COVID-19 Legal Update: Amendments to PPP Loans

Thanks to our good friend, Michael Futterman , Partner at McCusker, Anselmi, Rosen & Carvelli, P.C. * for the below helpful information for our clients and friends regarding the amendments to the PPP loans!

On Friday, June 5th, the President signed into law H.R. 7010 which amends several provisions of the CARES Act and the Paycheck Protection Program. In particular, the following changes are effective immediately:

Loan Forgiveness

• The “covered period” for forgiveness is extended to 24 weeks or December 31, 2020, whichever is earlier. This additional time is critical for those businesses which are just now beginning to re-open.
• The percentage of loan proceeds that must be used for payroll costs was changed from 75% to 60%. Keep in mind, the legislation adds a new wrinkle requiring you to meet this 60% threshold to obtain any forgiveness, as opposed to previously where it was proportional. In other words, you now need to make sure you hit 60%; otherwise there is no forgiveness.
• The period to restore the number of employees and amount of payroll to qualify for full forgiveness has been extended to December 31, 2020.
• The reduction penalty no longer applies if the borrower, in good faith, is able to document that:
  • The borrower was unable to rehire a terminated employee and unable to hire a similarly qualified employee to replace the terminated employee;  and
  • The borrower was unable to return to the same level of business activity as before February 15, 2020, due to compliance with guidance issued by Secretary of Health and Human Services, the Director of Center for Disease Control and Prevention or the Occupational Safety and Health Administration, during the period from March 1, 2020 until December 31, 2020, related to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirements related to COVID-19

Loan Details

• The time to pay back any unforgiven portion of a PPP loan is increased to 5 years. This is automatic for loans submitted after June 5; pre-existing loans can also be extended to 5 years, but require agreement by the lender.
• Payment of principal, interest and fees is deferred until “the date on which the amount of forgiveness determined…is remitted to the lender.”
• Borrowers can now apply for loan forgiveness up to ten months from the day their covered period ends (whichever period is elected); if they fail to do so, no forgiveness will be allowed.

Payroll Taxes

• Borrowers may defer 50% of the employer share of their 2020 Social Security taxes until end of 2021 and the other half until end of 2022, even if the borrower’s PPP loan is forgiven prior to December 31, 2020 (originally, deferral was not permitted for a borrower with a forgiven PPP loan).

*Attorney Advertising: The foregoing is a summary of the laws discussed above for the purpose of providing a general overview of these laws. These materials are not meant, nor should they be construed, to provide information that is specific to any law(s). The above is not legal advice and you should consult with counsel concerning the applicability of any law to your particular situation.