The Small Business Administration (SBA), the federal agency responsible for administering loans under the Paycheck Protection Program (PPP), has amended its PPP interim final rule in response to recent legislative amendments to the PPP pursuant to the Paycheck Protection Program Flexibility Act of 2020 (Act). While most of the SBA’s changes simply conform the rule to the new terms of the PPP as provided in the Act, the following are some of the notable updates from the new rule:
- The SBA interpreted Section 3(b) of the Act’s requirement that to receive loan forgiveness, an eligible recipient shall use at least 60% of the covered loan amount for payroll costs as a proportional limit on nonpayroll costs rather than a threshold for the use of PPP loan proceeds that must be used for payroll costs for a loan to be forgiven. Therefore, the new rule requires that at least 60% of the forgiven amount must be used for payroll costs, and a borrower’s failure to use at least 60% of the PPP loan for payroll costs will not preclude the borrower from receiving forgiveness for some of its loan.
- Although the SBA has determined that a borrower’s failure to use at least 60% of the PPP loan for payroll costs will not result in an outright loss of loan forgiveness, the new SBA rule nonetheless requires that at least 60% of the PPP loan proceeds “shall be used for payroll costs” and amends a portion of the related borrower certification to read: “not more than 40 percent of loan proceeds may be used for nonpayroll costs.” These changes are consistent with the SBA’s prior PPP rule, with the percentages adjusted to conform with the Act.
- With respect to payment of the PPP loan, the new rule provides that (a) if a borrower submits a forgiveness application within 10 months after the end of the forgiveness covered period, payment will not commence until the SBA responds to the forgiveness request, and (b) if a borrower does not submit a forgiveness application within 10 months from the end of the forgiveness covered period, payment will commence after that period.
- The new rule clarifies that the five-year maturity date provided by the Act only applies to PPP loans distributed after June 5, 2020 (unless borrowers and lenders of prior PPP loans mutually agree to extend the maturity date), and that PPP loan maturity is measured from the date the SBA assigns a loan number.
A summary of the key changes of the PPP pursuant to the Act is available here.