Revised SBA Rules Clarify Repayment and Loan Surrender Conditions for PPP Loans | Greenbaum, Rowe, Smith & Davis LLP
The Small Business Administration (SBA) has released revised draft final rules on the Paycheck Protection Program (PPP) to address questions raised by the recent passage of the Paycheck Protection Program Flexibility Act from 2020.
This Customer Alert summarizes the provisions of the revised rules, as follows:
Period covered. The Rules confirm that the definition of “covered period” for purposes of loan use, loan eligibility and related requirements is extended from June 30, 2020 to December 31, 2020. The meaning of the governing “covered period” the cancellation of the loan is unchanged and remains 8 weeks or 24 weeks at the choice of the borrower.
Due date. The Rules specify that the maturity date is extended to 5 years for loans granted after June 5, 2020. For loans granted before June 5, 2020, the maturity date remains at 2 years; however, borrowers and lenders can mutually agree to extend the maturity of these loans to 5 years.
Deferral period. The Rules confirm that the deferral period for payment of principal and interest is extended from 6 months to 10 months. If the loan forgiveness request is submitted to the lender within 10 months of the end of the 8 or 24 week covered period, the borrower will not have to start payments of principal and interest until the date on which the loan forgiveness is due. SBA hands off the loan forgiveness. amount to the lender (or informs the lender that no loan forgiveness is allowed). The Rules provide the following example: “If a borrower’s PPP loan is disbursed on June 25, 2020, the 24-week period ends on December 10, 2020. If the borrower does not submit a loan forgiveness request to its lender by October 10, 2021, the borrower must start making payments on October 10, 2021.
Loan forgiveness. The rules confirm the reduction in the amount to be spent on labor costs from 75% to 60% of the loan and remove any ambiguity as to whether that 60% is a threshold for receiving a loan forgiveness. The Rules confirm that in order to receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan proceeds for labor costs and no more than 40 percent of the loan proceeds can be used for costs not. salary costs, but the borrower will always receive partial discount proportional to the amount actually spent on salary costs. The Rules provided another useful example: “If a borrower receives a PPP loan of $ 100,000 and during the period covered, the borrower spends $ 54,000 (or 54%) of their loan on staff costs. , then because the borrower used less than 60% of their loan for salary costs, the maximum loan forgiveness amount the borrower can receive is $ 90,000 (with $ 54,000 in salary costs constituting 60% of the amount of the rebate and $ 36,000 in non-salary charges constituting 40% of the amount of the rebate).
The rules say the SBA will issue additional guidance on loan cancellation and review procedures. We will continue to monitor PPP regulations and guidance documents and provide updates as they arise.