On June 11, 2020, the Small Business Administration (SBA) and Treasury Department released an interim final rule interpreting the Paycheck Protection Program Flexibility Act (PPPFA) and amending the interim final rule originally issued by the SBA on April 2, 2020.
The amended interim final rule clarifies the following:
- Application Date: The final date a lender can obtain an SBA loan number for a Paycheck Protection Program (PPP) loan is June 30, 2020.
- Maturity Term: The amended interim final rule confirms that a five-year maturity term automatically applies only to loans made after June 5, 2020. For loans made before June 2, 2020, which mature in two years, borrowers and lenders may mutually agree to modify the maturity term.
- Loan Forgiveness: The amended interim final rule confirms that the loan forgiveness covered period begins on the date of disbursement and not the date of origination, as the PPPFA reads. The rule also clarifies that borrowers who spend less than 60 percent of their PPP funds for payroll costs will be eligible for partial loan forgiveness. The SBA's interpretation is at odds with the plain statutory language, which requires that, "[t]o receive loan forgiveness . . . an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs." However, the amended final rule is consistent with the June 8, 2020 joint statement issued by Secretary Mnuchin and Secretary Carranza which reads, "[i]f a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs."
- Deferral Period: The rule clarifies that if a borrower submits a loan forgiveness application within 10 months after the end of its loan forgiveness covered period, the borrower will not have to make any payments of principal or interest on the loan before the date on which SBA remits the loan forgiveness amount on the loan to borrower's lender (or notifies the borrower's lender that no loan forgiveness is allowed). However, if a borrower does not apply for loan forgiveness within 10 months after the end of its "loan forgiveness covered period," the borrower must begin paying principal and interest after that period. Interest continues to accrue during the deferment period.
- Covered Period: The PPPFA states that the loan forgiveness covered period is the 24-week period beginning on the date the PPP loan was originated; the amended interim final rule clarifies that the 24 weeks runs from the date the PPP loan was disbursed. Borrowers with loans made prior to June 5, 2020 may elect to keep the loan forgiveness covered period at eight weeks.
Venable will continue to monitor legislative developments involving the PPP and any additional guidance issued by the SBA or Treasury.