Nothing is constant but change, and this has proved to be the case as it relates to the Paycheck Protection Program under the CARES Act.
As some borrowers are nearing the end of their eight-week covered period additional change may seem somewhat unnerving considering decisions on how the PPP funds are used have already been made and the funds have been spent. However, some of the proposed changes may provide relief based on the inherent limitations that have been discovered in the CARES Act.
Currently, the House and Senate (as of May 29, 2020 the Senate Bill has not been passed) have proposed competing legislative frameworks that are expected to change select parameters around PPP. In both instances, the suggested changes have received bi-partisan support and most expect that some compromise will provide a final bill that will be beneficial. Below we compare both proposals and highlight some key items that may affect your business and potential forgiveness.
|Forgiveness Specific Provisions||Current Law||House Version – Paycheck Protection Program Flexibility Act (Approved by the House on May 28, 2020)||Senate Version – Paycheck Protection Program Extension Act (As of May 29, 2020 the Senate Bill has not been passed)|
|FTE Reduction Safe Harbor date||June 30, 2020||Extended to December 31, 2020||Silent|
|FTE Reduction Exceptions||The reduction exceptions apply as follows:
A reduction will not apply to any employee where the employer:
1) made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee, AND
2) for any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours
|Expands the CARES Acts
Workforce Reduction Limitations waived if during the period of February 15, 2020 to December 31, 2020 the employer is unable to:
1) rehire individuals who were employees of the borrower on February 15, 2020; and unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, OR
2) return to the same level of business activity that existed on February 15, 2020 due to the business complying with health guidelines established by the CDC, OSHA, or HHS between March 1, 2020 – December 31, 2020
|Covered Period||Eight-week covered period to begin the date the PPP Loan is funded||Extended to 24 weeks or December 31, 2020, whichever is earlier||Additional eight weeks for total of 16 weeks|
|Use of funds Ratio||75% for payroll and 25% non-payroll costs||60% for payroll and 40% non-payroll costs||No change to original 75/25 ratio|
|FICA Payment Deferral – Employer portion||Can defer up to the point loan forgiveness is granted||Full deferral of FICA costs up to December 31, 2020||Silent|
|Loan Specific Provisions||Current Law||House Version – Paycheck Protection Program Flexibility Act (Approved by the House on May 28, 2020)||Senate Version – Paycheck Protection Program Extension Act (As of May 29, 2020 the Senate Bill has not been passed)|
|Application date for PPP Loan||June 30, 2020||Extends the application date to December 31, 2020||Extends the application date to December 31, 2020|
|Payment Commencement||Six-month deferral from receipt of the funds||Repayment begins when the amount of forgiveness is remitted to the lender. If a borrower does not apply for forgiveness, 10 months after the end of the covered period.||Repayment begins when the amount of forgiveness is remitted to the lender. If a borrower does not apply for forgiveness, 10 months after the end of the covered period.|
|Repayment Period||Currently the CARES Act provides for up to a 10 year repayment period (maximum maturity). However, SBA has limited current loans to a two year repayment period given the drafting of the CARES Act||Adjusts the minimum repayment period to begin five years after the loan has been made extending the current two year maturity to no less than five years||Silent|
|Approved Expenditures allowed from PPP Funds||Payroll costs, payments of interest on any mortgage obligation, rents/leases (both for personal and real property), and utilities||Silent, no additional concessions||Personal protective equipment for employees and renovations to accommodate safety measures|