On March 27, 2020, Congress passed “The Coronavirus Air, Relief, and Economic Security Act” (CARES Act), which included the “Paycheck Protection Program” (PPP) for small businesses. The PPP allows businesses to keep their workforce employed during the COVID-19 pandemic by offering SBA loans. By April 16, 2020, just 14 days after the loan program become available to small business owners, the $349 billion allocated to the PPP ran out. On April 27, 2020, lawmakers replenished the program with an additional $310 billion in funding.
The original PPP loan terms required that, in order for the loan to be fully forgiven, 75% of the funds needed to be used for payroll and other 25% of the funds could be allocated to non-payroll expenses, such as rent, mortgage interest, or utilities. The loan amount also had to be used during the 8-week period after the funds were received and for any amounts not forgiven, provided a two-year maturity at a 1% percent interest rate.
In response to concerns with the restrictions on the use of the PPP funds and the payback terms, on June 5, 2020, Congress passed the “Paycheck Protection Program Flexibility Act of 2020” (PPPFA), which amended the PPP. The PPPFA makes it easier to receive forgiveness of the PPP loans by prolonging the period that the funds must be spent to 24 weeks or until December 31, 2020 (whichever is first), extending the safe harbor for restoring full time employees and salaries from June 30, 2020 to December 31, 2020, reducing the payroll cost rule from 75% to 60%, and for any funds not forgiven, extending the maturity date from 2 years to 5 years. Partial forgiveness is also still available if less than 60% of the loan amount is used for payroll costs.
The updated borrower application can be found here. The deadline to apply to for a PPP loan is June 30, 2020. If you have any questions about applying for or repaying your PPP loan, please contact us at Schindel Segal Mendoza.