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Late Wednesday, Congress voted to extend funding for the Paycheck Protection Program (PPP), which was scheduled to end on June 30, until August 8. It was signed into law on the 4th of July. To date, the PPP has distributed over $500 billion in forgivable loans to more than 4.7 million American businesses. This extension will give many small businesses, which did not initially file for the PPP, additional time to evaluate their needs. With PPP money already running low for many borrowers which availed themselves of the funding and the ongoing spread of the coronavirus continuing threatening their business, there appears to be some consensus in Washington, as to what to do with the $125 billion that remains in the program. In recent weeks, lawmakers have been increasingly voicing support for the Prioritized Paycheck Protection Program Act (P4), which, among other things, would further extend the application deadline for PPP loans to Dec. 30, or longer. The final deadline as well as administration of P4 would be left up to the SBA. P4 would be open only to companies that have already exhausted or are about to exhaust their PPP loans. It calls for stricter eligibility requirements and creates additional carve-outs for companies hardest hit by the pandemic. Publicly traded companies would be barred from participating.
On June 22, the SBA released new Interim Final Rules (IFR) relating to Loan Forgiveness. The IFR updates prior IFRs to conform to the PPP Flexibility Act (PPPFA), specifically relating to the maturity of PPP loans, the deferral of PPP loan payments, and the PPP loan forgiveness process.
The highlights of the IFR are as follows:
1. Borrowers can file for forgiveness during the 24-week period immediately after they have spent their PPP loan proceeds on “eligible expenses.” They do not have to wait until the end of their 24-week period, which is what was originally thought under the PPPFA. As addressed in a prior Legal Beat, under the PPPFA, borrowers who received their loans on or after June 5, 2020 have a 24-week forgiveness period, while those who received the loan prior to such date, could elect, instead, an 8-week forgiveness period.
The IFR specifically provides that a borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. So long as a borrower has spent all of their loan proceeds, they will be able to apply for forgiveness at any point.
As addressed in previous Legal Beats, the Payroll Protection Program (PPP) Flexibility Act included a number of revisions to intended to increase the likelihood that borrowers will receive full loan forgiveness. More recently, new interim rules, together with a new PPP loan forgiveness application, both issued by the SBA, provide additional guidance, further increasing the likelihood of loan forgiveness!
The highlights of these pronouncements include the following:
Extension of the 8-week covered period applicable to loan forgiveness to 24 weeks (borrowers that received loans prior to June 5th, 2020, the date of enactment of the PPP Flexibility Act, can elect to use the original 8-week period covered period).
The maximum allowable cash compensation (including salary, wages, and tips) eligible for forgiveness is $100,000 annualized per employee (equivalent to $15,385 per employee if the 8-week covered period is selected or $46,154 per employee if the 24-week covered period is selected).
This Part 5 of our bankruptcy series. So far, we have covered what you need to know if the event of bankruptcy, the premise of bankruptcy in the era of COVID-19, protecting your LLC and/or Limited Partnership, and what to do with a lease.
Many people are under the impression that they are free to form a new company at any time to cut off legal problems with an old company.
This gets into an area in the law known as “successor liability.” When a business is sold, it depends upon what was sold and whether or not the successor expressly or by implication, accepted the old company’s liability. If just the assets were sold, ordinarily the purchaser has not assumed the liabilities.
U.S. Treasury Secretary Steven T. Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza issued a joint statement addressing and clarifying various aspects of the Paycheck Protection Program (PPP) Flexibility Act.
