June 2, 2020
PPP Loans – The Only Constant is Change
The Paycheck Protection Program (PPP) has been an effective tool in helping Atlanta and Georgia businesses manage cash flow and working capital during the COVID-19 pandemic. In fact, the Small Business Administration (SBA) reported on May 31st they have issued more than 136,000 loans totaling more than $13B. These numbers are stunning and also reflect the immediate need faced by borrowers. The PPP was launched very quickly to ensure the immediate distribution of loan funds. Unfortunately, this left no choice but for regulators to provide updates and guidance during implementation resulting in confusion, concern, and a barrage of constant changes. Although it is unlikely the seemingly constant change will stop soon, the good news is the House passed the PPP Flexibility Act of 2020 in late May. The Act features several changes designed to help borrowers and expand loan forgiveness opportunities. To help clients, prospects and others, Wilson Lewis has provided a summary of proposed changes below.
Proposed PPP Loan Changes
- Extended Application Deadline – The current application deadline of June 30, 2020, will be extended to December 31, 2020, assuming allocated funds are not exhausted. This will be useful for those contemplating application to manage the various reopening and safety changes required by state and local governments.
- Extended Covered Period – There has been concern for businesses in many industries that the 60-day Covered Period is too short. The Act addresses this by extending the Covered Period to 24 weeks after loan origination.
- Non-Payroll Expenses – Many businesses have expressed concern about the requirement to spend 75% of loan funds on payroll to be eligible for forgiveness. The issue is many borrowers also have fixed expenses that need to be paid using PPP funds. The Act addresses this by reducing the amount that must be spent on payroll to 60% allowing the other 40% to be used for covered mortgage, rent, or utility expenses.
- Rehire Deadline for Loan Forgiveness – The Act also extends to December 31, 2020, the deadline to rehire employees and restore salary cuts that were greater than 25%. Under current regulations, borrowers are required to rehire and reinstate salaries by June 20, 2020, or face a reduction in loan forgiveness. The extension addresses the concern that many businesses will remain closed past the June 30th deadline due to state and local lockdown requirements.
- Loan Repayment Deferral – There is concern that borrowers may need to start repaying the loan before they have information about their approved loan forgiveness. To resolve this the Act extends the repayment period from 6 months to the date the loan forgiveness application is received by the lender. If a borrower fails to apply within 10 months after the last day of the Covered Period, then they must begin to make payments on principal, interest, and fees.
- Loan Term Extended – The Act extends the minimum loan term from 2 years to 5 years expanding the maturity date. Unfortunately, this is not a retroactive change, so if enacted, it would only apply to new loans taken after the Act passage. It is important to note that lenders and borrowers would be permitted to revisit loan terms and make modifications.
- Loan Forgiveness Reduction – The Act outlines changes to the proportional reduction in loan forgiveness due to a reduction in employees. Borrowers would be able to receive relief if they are able to document in good faith that for the period between February 15, 2020, and December 31, 2020, they were unable to:
- Rehire employees who were employed on February 15, 2020, or hire another qualified professional for unfilled positions by December 31, 2020.
- Return to the same business level prior to February 15, 2020, due to compliance with federal regulations published between March 1, 2020, and December 31, 2020, related to sanitation, social distancing, and other employee/worker safety guidance.
Contact Us
The Act still needs to be voted on in the Senate and it is expected this will happen in the near future. However, the proposed changes offer important insight into what parts of the PPP will likely be changed. If you have questions about the information outlined above or need assistance with another PPP loan or Covid-19 tax issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
