Covered Period as the date of first disbursement when there are multiple disbursements;9
Extending the deadline for lenders to complete their initial SBA Form 1502 for loan reporting;10 and
Reflecting the increased term of loans from 2 years to 5 and providing for extension of loans closed before June 5 by mutual agreement.11
1 Data available at: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/pa...
2 All references to the “Covered Period” apply equally to applicants utilizing the “Alternative Covered Period” provisions of the rules unless otherwise specified.
3 Interim Final Rule on Business Loan Program Temporary Changes; Paycheck Protection Program – Certain Eligible Payroll Costs, Doc. No. 2020-14128 § III.1.c., p.9.
4 Id. § III.2, p.8.
5 For information on the safe harbors generally, See SBA Form 3508 Loan Forgiveness Application Instructions for Borrowers, FTE Reduction Safe Harbor, p. 5.
6 Interim Final Rule on Business Loan Program Temporary Changes; Paycheck Protection Program – Certain Eligible Payroll Costs, Doc. No. 2020-14128 § III.1.f., p. 22.
7 Id. § III.1.f., p. 23.
8 Paycheck Protection Program Frequently Asked Questions (June 25, 2020), Question 12.
9 Paycheck Protection Program Frequently Asked Questions (June 25, 2020), Question 20.
10 Paycheck Protection Program Frequently Asked Questions (June 25, 2020), Question 48.
11 Paycheck Protection Program Frequently Asked Questions (June 25, 2020), Question 49.