Under the earlier version of the PPP, as administered by the Small Business Administration (SBA), business owners seeking loan forgiveness were required to use 75 percent of such loan proceeds for payroll costs, with payment of other costs limited to the remaining 25 percent of the proceeds. The new legislation revises the ratio of costs, and provides that the payroll portion must be at least 60 percent and the non-payroll portion no more than 40 percent.
The new legislation also gives small businesses more time to use emergency loans under the program. Prior rules provided that funds must be used within eight weeks for the recipient to qualify for loan forgiveness. That time-frame has now been extended to 24 weeks from the date of the loan’s origination, or Dec. 31, 2020, whichever is earlier.
The bill also revises the time-frame for repayment of any loan proceeds that are not forgiven. After passage of the CARES Act, the SBA assigned a two-year maturity date for such loan proceeds. The bill extends this period to five years. Although this provision applies only to PPP loans that are made after the enactment of the bill, lenders and borrowers are free to negotiate the terms of any pre-existing PPP loan in order to match the newly permitted five-year period.
Additionally, the bill revises the deferral period for payment on paycheck protection loans that are not forgiven. Under the CARES Act and the Small Business Act, lenders were required to defer the payment of principal and interest for six months. The new act allows recipients to defer payments until the date that the lender receives the forgiveness amount from the SBA. Recipients who do not apply for forgiveness shall have 10 months from the program’s expiration to begin making payments.
The bill also eliminates a provision that makes a paycheck protection loan recipient, who has such indebtedness forgiven, ineligible to defer payroll tax payments. The bill provides that deferral of payroll tax payments is available even if the loan is forgiven.
It is anticipated that the Small Business Administration will release guidance concerning the terms of the new law and its impact on those who participate in the Payroll Protection Program.
Attorneys at Suisman Shapiro are available to discuss the Paycheck Protection Program with you and answer your questions on the subject.
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