Senate Passes House Bill H.R. 7010 – PPP Flexibility Act

On June 3, 2020, the U.S. Senate passed House Bill H.R. 7010 (Bill), providing more flexibility to Paycheck Protection Program Loan (PPP) recipients.  The bill is drafted such that it amends various subsections of the Cares Act (Act) signed into law in March of this year.  The bill is expected to be signed by the President in short order.  Notable provisions from the bill include:

The Bill extends the Covered Period for loan forgiveness purposes from eight weeks to twenty-four weeks after the date of loan origination, but no later than December 31, 2020.  Under the extended period, a loan originated on April 1st would have a forgiveness Covered Period that expires on September 15th, after which the loan forgiveness application could be filed.  This extension will allow recipients who are struggling to meet the qualified expenditure requirements additional time to do so.  The Bill does provide that PPP Loan recipients who received a loan prior to the enactment of the Bill may elect to apply the original eight-week Covered Period.  It is important to note that the extension of the Covered Period extends the period for which recipients must maintain employment levels for purposes of loan forgiveness (see Provisions for Reductions in Employees below).

In prior guidance, the SBA indicated that for forgiveness purposes at least 75% of the PPP loan must have been used for payroll costs.  The SBA Loan Forgiveness Application and accompanying guidance provided that the 75% rule would be not be imposed as a ‘cliff’.  The Bill codifies and amends this rule by requiring that to receive loan forgiveness, at least 60% of the loan must be used for payroll costs (including eligible health and retirement costs).  While the Bill reduces the threshold to 60%, the language as drafted does now create a ‘cliff’, such that if the 60% threshold is not met, then the loan recipient is not eligible for forgiveness.

The Act provides for a reduction in otherwise forgivable PPP Loans, based on reductions in the number of employees during the Covered Period as compared to the number employees in the baseline period.  However, the Act also provided that restorations of employee counts by June 30, 2020 would not result in a reduction in forgiveness.  The Bill extends this restoration in employee count provision to December 31, 2020.

The Bill adds a section to the Act to provide that PPP Loan forgiveness will not be reduced for reductions in employees where the employer is able to document an inability to return to the same level of business activity that it had prior to February 15, 2020 due to compliance with guidance issued by the HHS, CDC, or OSHA; OR where the employer is able to document:

Additional guidance is needed to define both the documentation required and the metrics to be relied upon for establishing levels of business activity.

The Act required that lenders provide complete payment deferral on PPP Loans for a period not less than six months and no more than one year.  The Bill amends this deferral provision to provide that the complete payment deferral applies until the date on which the amount of forgiveness determined is remitted to the lender.  This change alleviates the concern that loan payments could become due while the loan forgiveness application is being evaluated for approval by both the bank and the SBA.  The Bill also provides a backstop on deferral by providing that if the recipient fails to apply for forgiveness within ten months after the end of Covered Period, repayment deferral ceases on the day after such tenth month ends.

The Act provides employers the ability to defer their employer’s share of payroll taxes due for 2020 (i.e. Social Security and Medicare). The deferral opportunity allows for two installments:

The Act provided that PPP Loan recipients were not eligible for this payroll tax deferral opportunity.  The Bill removes this restriction on PPP Loan recipients.