On May 28, 2020, the House of Representatives passed
H.R. 7010, which effects a number of amendments to the CARES Act impacting the
Paycheck Protection Program (PPP) term and forgiveness
provisions. Late on June 3, 2020, the Senate also passed H.R. 7010 without
revision, and H.R. 7010 is expected to be signed into law by President
Trump, according to media reports.
H.R. 7010 makes a number of important changes to the PPP and a related
change to the payroll tax deferral in Section 2302(a) of the CARES Act,
some of which are given retroactive effect and all of which are summarized below.
Section 2 of H.R. 7010 (Prospective Effect)
Extension of Covered Period to a Minimum of Five Years: Section 2(a) of H.R. 7010 prospectively creates a minimum term of
five years for all new PPP loans made after the effective date of the
law. Currently, Section 7(a)(36)(K)(ii) of the Small Business Act
(which was established by Section 1102 of the CARES Act) specifies only
a maximum term of 10 years, and subsequent SBA guidance limited the
term of all PPP loans to two years. After the effective date of H.R.
7010, all new PPP loans must have a term of at least five years. (This
amendment in H.R. 7010 does not make it clear whether the five-year
term is intended to commence on the date of forgiveness, which is when
the maximum 10-year term would commence, or could commence earlier,
such as on the origination date.) Additional Treasury Department and
SBA guidance will be required to implement this change, since H.R. 7010
alters existing guidance establishing a two-year term for all PPP
Effect on Existing PPP Loans: Section 2(b) of H.R. 7010 provides that, with respect to PPP loans in
existence prior to the effective date of H.R. 7010, PPP lenders and
borrowers are not prohibited from renegotiating the term of the
existing PPP loan to conform the term to the minimum five-year and
maximum 10-year term provided for new PPP loans, but the provision does
not require lenders or borrowers of existing PPP loans to do so.
Section 3 of H.R. 7010 (Retroactive Effect)
Section 3 of H.R. 7010 makes a number of important changes to the PPP, each
of which is retroactively effective as though included in the original
Availability of PPP Loans: Section 3(a) of H.R. 7010 amends Section 7(a)(36) of the Small
Business Act (which is the PPP provision established pursuant to
Section 1102 of the CARES Act) to extend the defined term “covered
period” for purposes of Section 7(a)(36) of the Small Business Act,
from June 30, 2020, to Dec. 31, 2020.
This makes new PPP loans available until the first of the following to
occur: Dec. 31, 2020; and the date the funds allocated to the program run
out. However, Section 3(b)(1) of H.R. 7010 also establishes Dec. 31, 2020,
as the outside date for use of PPP loans to obtain forgiveness (see more
details below). As a result, the practical outside date for issuance of a
PPP loan most likely will be some time prior to Dec. 31, 2020, as is
sufficient to provide a PPP borrower enough time to use the PPP loan funds
for forgivable purposes prior to Dec. 31, 2020.
That said, a compromise with Sen. Ron Johnson (R-Wis.) to obtain unanimous
consent of the Senate to H.R. 7010 resulted in Senate Majority Leader Mitch
McConnell (R-Ky.) “along with the leaders of the Senate and House small
business committees sign[ing] a letter clarifying that an extension of the
Paycheck Protection Program to the end of December would apply only to
spending and not extend the application deadline the small business
committees of the House and the Senate are expected to submit.” (See
June 3 Roll Call article.) Further guidance from Treasury and SBA is required to confirm
implementation of this concept, notwithstanding the express provisions of
H.R. 7010 to the contrary.
In addition, as of June 1, 2020, according to a
the Treasury Department published on its website, just under $90 billion in PPP loan funds remain available, and it is
unclear whether or the extent to which these amendments will result in
renewed demand for the remaining available funds.
- Forgiveness Amendments: Section 3(b) of H.R. 7010 amends several provisions of Section 1106
of the CARES Act, which established the forgiveness requirements for
- Extension of Forgiveness Covered Period to 24 Weeks.
Section 3(b)(1) of H.R. 7010 extends the “covered period” for purposes of
forgiveness of PPP loans under Section 1106 of the CARES Act to the earlier
of (a) 24 weeks from the date of origination of the PPP loan and (b) Dec.
31, 2020. This replaces the current forgiveness covered period of eight
weeks from the date of origination. Although this change is retroactively
effective for all PPP loans, under Section 3(b)(3) of H.R. 7010, existing
PPP borrowers may elect to keep the original eight-week covered period for
- Extension of Rehire and Compensation Safe Harbors.
Section 3(b)(2)(A) of H.R. 7010 retroactively extends the date by which a
borrower must demonstrate that it has eliminated any reduction in full-time
equivalent employee head count and/or reduction in cash compensation to any
employee in accordance with Section 1106(d)(5)(B) of the CARES Act, from
“not later than June 30, 2020” to “not later than December 31, 2020.” There
is also an additional rehire exemption, which is discussed in the next
Note that no provision of H.R. 7010 permits existing PPP borrowers that
elect to retain the original eight-week “covered period” for purposes of
forgiveness to also elect to use June 30, 2020, as the date for
determination of whether these safe harbors apply. Furthermore, if Dec. 31,
2020, is the only measurement date for determination of whether the safe
harbors apply, then many forgiveness applications that will rely on these
safe harbors for maximum forgiveness cannot be submitted until after Dec.
