Financial Support for Small and Medium Businesses - The Main Street Lending Program
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UPDATE - Government Adds Flexibility to PPP Loans - COVID-19 Legislation

June 2020


On June 5, 2020, President Trump signed H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the “Act”).  The bill makes important changes to key provisions of the Paycheck Protection Program (“PPP”).

Loan Terms

The Act extends the term of the loan from 2 years to 5 years for loans issued after June 5, 2020, and allows lenders and businesses to conform previously issued loans to those terms by agreement.

Use of Funds

The Act extends the date by which businesses may use PPP loan funds from June 30, 2020 to December 31, 2020.  However, a letter entered into the Congressional record clarifies that businesses must still apply for a PPP loan by June 30, 2020.

Loan Forgiveness

The Act extends the 8-week forgiveness period to a 24-week forgiveness period.  However, any forgiveness period must end on December 31, 2020.  For example, if a business receives PPP loan proceeds on July 20, 2020, the forgiveness period would end on December 31, 2020, even though a 24-week forgiveness period would end on January 4, 2021.  Additionally, a business that received a PPP loan before June 5, 2020 can elect to keep the 8-week period.

The Act also changes the percentage of the PPP forgiveness amount that can be used for eligible non-payroll costs.[1]  Previously, not more than 25 percent of the loan forgiveness amount could be attributable to eligible non-payroll costs.  Under the Act, up to 40 percent of the loan forgiveness amount can be attributable to eligible non-payroll costs.  However, the Act adds a requirement that at least 60 percent of the total loan amount must be used for payroll costs or no portion of the loan is forgivable.

Offsetting Forgiveness Reductions

To encourage rehiring of employees released due to the COVID-19 crisis, businesses can offset reductions in the loan forgiveness amount based on headcount and salary reductions that occurred between February 15, 2020 and April 26, 2020.  The Act extends the deadline for offsetting those reductions from June 30, 2020 to December 31, 2020.

The Act also provides that no reduction based on employee headcount will occur if a business can document, in good faith, that:

  • it was unable to rehire individuals who were employees of the business on February 15, 2020 and was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
  • it was unable to return to the same level of business activity as it was operating at before February 15, 2020, due to compliance with regulations and guidance from the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, during the period between March 1, 2020 and December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19

UPDATE (June 18, 2020)

The Small Business Administration (“SBA”) issued an Interim Final Rule on Revisions to First Interim Final Rule (“Interim Final Rule”), in order to implement the changes to the Paycheck Protection Program (“PPP”) made by the Paycheck Protection Program Flexibility Act of 2020 (the “Act”).  The SBA also issued a revised Loan Forgiveness Application, and Loan Forgiveness Application Instructions, to reflect the Act’s changes to forgiveness of the PPP loan.

Please note that the final day for businesses to apply for PPP loans is June 30, 2020.

Clarification of 60% Forgiveness Threshold

The Interim Final Rule clarifies the Act’s requirement that 60 percent of the forgiveness amount must be attributable to payroll costs.  Borrowers are eligible for partial forgiveness if they do not reach 60 percent requirement, in proportion to the amount of proceeds spent on payroll costs. 

For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in non-payroll costs constituting 40 percent of the forgiveness amount).”

The complete text of the Interim Final Rule is available here.

Updated Loan Forgiveness Application and Instructions

The SBA also issued a revised Loan Forgiveness Application, and Loan Forgiveness Application Instructions, incorporating the changes in the Act.  This includes the extended forgiveness period and the new exception to the reduction in the loan forgiveness amount based on headcount that occurred between February 15, 2020 and April 27, 2020.

The revised Loan Forgiveness Application is available here.

The revised Loan Forgiveness Application Instructions are available here.

We expect to continue to update this summary as additional information is made available.  If you have any questions related to this legislation, please contact your attorney at Pedersen & Houpt or the attorneys below and we will answer your questions and walk you through the program.

Larry Byrne  
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2155
lbyrne@pedersenhoupt.com

Eric J. Kordish
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2249
ekordish@pedersenhoupt.com

Matthew J. Schmidt
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2281
mschmidt@pedersenhoupt.com

David A. Martin
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2286
dmartin@pedersenhoupt.com

[1] Eligible non-payroll costs include:

  • Mortgage interest payments for mortgage obligations incurred before February 15, 2020,
  • Rent payments for leases dated before February 15, 2020,
  • Utility payments (electricity, gas, water, transportation, telephone, or internet access) under service agreements dated before February 15, 2020