The Small Business Administration (SBA) issued the First Interim Rule regarding revisions to the Paycheck Protection Program (PPP) following the passage of the Paycheck Protection Program Flexibility Act. The interim rule from the SBA provides guidance to borrowers on the programs made by the recently passed Paycheck Protection Program Flexibility Act.
The interim rule clarifies that small businesses can qualify for partial loan forgiveness even if 60% of the PPP loan was not directed toward loan forgiveness. Previously, borrowers were required to allocate 75% of the loan to payroll costs and spend 75% of the loan forgiveness amount on payroll costs during the 24-week loan forgiveness covered period. Under the interim rule, if a borrower now uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower can remain eligible for partial forgiveness, subject to at least 60% of the loan forgiveness amount being used on payroll costs.
Additionally, under the interim rule the covered period for loan forgiveness has been extended from eight weeks after the date of loan disbursement to 24 weeks. Borrowers who have already received PPP loans have the option to use an eight-week covered period. June 30 remains the last date on which PPP loan applications can be approved.
The rule provides safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers unable to rehire individuals employed before February 15 and unable to hire employees for unfilled positions by December 31. Under the provisions of the Paycheck Protection Program Flexibility Act, the maturity of PPP loans have been increased to five years.
Under the PPP, small businesses--companies with 500 employees or fewer--can apply for partially forgivable loans that can cover operating expenses. Originally allocated $349 billion as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, funding for the PPP ran out within two weeks. The government was quick to approve a bill including an additional $310 billion for the PPP.