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SBA issues PPP “EZ” loan forgiveness application
On June 16, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department, released the Paycheck Protection Program (PPP) EZ Loan Forgiveness Application. According to the PPP Loan Forgiveness Application Form 3508EZ instructions, a borrower may use the streamlined form if it meets one of three criteria: (i) the borrower is self-employed, an independent contractor, or sole proprietor with no employees at the time of application; (ii) the borrower did not reduce salary or wages of any employee by more than 25 percent during the covered period and did not reduce the number of employees or the average paid hours of employees; or (iii) did not reduce salary or wages of any employee by more than 25 percent during the covered period and was unable to operate during the covered period at the same business activity level as prior to February 15, 2020, due to compliance with certain government requirements. Recently, a group of bipartisan senators urged the SBA to streamline the loan forgiveness form arguing that the “11-page forgiveness application” was “beyond the program’s intent” and that it was unnecessarily onerous (covered by InfoBytes here).
Additionally, the SBA released additional revisions to the interim final rule implementing Section 1102 of the CARES Act, which establishes the PPP, to reflect changes made by the PPP Flexibility Act of 2020. InfoBytes coverage regarding the PPP Flexibility Act changes can be found here.
SBA codifies PPP flexibility guidance
Recently, the Small Business Administration (SBA) released an interim final rule (IFR) to incorporate key revisions made to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act). The Flexibility Act, as previously covered by InfoBytes, took effect June 5. Many of the Flexibility Act’s provisions, such as those related to loan forgiveness and deferral periods for PPP loans, are retroactive to March 27, 2020. The provision related to the maturity date of PPP loans took effect June 5, 2020, and the remaining provisions will take effect upon publication in the Federal Register.
The IFR codifies several changes made to the PPP, including the following:
- Reiterates that the last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.
- Amends the end date of the “covered period” for a PPP loan from June 30, 2020 to December 31, 2020.
- Provides a minimum maturity of five years for all PPP loans made on or after the enactment of the Flexibility Act, and provides an option for borrowers and lenders to mutually agree to extend maturity from two years to five years for loans made before June 5.
- Clarifies that if a borrower submits its loan forgiveness application within 10 months of the end of the loan forgiveness period, the borrower will not be required to make any payments on the loan before the date SBA remits the forgiven amount to the lender or notifies the lender that loan forgiveness is not allowed.
- Extends the deferral period on PPP loans by extending the loan forgiveness period from eight weeks to 24 weeks beginning on the date the loan is disbursed. However, borrowers may opt to keep the forgiveness period at eight weeks for loans made prior to June 5, 2020.
- Sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness, but provides that—consistent with a safe harbor in the Flexibility Act—the SBA, in consultation with Treasury, will “interpret[] this requirement as a proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness.” Revisions to the SBA’s IFRs on loan forgiveness and loan review procedures addressing these amendments are forthcoming.
The SBA also released an updated borrower application form, as well as a revised lender application.
SBA reduces felony look-back to one year for PPP applicants
On June 12, the Small Business Administration (SBA), in consultation with the Treasury Department, released additional revisions to the interim final rule implementing Section 1102 of the CARES Act, which establishes the Paycheck Protection Program (PPP). Specifically, the changes impact the eligibility requirements related to felony convictions of applicants or owners of the applicant. The revisions reduce the look-back period from five years to one year for any felony conviction that does not involve fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance. The ineligibility rule applies to any owner of 20 percent or more of equity in the applicant's business. The revisions are effective immediately and reflected in the updated Borrower Application and Lender Application.
SBA, Treasury address PPP amendments, rules and guidance forthcoming
On June 8, Small Business Administration (SBA) Administrator Jovita Carranza and U.S. Treasury Secretary Steven T. Mnuchin issued a joint statement on the enactment of the Paycheck Protection Program Flexibility Act (Flexibility Act). As previously covered by InfoBytes, the Flexibility Act—which took effect June 5—amends provisions of the CARES Act and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Flexibility Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period from eight weeks to the earlier of 24 weeks after origination or December 31, 2020; (iii) sets the minimum amount that businesses must spend on payroll to receive forgiveness at 60 percent (rather than 75 percent); (iv) allows borrowers to defer principal and interest payments on PPP loans until the SBA remits the amount of determined forgiveness to the lender, instead of the original six-month deferral period; and (v) confirms that June 30, 2020 will be the last date on which a PPP loan application can be approved.
SBA, in consultation with Treasury, will promptly issue rules and guidance, along with a modified borrower application form and loan forgiveness application to implement the Flexibility Act’s amendments to the PPP. The forthcoming rules and guidance will also establish various safe harbors from reductions in loan forgiveness based on reductions in full-time equivalent employees, as well as for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year.
Paycheck Protection Program Flexibility Act of 2020 provides more options for borrowers
On June 5, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which amends provisions of the CARES Act (covered by a Buckley Special Alert) and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period to the earlier of 24 weeks after origination or December 31, 2020, rather than the current eight weeks; (ii) maintains forgiveness amounts for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year; (iv) sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness; (v) allows borrowers to defer principal and interest payments on PPP loans until the Small Business Administration remits the amount of determined forgiveness to the lender, instead of the current six-month deferral period (borrowers that do not apply for forgiveness will be given at least 10 months after the program expires to begin making payments); and (vi) allows businesses with forgiven loans to defer payroll taxes. The Act takes effect immediately.