Additional Guidance on PPP Loans

June 8, 2020

Paul Neiffer

It did not take long for the Treasury Department to provide additional guidance regarding the enactment of the Paycheck Protection Program Flexibility Act passed last week.  In a press release issued today, the Department provided the following:

  • Confirmed that the covered period for loan forgiveness has been extended to 24 weeks, but indicated any loans under the old rules could elect to use the eight week period.

  • Confirmed the reduction to 60% from 75% for the minimum amount to be spent on payroll costs to qualify for full forgiveness.  However, in welcome news for many farmers, this is no longer a cliff method.  Instead, if you spend less than 60% on payroll costs, you will still qualify for partial forgiveness.  As an example:

  • Assume you get a loan for $100,000.  You spend $50,000 on payroll costs and $50,000 on non-payroll costs.  The new bill as written seemed to indicate all of your loan would not be forgiven. The guidance from Treasury indicates that your forgiveness will be $83,333.33 ($50,000.00 divided by 60%) and $16,666.67 will not be forgiven.

  • Confirms the changes for the FTE reduction if the employer is unable to maintain the same level of business activity due to COVID-19.  However, details are not provided on how to calculate this number.

  • Confirms that if an employer is unable to rehire former employees or any employees to replace former employees that this will not reduce forgiveness, but again, no details.

  • Increases the term for repayment to five years for new loans.  Old loans remain at a two year term.

  • Extends the deferral period to the date the SBA remits the borrower's loan forgiveness amount to the lender (or, if the borrower does not apply for forgiveness, 10 months after the end of the loan forgiveness covered period).

  • And finally, confirmed no new PPP loans after June 30, 2020.

The PPP process has resulted in more "laws" being written by the Administration than about any other program in recent memory.  However, in this case, allowing for partial forgiveness is favorable to the borrower and will result in more forgiveness.