Revisions to First Interim Final Rule (resulting from the Flexibility Act)

On June 10, 2020, the SBA published an IFR incorporating the provisions of the Paycheck Protection Flexibility Act (Flexibility Act) and their related impact to the first IFR.  The entire IFR can be read here.   

The IFR is 16 pages long.  So, we've summarized the examples provided in the new IFR and highlighted some key clarifications. 

Examples: 

• Loan Forgiveness Covered Period – this is the 24-week period beginning on the date your PPP loan is disbursed; however, if your PPP loan was made before June 5, 2020, you may elect to have your loan forgiveness covered period be the eight week period beginning on the date your PPP loan was disbursed. 

For example, if a borrower’s PPP loan is disbursed on June 25, 2020, the 24-week period ends on December 10, 2020. If the borrower does not submit a loan forgiveness application to its lender by October 10, 2021, the borrower must begin making payments on or after October 10, 2021.

• Partial Loan Forgiveness – Partial loan forgiveness is allowable.  There was some concern that 60 percent of the loan had to be spent on payroll costs in order for any loan forgiveness to be received; however, that is not the case.  While the Flexibility Act provides that a borrower shall use at least 60 percent of the PPP loan for payroll costs to receive loan forgiveness, the Administrator, in consultation with the Secretary, interprets this requirement as a proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness.

For example, if a borrower uses 59 percent of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to 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 nonpayroll costs constituting 40 percent of the forgiveness amount). 

Other Clarifications: 

• Maturity Date for PPP Loans - For loans made before June 5, 2020, the maturity is two years; however, borrowers and lenders may mutually agree to extend the maturity of such loans to five years. For loans made on or after June 5, the maturity is five years.
  

• Deferral Period for PPP Loans - If you submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you will not have to make any payments of principal or interest on your loan before the date on which SBA remits the loan forgiveness amount on your loan to your lender (or notifies your lender that no loan forgiveness is allowed). 

• • Refer to the definition of the forgiveness covered period above.
    

• Additional Guidance - SBA will be issuing revisions to its interim final rules on loan forgiveness and loan review procedures to address amendments the Flexibility Act made to the loan forgiveness requirements. SBA will also be issuing additional guidance on advance purchases of PPP loans, which will include any effect of the amendments made to the loan forgiveness requirements. 

How HoganTaylor Can Help

HoganTaylor has assembled a team to monitor developments in financial assistance available to businesses hurt by the COVID-19 pandemic. We have been working to understand the legislation and guidance being issued to support the various programs available to affected businesses so that we can provide relevant and timely advice to our clients. As information becomes available, we will continue to recommend specific actions to take to effectively access these programs.

If you need assistance in evaluating your company’s PPP loan certifications or in drafting documentation to support the evaluation and conclusions surrounding your certifications, please contact a HoganTaylor advisor at SBALoans@hogantaylor.com.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.