Treasury Releases Guidance on Paycheck Protection Program Flexibility Act

The SBA and Treasury released guidance to the recently enacted Paycheck Protection Program Flexibility Act as Interim Final Rule on Revisions to First Interim Final Rule. This rule revises the First Interim Final Rule and reinforces the changes made by the Paycheck Protection Program Flexibility Act, with one major exception. In our June 4th post, it was stated that the new legislation has reduced the 75% payroll requirement to 60%, allowing borrowers to spend up to 40% of the loan funds on rent, utilities, and mortgage interest. According to Sen. Marco Rubio of Florida, it was assumed that this was going to be an all or nothing test: “If you don’t spend 60% of your money on payroll if you only spend 59.9%, you will get zero forgiveness.” This issue has been clarified in the Interim Final Rule on Revisions to First Interim Final Rule, allowing partial forgiveness if less than 60% of the loan proceeds are used for payroll.

Can my PPP loan be forgiven in whole or in part?

Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. An eligible borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes as described below and employee and compensation levels are maintained or, if not, an applicable safe harbor applies. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments for service that began before February 15, 2020, over the loan forgiveness covered period. However, to receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to nonpayroll costs. For example, if a borrower uses 59 percent of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs. For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in nonpayroll costs constituting 40 percent of the forgiveness amount).

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