House and Senate Pass Paycheck Protection Program Modification Bill
Legislation | June 05, 2020 | by
Originally published on May 28, this article was updated on June 4 to reflect Senate passage and on June 5 to reflect the President's signature.
On May 28, the House of Representatives passed the Paycheck Protection Program Flexibility Act (H.R. 7010) by a vote of 417-1. Introduced by Congressmen Dean Phillips (D-MN) and Chip Roy (R-TX), the bill if enacted would make a number of technical changes to the Paycheck Protection Program loans, including both those that have been issued and future loans. On June 3, the Senate passed the bill by unanimous consent. The President signed the bill into law on June 5.
In short, the bill will make it easier for current PPP borrowers to use the loans and receive forgiveness. For example, it will allow borrowers 24 weeks to use the funds and for up to 40% of loan funds for non-payroll costs. Previously, borrowers had just 8 weeks to spend PPP funds, and only 25% of those dollars could go to non-payroll costs.
It also extends how long prospective borrowers have to use loan funds, from June 30 to December 31. As of May 25, about $140 billion are still available for new borrowers.
The federal government has begun updating guidance for the PPP loans following the bill's signing.
The bill is described in detail in the sections that follow. Notably, the bill does not expand PPP eligibility to larger 501(c)(3) not-for-profit organizations, which for LeadingAge members would include aging services providers with more than 500 employees. LeadingAge will continue to monitor PPP-related activity and advocate for the not-for-profit eligibility expansion.
Provisions of the Paycheck Protection Program Flexibility Act (H.R. 7010)
Increases Time to Use Loan Funds
The CARES Act requires borrowers to spend the loan over an 8 week period following their receipt of funds to have the loan forgiven. The House-passed bill extends this period to 24 weeks (close to six months). This extension would apply both to existing and any future PPP loans.
Amends Key Deadlines
H.R. 7010 makes key changes to time frames under the CARES Act. Currently, borrowers have until June 30 to apply for a loan and to use loan funds. The new bill extends the use of funds deadline to December 31 to allow borrowers to use the full 24 weeks the bill provides for loan spending. A letter of intent attached to the bill by the Senate, however, makes clear that the bill does not intend to extend the application deadline period beyond June 30. So, prospective borrowers would need to apply for a loan by June 30.
Increases Loan Term for New Loans
Right now, Paycheck Protection Program loans have a term of two years for any unforgiven principal. If enacted, any loans originated on or after the day the bill becomes law would have a minimum term of five years, extending the amount of time borrowers have to repay the loans. Any borrower that already has a PPP loan would still be subject to the two year term, but the bill states that lenders and borrowers can mutually agree to modify the loan term.
Amends the 75% Payroll Rule
Per federal regulation, loan recipients must use at least 75% of PPP loans for payroll costs to receive forgiveness. H.R. 7010 reduces this amount to 60%, allowing 40% of the loans to be used for non-payroll costs, which include rent, mortgage interest and utilities. This extension would apply both to existing and any future PPP loans.
Increases Deferral Period
Under the CARES Act, borrowers have an automatic six month deferral period before they must begin to repay any unforgiven loan funds. This bill increases the deferral period to 10 months. This extension would apply both to existing and any future PPP loans.
Provides Safe Harbor for Some FTE Reductions
Currently, the PPP requires borrowers to maintain their FTE level to secure full forgiveness of their loan. This bill would provide safe harbor from this requirement for borrowers in certain circumstances, which include:
- If borrowers attempt to rehire laid off or furloughed staff but are unable to do so AND are not able to hire similarly qualified individuals by December 31. An example for aging services providers would be if a PPP-borrowing adult day center laid off a direct care worker, offered to rehire the worker but could not do so (e.g., the worker did not accept the rehire) and subsequently could not otherwise fill the direct care worker role with another person.
- If borrowers can document an inability to return to their pre-COVID-19 level of business activity due compliance with federal guidelines related to sanitization, social distancing or other safety requirements related to COVID-19. An example for aging services providers would be if a PPP-borrowing nursing home saw a decrease in business activity as a result of complying with CDC and/or HHS requirements related to the pandemic.
This provision applies both to existing and any future PPP loans.
Allows Participation in Employer Payroll Tax Deferral
Right now, PPP borrowers cannot also participate in the CARES Act payroll tax deferral. If H.R. 7010 became law, this exclusion would be eliminated. This provision applies both to existing and any future PPP loans.