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Paycheck Protection Program Gets Extended Life - Borrowers Can Apply for PPP Loans Until August 8

Firm Thought Leadership

PPP loan application deadline extended until August 8, 2020

On July 1, 2020, the U.S. House of Representatives, following the U.S. Senate’s approval the day before, passed Senate bill S.4116, which extends the deadline for when the PPP can accept applications for loans until August 8, 2020 from the previous deadline of June 30, 2020. The bill now goes to President Trump for signature.

Congress created the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) through the Small Business Administration (the “SBA”) to provide forgivable loans to eligible small businesses facing economic hardship to retain U.S. employees on their payroll during the COVID¬19 pandemic. Our prior alerts on the PPP can be found on our COVID-19 crisis response group website here.

Under the PPP, the SBA approved nearly 4.9 million loans for an aggregate $520.6 billion in loans to small businesses though the application deadline of June 30, 2020. While the PPP has been popular with borrowers, $130 billion in unallocated funds remained as of June 30, 2020.

PPP loans subject to disclosure

On June 20, 2020, the Treasury Department and the SBA announced that the company names, addresses, demographic data and other information would be disclosed in five ranges -- starting with $150,000 to $350,000, and going up to between $5 million and $10 million as follows:

  • $150,000 to $350,000

  • $350,000 to $1 million

  • $1 million to $2 million

  • $2 million to $5 million

  • $5 million to $10 million

For loans below $150,000, only totals will be released and will be aggregated by zip code, by industry, by business type, and by various demographic categories, the agencies said. The loans above $150,000 account for almost 75% of the total loan dollars approved, according to the Treasury Department. The Treasury Department has not yet provided when the data would be released.

 

The Treasury Department originally stated that the details of PPP loans would be disclosed, and the PPP application provided that such data would “automatically” be released. However, Treasury Secretary Steven Mnuchin subsequently stated in testimony to a Senate committee that details of PPP borrowers were proprietary and confidential and would not be disclosed because a company’s payroll is used to determine the loan amount and some small businesses, sole proprietors and independent contractors use their home addresses in their applications. In response, members of Congress demanded, and media organizations sued for, the disclosure of details about PPP loans, arguing the public has a right to know how their tax dollars are being spent and needed to know whether the PPP was appropriately serving the businesses that need assistance.

 

Additional questions raised under the Paycheck Protection Program Flexibility Act answered, prompting new questions

 

On June 24, 2020, the Treasury Department and SBA announced the Interim Final Rule on Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule (the “Interim Final Rule,” which can be found here), which, in addition to implementing the Paycheck Protection Program Flexibility Act (the “Flexibility Act”) (see our alert on the Flexibility Act here), provided guidance on some open questions that were raised under the Flexibility Act. For example, while the Flexibility Act extended the covered period during which the borrower must spend the PPP loan funds to 24 weeks, it did not expressly provide when the borrower would be eligible to apply for forgiveness. Specifically, the Interim Final Rule addressed whether the borrower could apply as soon as it spends the funds and prior to the end of the covered period or whether it needed to wait until the end of the entire extended covered period and provided 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.

 

The Interim Final Rule goes on to provide that if the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25 percent, the borrower must account for the excess salary reduction for the full applicable 8-week or 24-week covered period. However, the Interim Final Rule did not address reductions in compensation or employee headcount in the case where a borrower applies for and receives forgiveness prior to the end of the covered period, but after receiving forgiveness and prior to the end of the covered period, it reduces compensation by more than 25% for each employee making less than $100,000 (relative to the first quarter of 2020) or reduces full time equivalent employees (as compared to the borrower’s base period) without restoring those reduced headcount or compensation levels by December 31, 2020.

 

Still more changes to the PPP to come?

 

Congress is considering additional legislation to make additional modifications to the PPP. Proposed bills in the Senate include a bill to further extend the program and a bill that would provide for automatic forgiveness for PPP loans of $150,000 or less, which would save billions of dollars in costs in applying for forgiveness. Congress is also considering legislation to redirect remaining funding to specific types of businesses and industries who have been hardest hit by the pandemic and with the greatest need, to allow borrowers to take additional loans and to expand their allowable uses of loan funds.

 

Even with the extension of the deadline for new PPP loan applications, given the spikes in coronavirus cases and the potential for additional government restrictions on businesses and business closures, additional stimulus will likely be considered by Congress when it returns from recess.

 

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