UPDATE: Paycheck Protection Program (PPP) Loan Forgiveness

June 10, 2020

Clarifications Made to the Paycheck Protection Program Flexibility Act

In a Client Alert which we circulated on Friday June 5, 2020, we noted that Congress passed the Paycheck Protection Program Flexibility Act (the Flexibility Act) on June 3rd which provides much needed flexibility and relief to small businesses in qualifying for forgiveness of loans granted to them under the Paycheck Protection Program (PPP). President Trump signed the Flexibility Act on June 5th.

Shortly after the CARES Act was passed on March 27th, the SBA added a requirement by regulation that at least 75% of PPP loan proceeds must be spent on payroll costs to achieve full forgiveness of the loan. The Flexibility Act has now dropped the payroll expenditure requirement from 75% to 60%. However, as we noted in our Client Alert, the wording of the Flexibility Act provides that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. The rule before the enactment of the Act required a borrower to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness was not eliminated if the 75% threshold was not met.

In a Joint Statement issued on June 8, 2020, the SBA Administrator and the Treasury Secretary clarified that partial loan forgiveness will also be available under the 60% threshold. Specifically, if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness.

The Joint Statement also indicated that small businesses have until June 30, 2020 to apply for a PPP loan.

As noted in our Client Alert, the wording of the Flexibility Act seems to indicate that the deadline for applying for PPP loans was changed from June 30, 2020 to December 31, 2020. The lack of clarity about the application deadline centers on the eligibility terms for PPP loans under the CARES Act. The CARES Act says certain eligible borrowers may receive a loan during the covered period. The covered period was extended by the Flexibility Act to December 31, 2020. However, the SBA and the Treasury indicate in the Joint Statement that the intent was to keep in place the current June 30th deadline for applying for PPP loans.

Questions: We are Here to Help and Assess Your Situation
If you have any questions as to how the new law affects your business, please contact Jon Samel, chair of our Business Law department at (215) 661-0400 or JSamel@HRMML.com or any other member of our Team.

Questions Every Business Must Ask

Q. Has your business recently reviewed its legal structure to determine whether it is set up in the most advantageous manner for legal and tax purposes, considering recent developments and changes in the law?

Q. Do the owners of your business have a current, updated buy-sell agreement which controls how ownership interests in the business are to be transferred in the event of an owner’s death, disability or termination of employment?

Q. Have the owners of your business developed a succession plan to define how ownership and authority will transition upon the death or retirement of the present owners?

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