Effective June 5, Congress amended the Paycheck Protection Program (PPP) through the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). The PPP, enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, has experienced significant development through informal guidance and interim final rules issued by the Small Business Administration (SBA) and the U.S. Department of the Treasury. Before the PPPFA, significant changes were made in the May 15 SBA loan forgiveness application as well as related interim final rules published on June 1.
The PPPFA generally expands the PPP in several ways, as outlined here, but also raises some questions on its interaction with existing guidance and rules.
8-week covered period extended to 24 weeks
The PPPFA extends the covered period of a borrower’s loan from eight weeks to 24 weeks. The covered period generally is measured from the date of loan disbursement and is the time over which the three parameters that impact loan forgiveness are measured, as follows:
- The use of funds (payroll costs and nonpayroll costs, as defined)
- Whether employee head count is maintained based on average full-time equivalent employees (FTEs) – as compared to two statutory periods
- Whether wage thresholds for certain protected employees (generally, those who earned $100,000 or less in 2019 on an annualized basis) are maintained
Rehire safe harbor date extended to Dec. 31, 2020
A borrower may receive no reduction in loan forgiveness with respect to the FTE parameter if the borrower reduced employee head count – as measured by average FTEs – between Feb. 15, 2020, and April 26, 2020, and then rehires employees so the average FTEs on June 30, 2020, equals or exceeds the average FTEs on Feb. 15.
The PPPFA changes the June 30 date to Dec. 31, 2020. Notably, the safe harbor in the CARES Act applies if the number of FTEs is restored “not later than June 30,” but the SBA application requires a snapshot measurement on June 30. In the statutory language, the PPPFA only substitutes Dec. 31 for the June 30 date. Given that the statutory language doesn’t require a snapshot, it’s unclear whether the SBA will reconsider whether the use of a snapshot date to measure rehired employees is reasonable.
Existing borrowers may elect to keep 8-week covered period
A borrower with a loan prior to enactment of the PPPFA can elect to keep the eight-week period as the loan’s covered period. However, it’s unclear whether the June 30 date on which the rehire safe harbor is based will (or can) continue to apply or whether such a borrower would instead become subject to the new law’s Dec. 31 date for this purpose. Borrowers might not be able to make an informed decision on which covered period to use unless the SBA makes clear in its application instructions or related guidance which date applies (June 30 or Dec. 31).