PPP Amendment
Expands Loan Forgiveness Options

On June 5, 2020, the President signed into law an amendment to the CARES Act, known as the Paycheck Protection Flexibility Act of 2020 (H.R. 7010) (the Amendment), which gives recipients of Paycheck Protection Program (PPP) loans increased flexibility with respect to using PPP loan proceeds and obtaining loan forgiveness. Notably, the Amendment extends the amount of time an organization has to spend its PPP loan proceeds (the covered period) to qualify for loan forgiveness, from 8 weeks to 24 weeks. Other changes summarized below also make it more likely that borrowers will have all or substantially all of their loans forgiven.

Community Action organizations preparing for loan forgiveness should reevaluate their PPP loan spending and determine whether they can take advantage of any of the flexibilities offered under the new law. Importantly, while the Amendment automatically applies to all PPP loans made on or after June 5, 2020, it does not prevent lenders and current borrowers from mutually agreeing to modify the maturity terms of an outstanding PPP loan. Current PPP borrowers seeking to benefit from these flexibilities must work with their lenders to amend their loan documents to reflect the terms described below. The Amendment:

1. Increases the covered period to 24 weeks. Current PPP borrowers may now elect to spend their loan proceeds over 24 weeks, or may maintain the original 8-week covered period. This new covered period cannot extend beyond December 31, 2020. New PPP borrowers automatically receive a 24-week covered period. This change increases the likelihood that an organization will be able to obtain full (or nearly full) loan forgiveness.
    
2. Reduces the amount of the loan that must be spent on payroll costs. The Amendment lowers the PPP loan amount that must be spent on payroll costs, from 75 percent to 60 percent, for the loan to be eligible for full forgiveness. This means that an organization may now use up to 40 percent of its PPP loan on non-payroll costs, which include mortgage interest payments, rent, and utility payments.
    
3. Extends period of time to restore full employment. PPP borrowers may now use the full 24-week covered period to restore employment to pre-pandemic levels required for full loan forgiveness. This must be achieved by December 31, 2020, a change from the prior deadline of June 30, 2020.
    
4. Adds two exceptions to the loan forgiveness reduction determination. Under the CARES Act, borrowers that reduce the number of full-time equivalent employees during the covered period are subject to a proportional reduction in loan forgiveness. Existing SBA guidance allows borrowers to exclude employees who turned down good faith offers to return to work. The Amendment adds two new exceptions for borrowers that fail to fully restore their workforce. The new exceptions allow borrowers that have lost part of their workforce to avoid loan forgiveness reduction to the extent that they are unable to: (1) hire similarly qualified employees to fill vacant positions by December 31, 2020; or (2) restore operations to the same level as prior to February 15, 2020, due to compliance with requirements issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration (e.g., sanitation standards, social distancing, or other employee or client safety requirements related to COVID-19).
    
5. Extends repayment period for any unforgiven loan amount. A borrower now has up to five years (an increase from two years) to repay any PPP loan amount that is not forgiven. The interest rate remains at 1% APR.
    
6. Extends the loan deferment period. Borrowers do not have to make any payments of principal, interest, or fees on their PPP loans until 10 months after the last day of the covered period. This is an increase from the prior deferral period of six months.
    
7. Allows PPP borrowers to defer payroll taxes. Recipients of PPP loans are now eligible to defer payroll tax payments between March 27, 2020 and December 31, 2020. This benefit, created under the CARES Act, was previously unavailable if an employer received a PPP loan. For more information about payroll tax deferral, see CAPLAW’s CARES Act Benefits for Nonprofit CAAs: Payroll Tax Relief.

The SBA will likely issue updates to its PPP guidance as well as a revised PPP Loan Forgiveness Application (SBA Form 3508 or lender equivalent) to reflect the new rules. It is important to remember that current PPP borrowers will need to work with their lenders to modify the loan terms to take advantage of these new flexibilities. CAPLAW will continue to monitor developments in the PPP program and issue additional updates as needed.

This News Flash is part of the Community Services Block Grant (CSBG) Legal Training and Technical Assistance (T/TA) Center. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Grant Award Number 90ET0467-03. Any opinion, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.

The contents of this news flash are intended to convey general information only and do not constitute legal advice. Any communication through this publication or through CAPLAW’s website does not constitute or create an attorney-client relationship. If you need legal advice, please contact CAPLAW or another attorney directly.