Payroll Protection Program (PPP) Loan Update

Update: 6/5/2020: This has now been signed into law.

Last night, the Senate voted unanimously to approve a bill which loosens the requirements for PPP loans granted under the CARES Act in order to lessen the burden on small businesses during the COVID crisis. This bill was approved by the House on May 28th and will proceed to President Trump’s desk for his signature today. There are several important changes to PPP loans in this bill:

• The covered period for borrowers under the PPP program is now twenty-four weeks instead of eight weeks. Current PPP borrowers will need to choose to extend their covered period, and new PPP loans will automatically have the longer period. The covered period still cannot extend beyond December 31, 2020.
• The percentage of PPP money required to be spent on payroll expenses for the loan to be forgiven completely has been reduced from 75% to 60%. The remainder can be spent on rent, utilities, mortgage payments, etc. The bill makes this a cliff instead of a sliding scale, so that if a business does not spend 60% of their PPP proceeds on payroll, none of the loan will be forgiven.
• Borrowers now have five years to repay the unforgiven portion of their loan instead of the original two years. The interest rate remains at 1%.
• The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was outlawed in the CARES Act.
• Borrowers can use the 24-week period to restore their workforce levels and wages to pre-COVID levels required for forgiveness. This must be done by December 31, 2020, a significant extension from the original June 30, 2020 deadline.
• The bill includes two new exceptions allowing borrowers to have their PPP loan fully forgiven even if they do not fully restore their workforce by the deadline. Borrowers can adjust their workforce calculations because they could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-related operating restrictions.

These changes to the original PPP program are aimed to provide small businesses with greater flexibility in using the funds meant to save them. As of last night, 4.5 million firms have received approvals for loans totaling $510.6 billion. About $130 billion remains from the second round of $320 billion which Congress approved for PPP and is in addition to the initial $349 billion which was tapped in under two weeks.

It is expected that further reforms could be coming for the PPP loan program. Senator Susan Collins, among others, has already called for the PPP loans to go back to a sliding scale instead of a cliff-based system. It is unclear why the House wrote its bill in this way, and the Small Business Administration and Treasury have not commented on it yet.