The SBA has added a question and answer[1] to the Paycheck Protection Program Loans Frequently Asked Questions to clarify how the extension of the deferral period in the Paycheck Protection Program Flexibility Act affected loans that were already in place when the PPPFA was enacted.

The original loans were written for the original six-month period for deferral of payments of all principal, interest and fees on PPP loans.  When the PPPFA extended that period through the date that forgiveness is granted on the PPP loan as long as an application for forgiveness is made during the 10 months following end of the covered period, the key question was whether those PPP notes already signed before passage of the PPPFA had to be modified?

The SBA’s answer is these loans do not need to be modified.

The SBA guidance provides:

52. Question: The Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period). Previously, the deferral period could end after 6 months. Are lenders and borrowers required to modify promissory notes used for PPP loans to reflect the extended deferral period?

Answer: The extension of the deferral period under the Flexibility Act automatically applies to all PPP loans. Lenders are required to give immediate effect to the statutory extension and should notify borrowers of the change to the deferral period. SBA does not require a formal modification to the promissory note. A modification of a promissory note to reflect the required statutory deferral period under the Flexibility Act will have no effect on the SBA’s guarantee of a PPP loan.

[1] Question 52, Paycheck Protection Program Loans Frequently Asked Questions (FAQs), October 7, 2020, https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf (retrieved October 7, 2020)