Cavitch Familo & Durkin, Co., L.P.A.
 

House will vote on borrower-friendly changes to PPP

Michael Rasor

For two months, businesses have plotted their course through the PPP framework, outlined in the CARES Act.

Just as the 8-week periods for some loans end next week, the forgiveness rules could change significantly. Speaker of the House Nancy Pelosi has scheduled a vote next week on a bipartisan bill to make significant revisions to PPP loan terms. Each of the changes is borrower-friendly.

The Paycheck Protection Program Flexibility Act of 2020, introduced by Dean Phillips (D, Minn.) and co-sponsored by 4 Republicans, would do the following:

  • The covered period currently extends for 8 weeks, beginning on the date of loan origination.
    • The new bill would change the covered period to a span:
      • Beginning on the date of loan origination, and
      • Ending on the earlier of:
        • 24 weeks later, and
        • December 31, 2020.
    • However, a borrower who received a PPP loan prior to enactment of the PPP Flexibility Act may nonetheless opt to keep an 8-week covered period.
  • The 75%/25% rule is replaced by a 60%/40% rule, such that at least 60% of the forgiven sum must constitute payroll costs. However, this provision would be moot anyhow, if the covered period is changed to 24 weeks.
  • The CARES Act has a safe harbor of June 30, 2020 to re-hire or eliminate pay cuts. The bill would change it to December 31, 2020.
  • The headcount penalty will not apply to a given employee/position, if the borrower:
    • is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
    • is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
    • is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020, due to compliance with Covid-19 related restrictions.
  • Loans would have a maturity of not less than 5 years. Currently, SBA has set maturity periods of 2 years.
  • The deferral of principal and interest will end at the earlier of (1) the date that the borrower submits a forgiveness application to its lender, and (2) ten months after the covered period ends.
  • PPP borrowers will be permitted to delay payments of payroll taxes, which is a provision of the CARES Act previously unavailable to PPP borrowers.

Our firm will be advising borrowers and lenders on forgiveness applications over the next several months. Contact me at mrasor@cavitch.com for assistance.

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