Paycheck Protection Program - Loan Update

Paycheck Protection Program - Loan Update

The first set of Paycheck Protection Program (PPP) loan disbursements were received over a month ago. Since then the SBA has issued multiple interim final rules. The general PPP rules are as follows:

  • 8 weeks from receipt of the funds to spend it on various expenses.
  • 75% or more allocated to payroll expenses.
  • 25% to various other limited business expenses.
  • A forgiveness formula that is difficult to comprehend.
  • Loans have a 1% interest rate and a 6-month deferral before a payment is due but a 2-year term.

When the CARES Act was passed, the 8-week period was thought to be sufficient to have the economy reopened. Since most states, not just Michigan, are still in some sort of staggered reopening, the PPP loan program’s initial rules have been reevaluated. Retail, Medical, Service and Entertainment are only opening with limited capacity because social distancing rules limit a full reopening of the economy.

The U.S. House of Representatives passed a bill which extends the PPP loan from 8 to 24 weeks and extends the rehiring deadline beyond the June 30th date. The U.S. Senate is taking up discussion regarding the bill after June 1, 2020. The items below are not final. Some changes are expected from the House bill, but the highlights are as follows:

  • Extend the covered period to 24 weeks. The Senate wants it to be 16 weeks.
  • Extend the program to December 31, 2020.
  • Extend the loan term to 5 years.
  • Increase the non-payroll expenses from 25% to 40%.

It is not clear how this will impact business owners’ current loan agreements with their lenders. Will each loan have to be modified? Or is the proposed law sufficient to extend the loan term? Will a business owner be able to get a second loan if they have already spent most of their first loan?

According to tax attorney Jeff Sternberg, once the bills have been reconciled and the final bill is signed by the president, there will hopefully be more answers than questions.

Should you have questions or concerns regarding the PPP, contact Jeff Sternberg or your Kotz Sangster relationship attorney for additional information.