31, 2020, significantly pushing out the forgiveness calculation period for
many PPP borrowers. SBA has previously interpreted the phrase “no later
than” June 30, 2020, to mean “as of” June 30, 2020, for purposes of
forgiveness, but SBA and the Treasury Department appear to have leeway
under H.R. 7010 to interpret “no later than” more broadly to eliminate
undue delays in the forgiveness process. Additional guidance from the
Treasury Department and SBA is necessary to understand how the safe harbors
will be implemented after giving effect to H.R. 7010.
- New Rehire Exemption. Section 3(b)(2)(B) of H.R. 7010
creates a new clause (7) to Section 1106(d) of the CARES Act providing that
each PPP borrower may determine the forgiveness amount of its PPP loan
without regard to the proportional reduction in the number of full-time
equivalent employees if and to the extent such reductions result from (a) a
documented inability to rehire employees who were employed on Feb. 15,
2020, or to rehire similarly qualified replacement employees by Dec. 31,
2020, due to (b) a documented inability to return to the same level of
business activity as before Feb. 15, 2020, due to compliance with federal
(but not state or local) health and safety requirements or guidance
(including from the Department of Health and Human Services, the Centers
for Disease Control and Prevention, and OSHA) issued between March 1, 2020,
and Dec. 31, 2020, that was related to the maintenance of standards for
sanitation, social distancing, or any other worker or customer safety
requirement related to COVID–19.
Additional guidance from the Treasury Department and SBA will be necessary
to confirm whether they interpret this new exemption to apply only to the
full-time equivalent head count reduction or also to the compensation
reduction portion of the forgiveness calculation. An updated borrower
forgiveness application also must be provided to implement the H.R. 7010
amendments to the forgiveness provisions of the CARES Act.
- Limitation on Forgiveness. Section 3(b)(2)(B) of H.R.
7010 also inserts a new clause (8) to Section 1106(d) of the CARES Act that
overrides existing guidance requiring that at least 75 percent of the
forgiveness amount must be for eligible payroll costs, replacing that
guidance with a requirement that PPP borrowers “shall use at least 60
percent of the covered loan amount for payroll costs, and may use up to 40
percent of such amount for any payment of interest on any covered mortgage
obligation (which shall not include any prepayment of or payment of
principal on a covered mortgage obligation), any payment on any covered
rent obligation, or any covered utility payment.”
Sen. Marco Rubio (R-Fla.) previously indicated that he understands that
“the way the Treasury has told us they are going to interpret that bill —
if you don’t spend 60% of your money on payroll, if you only spend 59.9%,
you will get zero forgiveness.” (See this
June 3 MarketWatch article.) But Rubio subsequently indicated that he and “other senators hammered out
an understanding with the Trump administration about interpreting and
implementing the law in a way that avoids the all-or-nothing threshold.”
June 3 Law360 article.) Updated Treasury Department and SBA guidance will be necessary to
confirm that no all-or-nothing approach to the 60 percent payroll cost
requirement will be implemented.
- Existing PPP Borrower Eight-Week Election. Section
3(b)(3) of H.R. 7010 creates a new clause (l) to Section 1106 of the CARES
Act that permits existing PPP borrowers to elect to use a forgiveness
period of eight weeks “after the date of origination” of the existing PPP
loan, rather than the new 24-week covered period. However, current guidance
permits borrowers with biweekly or more frequent pay periods to elect an
eight-week period that begins on the first pay period commencing after the
origination date of its PPP loan. Further guidance will be needed to
confirm whether that alternate covered period for payroll costs will remain
in effect after giving effect to this amendment.
- Extension of Deferral Period to Forgiveness Remittance Date
. Sections 3(c)(1) and (2) of H.R. 7010 amend Section 7(a)(36)(M) of the
Small Business Act to replace the six-month deferral period for principal,
interest and fees of PPP loans with a deferral period for principal,
interest and fees, that commences on the date of origination and ends
on the date that the determined forgiveness amount has been remitted to
the applicable PPP lender
. Many lenders used PPP loan notes that expressly included the original
six-month deferral period, so terms of those notes may need to be amended
to reflect this retroactive change to the deferral period.
- 10-Month Deferral Deadline. Section 3(c)(3) of H.R. 7010
amends Section 7(a)(36)(M) of the Small Business Act to add a new clause
(v) that provides that if a borrower fails to apply for forgiveness within
10 months after the last day of the forgiveness covered period (as amended,
either 24 weeks after loan origination or Dec. 31, 2020, whichever occurs
first), then such borrower must start making payments of principal,
interest and fees on such PPP loan beginning on the date that is “not
earlier than the date that is 10 months after the last day of such covered
period.” There is no indication in H.R. 7010 whether SBA would continue to
accept forgiveness applications after the end of that 10-month period.
Section 4 of HR 7010 (Retroactive Effect)
Finally, Section 4 of H.R. 7010 amends Section 2302(a) of the CARES Act to
retroactively eliminate the previously established prohibition on tax
deferral for federal employment taxes for any taxpayer that had PPP debt
forgiven under Section 1106 of the CARES Act. As a result, PPP borrowers
that obtain forgiveness of PPP loans are no longer ineligible to continue
deferring federal employment taxes in accordance with Section 2302(a) of
the CARES Act.
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