Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza have issued a joint statement that provides certain details about the SBA’s planned implementation of changes found in the Paycheck Protection Program Flexibility Act signed into law on June 5, 2020.[1]

The release describes the following guidance the SBA expects to release on the changes made by this law.

60% Rule for Payroll

Senator Rubio had expressed concern that the language of the Paycheck Protection Program Flexibility Act could cause businesses that spent less than 60% of the proceeds on payroll costs to end up with no debt forgiveness. The language of the bill certainly seemed to lead to this result.

However, the announcement indicates that the SBA guidance will provide that a minimum of 60% of the amount forgiven must consist of payroll costs, rather than providing that if less than 60% of the loan proceeds are used for payroll costs there would be no forgiveness of the loan.

The statement provides that the change will:

Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.

End of Loan Application Program

Senator Johnson of Wisconsin had initially withheld his support until he received assurance that the intent of the bill was not to extend the period when loans would be approved past June 30, 2020. The statement provides: “the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.”

Extension of the Covered Period

The statement addresses the new extended covered period for expending funds qualifying for forgiveness, indicating that the provision will:

Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.

Safe Harbors Added by PPPFA

The PPPFA adds two new safe harbors that protect borrowers against reductions in the forgiveness amount in certain circumstances. The statement describes the first safe harbor related to being unable to return to the same level of activity, noting that the rules will:

Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.

The second safe harbor deals with employers that are unable to rehire employees they had on staff on February 15. The rules will:

Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.

Loan Maturity Set to Five Years

The statement also provides details for the new loan maturity rules, indicating the rules will:

Increase to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.

Extension of Deferral Period

Finally, the statement discusses the new extension of the deferral period. The new rules will:

Extend the deferral period for borrower payments of principal, interest, and fees on 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).

[1] “Joint Statement by Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza Regarding Enactment of the Paycheck Protection Program Flexibility Act,” U.S. Department of the Treasury website, June 8, 2020, https://home.treasury.gov/news/press-releases/sm1026#.Xt5OGz-FqJc.mailto (retrieved June 8, 2020)