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The U.S. Treasury issued yet another Interim Final Rule this week, only days after the Paycheck Protection Program Flexibility Act of 2020 was signed into law. The Interim Final Rule clarifies a couple of items that were included in the PPP Flexibility Act.
Most notably, the Interim Final Rule clarifies the following:
1. The "Covered Period" for loans is now February 15, 2020-December 31, 2020. This is not the same "Covered Period" referred to with respect to loan forgiveness in Section 1106 of the CARES Act.
2. Borrowers who received loans prior to June 5, 2020, have the option to elect to use either the eight-week or 24-week covered period for purposes of loan forgiveness.
3. Loan Forgiveness Applications must be submitted to lenders within 10 months of the end of the loan forgiveness covered period.
4. The Interim Final Rule interprets the requirement that 60% of the loan shall be used for payroll costs to be a proportional limit on nonpayroll costs rather than a cliff that would prohibit any forgiveness if the borrower did not reach the 60% threshold for payroll costs.
The example provided in the rule is as follows:
"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)."
5. The forgiven amount may be up to the principal balance of the loan plus any accrued interest.
6. The rule clarifies that the maturity date for loans made prior to June 5, 2020 is two years; however, borrowers may request, and the lender may approve, a five-year maturity.
7. Loans made June 5, 2020, through June 30, 2020, will have a five-year maturity.
The PPP Loan Forgiveness Application was updated as of June 16, 2020. Here is a link to the revised application.
We continue to receive new guidance regularly. As a result, we do not advocate rushing to apply for forgiveness. We encourage borrowers to consult with their bank and business advisors throughout the loan forgiveness process so that they may have the opportunity to receive the maximum amount of loan forgiveness possible.
If Delap professionals can be helpful to you as you evaluate your options during this time, please don’t hesitate to reach out.