Issues: Small-Medium Business Loans
Date: June 3, 2020
Action Taken: On June 3, Congress enacted H.R.7100, a bill that changes some Paycheck Protection Act (PPP) rules. The House approved these changes almost unanimously—the vote was 417 to 1. The Senate vote was by unanimous consent. The changes are retroactively effective, as if they were included in the CARES Act as it was enacted this past March. The changes include:
- A provision that establishes that five years will be the minimum PPP loan term (currently, PPP regulations set the loan term at two years; the statute allows for a term of up to 10 years).
- Extension of the “covered period” from June 30, 2020 to December 31, 2020, for a period of 24 (rather than eight) weeks.
- Provisions to ease the requirements regarding maintaining the number (and pay levels) of employees as of February 15, 2020—the new rules allow loan forgiveness if an employer is “unable to rehire an individual” who was employed on or before 2/15/20, or can demonstrate inability to hire similarly qualified employees on or before 12/31/20, or can show that the business is unable to return to the same level of business activity as existed on 2/15/20.
- Modification of the regulatory rule that at least 75 percent of a forgivable PPP loan must be spent on payroll—as originally drafted, the bill would have eliminated the rule altogether, but opposition from organized Labor caused a decision to change the rule to a 60/40 rule instead. So, under the rule in the “Paycheck Protection Program Flexibility Act” at least 60 percent of forgivable PPP loan proceeds must go towards payroll costs.
- A provision that makes PPP borrowers eligible for the CARES Act’s payroll tax deferral provisions.
Interestingly, the bill does not overturn a Treasury decision that business expenses paid with forgiven PPP loan money will not be deductible. That rule is overturned in the House-passed HEROES Act, and could well be in play as lawmakers and the Administration hammer out the next coronavirus crisis response bill over the next couple of months.
Next Steps: The President is expected to sign H.R.7100 into law. More PPP changes are likely, either in separate legislation later this month or in the new coronavirus bill which is likely to move through Congress in July. The issues include clarifying that when a PPP borrower uses more than 40 percent of PPP loan money for allowable overhead expenses only that overage, rather than the entire loan amount, fails to be eligible for forgiveness and the deductibility of ordinary business expenses paid for with forgiven PPP loan money. Whether the PPP itself will be extended and whether it will get additional funding are also live issues for the next round of legislation.
