On June 11, 2020, the SBA revealed revisions to its First Interim Ultimate Rule on the Paycheck Safety Program (“PPP”). These rule modifications incorporate, amongst different issues, the Paycheck Safety Program Flexibility Act of 2020 (“Act”) that was enacted on June 4. Now we have beforehand mentioned the passage of the Act on this weblog.
How The New SBA Guidelines Have an effect on The PPP:
Whereas the brand new guidelines (the “New Guidelines”), which can be found right here, largely incorporate the Act into the PPP Interim Ultimate Guidelines, what follows is a brief dialogue highlighting gadgets that small companies ought to know when contemplating the PPP.
Deadline to Apply: In keeping with the SBA, the New Guidelines have been revealed shortly as a result of the final day to use for a PPP mortgage is June 30, 2020. This isn’t part of the Act however reasonably a brand new deadline established within the New Guidelines. Whereas the PPP itself has been stopped and began earlier than, there isn’t any assure that this deadline can be prolonged.
Maturity Date for Loans: The Act offered that PPP loans made on or after June 5, 2020 have been to be 5-year phrases. Below the preliminary PPP, the loans have been for two years. The New Guidelines make clear that the date that the SBA assigns a mortgage quantity to the PPP mortgage would be the date that the mortgage is taken into account to have been “made.”
Mortgage Forgiveness Proportions: One hallmark of the Act is that it raises the cap on non-payroll spending from 25% to 40% of the quantity of the mortgage. Whereas the Act, as drafted, may very well be interpreted to deal with spending 60% of the mortgage proceeds on payroll bills as a threshold requirement to making use of for any forgiveness, the New Guidelines make clear and make sure that 60% refers back to the proportion of spending that’s forgivable, not a threshold to fulfill earlier than making use of. Due to this fact, a borrower who will get a mortgage of $1 Million however solely spends $500,000 on payroll can nonetheless apply for mortgage forgiveness, however the most forgivable quantity can be lowered to $833,333.33 (as a result of the $500,000 spent on payroll should replicate 60% of the utmost forgivable quantity).
“Identical Degree Of Enterprise Exercise” Secure Harbor – An Replace
We word as properly that subsequent discussions and examination of one of many exemptions within the Act highlights a possible ambiguity. Whereas this ambiguity shouldn’t be mentioned within the New Guidelines, it is very important spotlight it as it might have an effect on potential debtors’ choices.
The Act offered an exemption to the PPP’s mortgage forgiveness discount penalties. The penalty reduces a borrower’s PPP mortgage forgiveness in proportion to any discount in a borrower’s full-time equal staff (“FTEs”) in opposition to prior staffing degree benchmarks. Debtors who can doc, in good religion, an incapability to return to the “similar degree of enterprise exercise” as previous to February 15, 2020 as a consequence of compliance with authorized necessities for sanitation, social distancing, and employee or buyer security, is not going to be topic to this discount.
We word that this exemption as drafted applies solely to companies whose exercise is stunted as a consequence of authorized compliance with required security protocols, and isn’t a blanket exemption for all companies. For instance, a restaurant compelled to chop its eating room capability by 50% to house tables aside may get the exemption, however its linen provider wouldn’t, even when the provider’s orders additionally dropped by 50%, because the linen provider’s enterprise isn’t affected by its personal authorized compliance, solely that of the restaurant. After all, the end result is completely different if the linen provider has outsized compliance problems with its personal that trigger its enterprise to fall.
Thus, whereas the Act does present a protected harbor for sure sectors of the hospitality trade, it might depart others out. It’s going to stay to be seen whether or not that is the intention of the Act, or whether or not the SBA will publish further guidelines modifications to permit further companies to avail themselves of this exemption.