Publications

Amendment to CARES Act and PPP Loan Forgiveness

June 5, 2020

On June 5, 2020, President Trump signed H.R. 7010 (the Bill), which the Senate had unanimously passed. The Bill amends several provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Paycheck Protection Program (PPP). Key changes included in the Bill are outlined below.

PPP Loan Maturity and Deferral

  • The minimum maturity term for any portion of a PPP loan that is not forgiven is increased to 5 years (from 2 years).
  • Payment of principal, interest and fees is deferred until “the date on which the amount of forgiveness determined…is remitted to the lender.”
  • If a borrower fails to apply for loan forgiveness within 10 months of the last day of the loan forgiveness covered period, the borrower “shall make payments of principal, interest, and fees on such covered loan beginning on the day that is not earlier than the date that is 10 months after the last day of such covered period.”

PPP Loan Forgiveness

  • The “covered period” for forgiveness purposes is extended to the earlier of:

o 24 weeks from the date of the loan’s origination (previously 8 weeks from origination); or
o December 31, 2020 (previously June 30, 2020).

  • The percentage of loan proceeds that must be spent on payroll costs to be eligible for forgiveness has been reduced to 60% (from 75%): “To receive loan forgiveness…an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs, and may use up to 40 percent of such amount for any payment of interest on any covered mortgage obligation (not including prepayment of or payment of principal), any payment on any covered rent obligations, and any covered utility payment.”
  • The Full Time Equivalent (FTE) reduction penalty for loan forgiveness was amended to extend the period of time to rehire employees until December 31, 2020. Furthermore, the FTE reduction penalty no longer applies if the borrower, in good faith, is able to document that:

o The borrower was unable to rehire individuals employed on February 15, 2020; and,
o The borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
o The borrower was unable to return to the same level of business activity as before February 15, 2020, due to compliance with guidance issued by Secretary of Health and Human Services, the Director of Center for Disease Control and Prevention and the Occupational Safety and Health Administration, during the period from March 1, 2020 until December 31, 2020, related to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirements related to COVID-19.

Payroll Taxes

The Bill permits borrowers to defer all 2020 Social Security tax burdens into 2021 and 2020, even if the borrower’s PPP loan is forgiven prior to December 31, 2020. The CARES Act had included an exception that a borrower would not be eligible for delayed payment of employer payroll taxes if such borrower’s PPP Loan is forgiven.

We expect that there will be further guidance from the Small Business Administration implementing the above changes. If you have any questions, please contact Tarter Krinsky and Drogin’s COVID-19 response team at CV19team@tarterkrinsky.com.

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