Paycheck Protection Program Update
On June 11, 2020, the Small Business Administration (“SBA”) issued an additional Interim Final Rule to amend the First Interim Final Rule that was issued April 2, 2020. The June 11th Interim Final Rule was released to reflect the modifications to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act (“Flexibility Act”) that we summarized here. Most of the June 11th Interim Final Rule is a reiteration of the Flexibility Act, however the Interim Rule provides a clarification concerning payroll costs and loan forgiveness.
The Flexibility Act amended the requirement under the PPP that borrowers must use 75% of the PPP loan towards eligible payroll costs to only 60%. The June 11th Interim Rule provides that the SBA will apply the 60% payroll costs requirement as a proportional limit as opposed to a threshold.
For example, if a borrower uses 59% of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60% of the forgiveness amount must be attributable to payroll costs. The Interim Rule provides an example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54%) of its loan on payroll costs, then because the borrower used less than 60% 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 nonpayroll costs constituting 40 percent of the forgiveness amount).