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Senate Passes Paycheck Protection Program Flexibility Act #2

UPDATES

On Monday, June 8, 2020, Treasury Secretary Steven T. Mnuchin and Small Business Administration (“SBA”) Administrator Jovita Carranza issued a statement following the enactment of the Paycheck Protection Program Flexibility Act. The statement indicated that SBA, in consultation with Treasury, will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP.

In addition, the statement provided that “if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.” This is welcome news for borrowers, who were concerned about a potential “forgiveness cliff,” whereby none of their loan would be forgiven, if they failed to spend at least 60% of the loan amount on payroll.

On Friday, June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act legislation into law.

On Wednesday, June 3, 2020, the U.S. Senate passed the House version of the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) by a unanimous voice vote. The legislation provides a number of new borrower-friendly changes to the Paycheck Protection Program “(PPP”), including extending the covered period for borrowers to use loan funds, while also easing restrictions on the use of loan proceeds, forgiveness and repayment terms. ~~However, the legislation also contains a potential forgiveness cliff, whereby borrowers may not receive any loan forgiveness if they fail to spend at least 60% of their loan amount on payroll~~ (see our post “House Passes Paycheck Protection Program Flexibility Act” from May 31, 2020 for details on all the technical changes included in this Act). The legislation is expected to be signed into law this week by the President.

To ease the objections of Sen. Ron Johnson (R-WI) about whether this legislation may be misconstrued to imply that PPP loan applications can continue to be accepted until December 31, 2020, the Senate Majority Leader agreed to add a letter to the Congressional Record, clarifying Congressional Intent as following:

“The extension of the covered period defined in section 1102(a) of the CARES Act should not be construed so as to permit the SBA to continue accepting applications for loans after June 30, 2020. Our intent and understanding of the law is that, consistent with the CARES Act as amended by H.R. 7010, when the authorization of funds to guarantee new PPP loans expires on June 30, 2020, the SBA and participating lenders will stop accepting and approving applications for PPP loans, regardless of whether the commitment level enacted by the Paycheck Protection Program and Health Care Enhancement Act has been reached.”

It is expected that Congress will make further technical changes to the PPP and possibly this new legislation in the coming months, and we anticipate new guidance will be issued by the U.S. Small Business Administration and Department of Treasury in the coming days to address these changes.

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