House Acts to Provide Corrections and Flexibility to the PPP Program
The House of Representatives overwhelming passed The Paycheck Protection Program Flexibility Act of 2020, that will provide flexibility to the Paycheck Protection Program. The Paycheck Protection Program, the core part of the $2 trillion pandemic rescue package passed in March, allows loans of as much as $10 million that can be forgiven if a business spends it within eight weeks on payroll and no more than 25% for rent and other approved expenses. The Small Business Administration has reported that more than 4.4 million loans worth $510.5 billion had been approved as of May 27.
The House bill, H.R. 7010 would:
- Allow recipients of loan forgiveness under the Paycheck Protection Program to defer payroll taxes.
- Lower current requirement that 75% of a loan be used on payroll to 60%. The remaining 40% can be used for other expenses including paying rent and utilities.
- Extend the amount of time the loan covers from 8 weeks (2 months) to 24 weeks (6 months) or Dec. 31, whichever comes sooner.
- Extend from 2 years to 5 years the time allowed to repay any money owed on a loan.
- Extend deadline to rehire workers from June 30 to Dec. 31, 2020.
The bill passed 417-1, with many of the Democratic votes read into the record by their assigned proxy, which allows lawmakers to cast votes on behalf of members not present. A rule change that was largely rejected by republican members of the House when introduced.
The bill will now move to the Senate to be voted on. The Senate has already put forward a bill similar to the House bill, but has not yet passed it.
The bill which was released last week by Chairman Rubio, Senator Cardin, Senator Collins and Senator Shaheen that calls for future action on the Paycheck Protection Program. Several changes include:
- Pushes deadline to apply for program from June 30, 2020 to December 31, 2020;
- Extending the covered period of the loan and from 8 week period to 16 weeks;
- Including “covered worker protection expenditures” as allowable expenditures for using the loan proceeds. This includes various operating or capital expenditures that are required to comply with HHS, CDC or OSHA requirements or guidance; and
- Hold harmless provision clarifying that borrowers who maintained payroll for eight weeks won’t forfeit loan forgiveness because of the extension, and ensures that lenders aren’t held liable for borrowers’ certifications made for the loans.
There is no language on the 75/25 requirement, but we expect it to be part of the debate. There are a few other Senate bills proposed to fix PPP. Some of their proposals include extending the covered loan period to 16 or 24 weeks for certain borrowers and eliminating or changing the 75/25 requirement.
While the administration has weighed in and called for Congress to make changes to the PPP, it appears to be standing by its 75/25 requirement it added in its regulations.
Given the timing, we expect a bill to be passed the first week of June when the Senate returns from recess. The timing matters because the first companies that received loans after the PPP program opened on April 3 will see the eight-week loan-forgiveness periods begin to expire at the end of next week and in early June. House Majority Leader Steny Hoyer said Tuesday the House and Senate should be able to quickly agree on changes.
SBA and Treasury’s Rule and Application for Loan Forgiveness under PPP
Last week, the SBA and Department of Treasury released the PPP loan forgiveness application and Interim Final Rule on Loan Forgiveness. Read our firm’s alert on highlights and considerations for borrowers on the application. The interim rule and application clarifies some questions on period of review for loan forgiveness, how to determine payroll and non-payroll costs paid and incurred during the loan period, reductions in loan forgiveness, among other issues. Borrowers will need to work closely with their lender to ensure loan forgiveness.