Bill with Favorable PPP Changes for Restaurants Hits President’s Desk

On June 3, the Senate gave unanimous consent to the Paycheck Protection Program Flexibility Act of 2020 that passed the House on May 28, 2020. This stand-alone, bipartisan bill would allow more businesses to receive Paycheck Protection Program (PPP) loan forgiveness and perhaps greater liquidity afterwards.

The bill would make the following changes:

1. Extend the PPP loan “covered period” from 8 weeks after loan origination to the earlier of 24 weeks after loan origination or December 31, 2020 (and borrowers that received their loans before the enactment of this change can elect to use their original or alternative payroll 8-week covered period).

2. Extend the date for the rehire exception from June 30 to December 31, 2020.

3. Expand the rehire exception based on the non-availability of former employees and to apply the exception when the need for workers is reduced in order to comply with COVID-19 standards. Specifically, PPP loan forgiveness would not be reduced due to a lower number of full-time equivalent (FTE) employees for the following situations:

   • the employer is unable to rehire individuals who were employed by the employer on February 15, 2020, and

   • the employer shows the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or

   • the employer documents its inability to return to the same level of business activity as it had before February 15, 2020, due to having to comply new COVID-19 standards for sanitation, social distancing or other safety requirements during the period of March 1 through December 31, 2020.

4. Allow up to 40% of the loan proceeds to be used on mortgage interest, rent or utilities, while at least 60% of the PPP funds would have to be used for payroll costs (down from the 75% that was noted in guidance released by the SBA). This applies even if the borrower elects to use the 8-week covered or alternative payroll covered period. If the borrower does not use at least 60% of the loan on payroll costs, then it appears that no forgiveness would be available. 

5. Provide a five-year term for all new PPP loans disbursed after these changes (loans disbursed before these changes would retain their original two-year term unless the lender and borrower renegotiate the term).

6. Change the six-month deferral period for loan repayments and interest accrual to require payments on any unforgiven amounts to begin on the date on which the SBA remits the amount of forgiveness to the lender. 

7. Loan forgiveness must be requested within 10 months after the end of the borrower's covered period; if it is not, the loan converts to a term loan.

We anticipate that Treasury will be providing an updated loan forgiveness application in the near future that reflects the changes from this bill. The President is expected to sign this bill into law.