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. These modifications will implement the following important changes:
The Senate has approved a bipartisan measure that would give more time and flexibility to employers who receive forgivable loans from the Small Business Administration's Paycheck Protection Program (PPP), sending the House-passed bill to President Donald Trump, who is expected to sign it. The PPP Flexibility Act (Act) passed the Senate by unanimous consent, meaning no senator objected or demanded a vote. The House previously approved the measure with a 417-1 vote, but it stalled as several Republican senators raised concerns about a variety of unintended consequences for the $660 billion program meant to sustain small businesses and nonprofits and their employees while the pandemic locked down much of the U.S. economy. The Act gives employers 24 weeks to spend the money and have the loans forgiven, tripling the current covered period of 8 weeks. While an earlier version of the bill would have eliminated any requirement about how much companies must spend on payroll, the final version instead lowers the threshold from 75% to 60%. The following are the highlights of the Act:
As reported in a recent Legal Beat, the U.S. House, last week, overwhelmingly passed the Paycheck Protection Program (PPP) Flexibility Act, by a vote of 417-1. Yesterday, the Senate passed the House bill. This bill provides new flexibility to PPP borrowers in several key aspects. Borrowers can apply for a PPP loan through to December 31, 2020. However, Senator Ron Johnson convinced the Senate leadership to sign a "letter of intent" that the PPP program not be automatically reauthorized through the end of the year. "Put that letter in the Congressional Record so that we are certain that we're not reauthorizing this or authorizing it through Dec. 31, that the authorization does end June 30," Johnson said.
--Instead of an 8-week period to spend PPP funds, borrowers have a 24-week period after the PPP loan is approved or until the end of 2020 (whichever comes first) to spend PPP funds and qualify for loan forgiveness.
--The requirement to spend 75% of a PPP loan on payroll costs for maximum loan forgiveness has been reduced to 60%.
--For new PPP loans approved after the law is passed, the loan term is 5 years. (Existing PPP loans would still have a loan term of 2 years.)
--Borrowers can defer payroll taxes on PPP loan proceeds used for payroll. I will provide more details on the PPP Flexibility Act in a future Legal Beat.
The Paycheck Protection Program (PPP) specifically requires certain reductions in a borrower’s loan forgiveness based on reductions in full-time equivalent (FTE) employees during the 8-week loan forgiveness period (covered period). The SBA has adopted exemptions to the FTE reduction rules for borrowers who have rehired employees and restored salary and wage levels by June 30, 2020, or who have offered to rehire employees or restore employee hours, even if the employees have not accepted. Specifically, in calculating the loan forgiveness amount, a borrower may exclude any reduction in FTE employee headcount that is attributable to an individual employee if:
This is the fourth in a series of articles on Bankruptcy. Feel free to review Part 1, Part 2 and Part 3.
Sometimes it takes a catastrophic event to shake up the status quo. COVID-19 is such an event. For years, telecommuting or working from home has been increasing, and eventually the culture would have changed. After this forced experiment, many of us who do not need to be physically present in an office some or most of the time will probably not do so.
This puts great pressure on the commercial office space industry. Those businesses that can maintain their workforce, but use less office space, will be at a competitive advantage. Those businesses who retain fewer employees will need even less space.
This brings us to today’s topic. In our example, Professional Pension Consultants, Inc. (the “Company”) is a 40-year-old business that designs and administers pension and profit sharing plans for primarily professional, mid-size businesses. They have 20 employees, six of whom are actuaries, CPAs, attorneys or managers. They have a 5,000 square foot office and pay $200,000 a year in rent.
As a refresher, the Paycheck Protection Program (PPP) was authorized by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), a $2 trillion bill signed into law in March. In April, the PPP and Health Care Enhancement Act (Health Care Act) provided about $310 billion to replenish the PPP. A hallmark of the PPP is that for the loan proceeds to be forgiven they must be spent on “eligible expenses” within the 8-week period following funding of the loan, with at least 75% of the loan proceeds being spent on payroll-related costs. The 8-week period has created much controversy, as many businesses have expressed fear they will not be able to utilize all or a substantial part of the loan, as they have not yet resumed business and, as such, have not yet brought back their employees.
Yesterday the House voted overwhelmingly in favor of a bipartisan bill that would extend the 8-week period in which small businesses can use their PPP loans, as well as allowing them to spend less than 75% of the loan proceeds on payroll.