When the Senate passed the Paycheck Protection Program Flexibility Act last Thursday, it did so with several big caveats. The Small Business Administration and the Treasury Department just shed some light on two of them.
In a Monday update, the two agencies said they will "promptly" issue rules and guidance, as well as post modified borrower and forgiveness applications to address the legislative amendments to the Paycheck Protection Program, the now $669 billion forgivable loan program aimed at supporting beleaguered small businesses. They also outlined changes in current rules that will bring them in line with the new law.
Most important, SBA and Treasury said you have only until June 30 to apply for a PPP loan. If you get one, the Flexibility Act extends the forgiveness, or "covered," period through December 31. Senator Marco Rubio (R-Fla.) and others in the Senate had requested clarification on that deadline, according to Karen Kerrigan, president of the Small Business & Entrepreneurship Council, a nonpartisan advocacy group in Vienna, Virginia.
The lack of clarity about the application deadline centers on the eligibility terms for PPP loans under the Cares Act. That is, the statute says certain eligible borrowers may receive a loan during the covered period, says David Cole, a partner with Holland & Knight's corporate and securities group. "Treasury's announcement this morning appears inapposite to the statute," says Cole. He notes that Monday's clarification may be challenged in court, just as past eligibility term changes did.
Treasury and SBA got socked with lawsuits after they changed the eligibility requirements, which previously allowed more than 200 publicly traded companies to access the program. In late April, the Treasury issued new guidance requesting that businesses with the ability to raise funds--say, via bond or stock offerings--to return the money so smaller firms wouldn't get shut out. "A public company with substantial market value and access to capital markets," Treasury advised, would likely not meet the standards required for attaining a government-backed loan. Some public firms then returned the money.
Typically, SBA loan programs require borrowers to attest that they are unable to get credit elsewhere before applying. That's specifically not the case with the Cares Act, which says the requirement "shall not apply." In other words, the rules changed, and that then put some companies' ability to have loans forgiven in question.
Cole says that the current deadline discussion may constitute a similar overreach: "If Treasury were to promulgate a rule restricting new borrowing to the month of June, that rule could face [a] challenge in court."
Rubio, who is chairman of the Senate small-business committee, also wanted the administration to clarify whether employers would still be required to rehire or retrain workers to have their loans forgiven. The Monday update doesn't say anything new on this front: Business owners need to meet pre-crisis head count requirements unless required by regulators to reduce hours or scope of business. They'll also be granted safe harbor in the loan forgiveness calculation if they try but are unable to rehire laid-off or furloughed workers.
Rubio and Senator Susan Collins (R-Maine) had also questioned the provision that reduces, from 75 percent to 60 percent, the proportion of a loan that business owners are required to spend on payroll. They noted that the prior version for the PPP allowed for partial loan forgiveness if a company uses less than 75 percent for payroll. By contrast, the senators noted that the Flexibility Act isn't clear regarding the point about partial forgiveness if a business didn't meet the 60 percent requirement.
The update specifies that if a business owner uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness.
The Paycheck Protection Program was officially authorized on March 27 and launched on April 3 with $349 billion in program funds. It was expanded on April 27 with an additional $320 billion. So far, the program has doled out more than 4.5 million loans worth more than $511 billion.