PPP Loan Forgiveness Clarified and Expanded

The Coronavirus Aid, Relief, and Economic Security (CARES Act) protects small business from COVID-19’s economic impact. Section 1102 of the Act created the Paycheck Protection Program (PPP) to help employers keep their workers on payroll. Qualifying PPP loans may be forgiven up to the full principal amount. See also, COVID-19 Safety Nets (April 14, 2020)

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) providing these modified PPP provisions:

• Borrowers may opt to use their funds for up to 24 weeks from the date of loan disbursement, or until December 31, 2020, whichever comes first. For loans made before June 5, 2020, borrowers may continue to elect to use the original eight-week period. (Forbes recently published “pro’s and con’s” on such election.)
• Borrowers may now use 60 percent, not the previous 75 percent, of the funds on payroll costs, and the remaining funds may be used on mortgage interest, rent, utilities and other costs.
• The amount of loan forgiveness shall no longer be reduced based on fewer full-time employees on payroll if the borrower is able to document an inability to rehire eligible employees and hire similarly qualified employees for unfilled positions, or return to pre-February 15, 2020 business activity level due to compliance with applicable COVID-19 health directives.
• Employers may now have until December 31, 2020 instead of June 30, 2020, to rehire certain workers to receive loan forgiveness.
• For all loans made on or after June 5, 2020, the maturity date has been extended to five years.

On June 17, 2020, the Small Business Administration (SBA) issued a revised user-friendly PPP loan forgiveness application implementing the Flexibility Act modifications, as well as a simplified form for borrowers that: (i) are self-employed and have no employees; or (ii) did not reduce the compensation of their employees by more than 25 percent and did not reduce the number or hours of their employees; or (iii) experienced reductions in business activity as a result of COVID-19 health directives and did not reduce employee compensation by more than 25 percent.

Employers should use the loan money for the reasons indicated in the CARES Act, clearly document the use of all PPP funds, fill out all forms truthfully and accurately, and consult with a CPA or other tax advisor as needed.

Additional Resources:

• SBA PPP website
• SBA guidance
• SBA PPP Interim Final Rules
• SBA and Treasury Dept FAQs

For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth

June 25, 2020

PPP Loan Forgiveness Clarified and Expanded