SBA Issues Updates to Initial Final Rule on Paycheck Protection Program
The latest Interim Final Rule makes the following changes to the First Interim Final Rule. Here’s what you’ll want to know:
• The “covered period” for PPP Loans has been amended from “the period beginning on February 15, 2020 and ending on June 30, 2020” to “the period beginning on February 15, 2020 and ending on December 31, 2020.” This amendment applies to the definition of “covered period” that appears in section 1102 of the CARES Act, governing loan use, loan eligibility, and related requirements. It does not alter the meaning of “covered period” that appears in section 1106 of the CARES Act governing loan forgiveness.
• For loans made before June 5, 2020, the maturity is two years; however, borrowers and lenders may mutually agree to extend the maturity of such loans to five years. For loans made on or after June 5, the maturity is five years.
• If you submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you will not have to make any payments of principal or interest on your loan before the date on which SBA remits the loan forgiveness amount on your loan to your lender (or notifies your lender that no loan forgiveness is allowed).
• Your “loan forgiveness covered period” is the 24-week period beginning on the date your PPP Loan is disbursed. If your PPP Loan was made before June 5, you may elect to have your loan forgiveness covered period be the 8-week period beginning on the date your PPP Loan was disbursed.
• Your lender must notify you of remittance by SBA of the loan forgiveness amount (or notify you that no loan forgiveness is allowed) and the date your first payment is due. Interest continues to accrue during the deferment period. If you do not submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you must begin paying principal and interest after that period.
• While the Flexibility Act provides that a borrower shall use at least 60 percent of the PPP Loan for payroll costs to receive loan forgiveness, this requirement is considered a proportional limit on eligible non-payroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness. This interpretation is consistent with the new safe harbor that provides if a borrower is unable to rehire previously employed individuals or similarly qualified employees, the borrower will not have its loan forgiveness amount reduced based on the reduction in full-time equivalent employees.
• In order to receive full loan forgiveness under the Flexibility Act, a borrower must use at least 60 percent of the PPP Loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to eligible non-payroll costs.
• Here are the borrower certifications that need to be made:
o The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments; I understand that if the funds are knowingly used for unauthorized purposes, the Federal Government may hold me legally liable such as for charges of fraud. As explained above, not more than 40 percent of loan proceeds may be used for non-payroll costs.
o Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the loan forgiveness covered period for the loan will be provided to the lender.
o Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utility payments. As explained above, not more than 40 percent of the forgiven amount may be used for non-payroll costs.
The Interim Final Rule on Revisions to First Interim Final Rule can be located here:
The Attorneys at Levene Gouldin & Thompson, LLP are available to provide advice and counsel concerning these new statutory obligations and other matters related to COVID-19.