The US government’s Paycheck Protection Program continues to evolve, and while flexibility was already baked in, there are some further changes to be aware of.
The US President signed the Paycheck Protection Program Flexibility Act of 2020 on June 5, which gave many hard-pressed restaurants room to breathe, but many claimed they didn’t go far enough.
Now, as of June 11, the Treasury Department has issued some further changes that loosen the restrictions on loan forgiveness. It can be hard to keep up with it all, but things seem to be moving in the right direction.
The 60% is not necessarily a threshold to forgiveness
The requirement that 75% of PPP loans had to be spent on payroll was revised to 60%, and while many pointed out that the 60% looked steep to borrowers, the Treasury Department claims otherwise.
If a borrower is unable to spend 60% or more of the loan in the 8 or 24-week testing period on payroll, state and local payroll taxes, group health insurance and retirement plan contributions, then there will be PPP loan forgiveness based on whatever is spent on the above 'payroll costs', plus up to 66% of the amount spent on the above items, to the extent of permissible rent, interest and utility expenses.
The 24-week testing period is the only option
After June 5, borrowers can only avail of the 24-week testing period. Those who borrowed before that date can choose between 8 or 24 weeks. There is no reason provided for this, but the Borrower Application, released on June 12, states: “The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the 24-week period following this loan.”
The 8-week testing period would be preferable for some businesses, who would be able to spend the 60% of loans, due to, for example, a restaurant that had reduced staff numbers, and who wished to move PPP off their books in order to access conventional credit lines as soon as possible.
Post-June 5th loans have 5-year maturity date
Pre-June 5th loans have a 2-year maturity date, while those after June 5 have a 5-year maturity date. So, post-June 5 borrowers will not have to repay their loans for five years, as long as they file for forgiveness within 10 months after their mandatory 24-week testing period. Those on the pre-June 5 terms can negotiate with their banks to extend to five years, but some claim that the banks can leverage that power against restaurants.
Please note, this article is a top-line view of changes to the PPP as noted by media commenters. Please do your own research and practice due diligence. This article does not constitute legal advice and cannot be construed as such.