June 2020 SBA Updates to the Paycheck Protection Program and CARES Act
The Paycheck Protection Program (PPP) which is part of the CARES Act rolled out very quickly, raising many questions which have been answered on a rolling basis as the Small Business Administration (“SBA”) issues guidance. One thing we can be sure about is that the rules keep changing and are likely to continue changing. Names can be telling. New guidance issued by the SBA on June 11 and 12 2020 are entitled the “Interim Final Rule on Revisions to First Interim Final Rule” and “Interim Final Rule on Additional Revisions to First Interim Final Rule.” So, “final” doesn’t mean “final.”
On June 5, 2020 the Paycheck Protection Program Flexibility Act of 2020 was signed into law, amending the CARES Act. Its purpose was to fix some of the problems that had been identified earlier during the administration of the program. We wrote about these changes when Congress first past the bill, before it was signed into law.
That law reduced from 75% to 60% the amount of a PPP loan that must be spent on payroll in order for the loan to be forgiven. But the law was written in such a way as to lead borrowers to question whether 60% was a starting point or a cliff. That is, if a borrower spent less than 60% of the loan on payroll would the entire loan not be forgiven or would the proportion of the loan spent on payroll be forgiven.
- Last Thursday, the SBA released additional guidance clarifying that the SBA will interpret this requirement as a proportional limit on non payroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness. That is, if a borrower spends less than 60% of the loan on payroll, the portion of the loan that is spent on payroll will still be eligible for forgiveness.
- The SBA also clarified that in seeking loan forgiveness, a borrower whose loan was made before June 5, 2020 may elect to apply the original eight-week covered period under the CARES Act instead of the newly-enacted 24-week covered period.
There has also been a call for the SBA to issue a streamlined loan forgiveness application for small businesses and independent contractors. The SBA has already revised the initial loan application to incorporate changes made to the CARES Act, so a revised forgiveness application may be in the works. We will keep monitoring the situation and provide updates periodically.
