We previously posted about the Paycheck Protection Program Flexibility Act (“PPPFA”), which updated the Paycheck Protection Program (“PPP”) to provide loan recipients with more flexibility. When we posted, we noted that questions remained about how the important loan forgiveness aspect of the PPP would work under the new flexibility rules. The Small Business Association, in connection with the Treasury, has now issued further guidance that provides some greater clarity.
The PPPFA expanded the covered period, for all borrowers who received their PPP loans on or after June 5, 2020, from the original 8 weeks to 24 weeks (or December 31, 2020, whichever is earlier). Loan recipients who obtained PPP loans before June 5, 2020 could elect either the 8 or the 24 week covered period. The “covered period” refers to the time during which the borrower must use the loan for PPP’s allowed costs, notably payroll, rent and utilities.
The text of the U.S. Treasury Department’s earlier Interim Final Rule stated that a loan recipient must wait until the covered period ended before applying for loan forgiveness. The updated Interim Final Rule states that a loan recipient may apply for loan forgiveness anytime during its covered period as long as it has already expended the entirety of its PPP loan. For example, if a loan recipient elects the 24 week covered period and expends all of its PPP loan funds by week 10, it may apply for loan forgiveness immediately rather than wait until week 25. Remember, though, that the last day to file for loan forgiveness remains 10 months after the end of the loan recipient’s covered period.
While loan recipients have the ability to apply for loan forgiveness immediately after expending its PPP loan, the 10 month window provides flexibility to apply for loan forgiveness at the most opportune moment. The loan forgiveness application requires loan recipients to provide information about any decreases in workforce and reductions in wages/salary. Those changes in workforce will result in a corresponding decrease in the amount of loan forgiveness for which the loan recipient is eligible.
If a loan recipient believes that, within a few months, it will be able to hire or re-hire employees and return wages/salary to “pre-COVID-19” levels, then waiting to fill out the loan forgiveness application may be prudent. On the other hand, if the loan recipient anticipates future layoffs and compensation cuts, then applying sooner would be advantageous to avoid loan forgiveness reductions. But keep in mind that December 31, 2020 is the last day for a loan recipient to return its workforce to the requisite levels in order to receive full loan forgiveness.
Conkle, Kremer & Engel attorneys will continue to monitor the COVID-19 relief program landscape for updates to guide clients.