We discussed “potential” changes to the Paycheck Protection Program (PPP), that were introduced in the House on May 15 in our PPP Update #10. Soon after, the Paycheck Protection Flexibility Act (PPFA) passed the House by a vote of 417-1. On Wednesday night, June 3, the Senate passed the PPFA unanimously with no changes. It is anticipated the President will sign the PPFA into law. Today we will discuss the impact of PPFA on PPP borrowers.
Lawmakers on both sides of the aisle agreed borrowers required relief with the end of the original 8-week Covered Period looming for many. The PPFA attempts to provide borrowers with more time and less obstacles to accomplish 100% forgiveness of the loan, which many businesses desperately need. Once this relief becomes law, the waiting game begins for the requisite guidance to apply it. For example,the loan forgiveness application must be revised. Further, the changes brought by the PPFA will cause the issuance of additional regulations and frequently asked questions (FAQs) specifically addressing forgiveness.
The text of the PPFA can be found here, and a chart highlighting the changes is below.
Update 6/8/2020: The Treasury and SBA, via a joint statement, announced they plan to issue new rules and guidance, a modified borrower application, and a modified loan forgiveness application in response to the PPFA. The joint statement can be found here. The most significant component of the statement is they plan to interpret the 60% payroll requirement as a limit on the loan forgiveness, similar to the prior 75% rule, instead of a cliff as defined in the PPFA. This interpretation is inconsistent with the statutory text and should not be relied upon until official guidance is issued.
The PPFA provides additional flexibility but also raises new issues. We will await additional guidance before diving into some of these new issues, since a list of unanswered questions is not terribly helpful to our readers.
If you, like many businesses, have been actively planning around your PPP loan and believe you will satisfy the requirements using the original 8-week Covered Period, it may be prudent to consider the available election to use the 8-week Covered Period. Consult with your advisor regarding other business decisions you are considering and how the 24-week Covered Period impacts those decisions. It is our current understanding that electing the original 8-week period keeps the June 30, 2020 test date to meet the salary/hourly and full-time equivalent safe-harbor’s. This is an important consideration if your business decisions could affect the reduction tests if they were in place through December 31, 2020.
We will continue providing updates when relevant information becomes available. If you have questions about how to navigate the PPP Forgiveness Application process, or how other CARES Act incentives may apply to your business, please call on us. You can stay up to date on PPP guidance and tax issues relating to the coronavirus at our COVID-19 Tax Resource Center.