Last week President Trump signed the Paycheck Protection Program Flexibility Act which brought significant changes to the Paycheck Protection Program, including extending the time period allowed for businesses to spend the proceeds. Many of these changes have been discussed in detail in the media, but after reading the regulations, we have three points to make that may have slipped under your radar.
1. Maturity date. Loans made after June 5, 2020 will mature in five years rather than two. Any loans made before June 5, 2020 will maintain their original two years maturity date unless the borrower and lender mutually agree to extend the term. If you need the extended five-year term to repay any amount not forgiven, you need to take matters into your own hands and contact your lender to discuss extending it. At this point it isn’t clear which banks, if any, will be open to extending the term.
2. Fraud. We have seen and heard many people speculate that if they could not spend the loan proceeds on a covered expense, they would just keep the funds to spend on other items after the covered period and merely pay the unforgiven portion back over the loan term. If it wasn’t clear to you to begin with, after reviewing the revised application and revised Interim Rule Number One released today, you should have no doubt that if you knowingly spend the loan proceeds on something other than a covered expense, you can be legally liable for charges of fraud. Covered expenses include payroll, lease payments, mortgage interest payments (both real and personal property), and utilities. Don’t risk fraud charges by making your mortgage principal payments or other unauthorized payment with the proceeds. Now that the Act gives borrowers the opportunity to extend the covered period over twenty-four weeks instead of eight, you should have no problem finding covered expenses to pay.
3. Payroll Expenses Threshold. One of the most significant changes to the PPP is that only 60 percent of proceeds must be spent on payroll expenses to achieve full forgiveness. The revised Interim Rule One provides a sample calculation to show how forgiveness will be reduced pro rata. The reduction is based off what percentage of the 60 percent threshold for payroll expenses is actually spent on payroll expenses.
Give us a call if you have questions concerning how that calculation works or stay tuned to our upcoming webinar, where we will cover the calculation in more detail.Don’t forget: a new forgiveness application reflecting these changes and others should be released soon. As always, we are here to help you make sense of the amendments.