PPP Loan Updates

May 14, 2020

Certifications

If you borrowed less than $2M under the Paycheck Protection Program (“PPP”) through the SBA, you will not have to provide financial information to prove that the PPP loan was “necessary to support ongoing operations.”   The SBA will believe that you acted in “good faith” when you made that certification as part of the PPP loan application process.

If you borrowed $2M or more (including loans to your affiliates), you should expect that the SBA will audit your loan certifications and require that you provide supporting documentation to show that your PPP loan certifications were accurate.

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf (Q/A 46 released on May 13, 2020).

Possible Changes to PPP Loan Forgiveness Rules – Next Round of Stimulus

The House Democrats have released a bill to amend the PPP loan program forgiveness rules to accommodate the expected delays in reopening the country.   HEROES Act, H.R. 6800 (introduced May 12, 2020).  While the Republican controlled Senate is certain to make major changes to the HEROES Act, some House provisions may survive.  Clients should be aware that the law will remain in flux through June.

The House bill (Sec. 90001 and Sec. 90004) provides that the “spend down” date for PPP loan forgiveness will be extended from June 30, 2020 until December 31, 2020.   In addition, instead of having to spend all the PPP loan balance on payroll costs, rent, utilities, and mortgage interest over an eight-week period after the PPP loan is funded to qualify for loan forgiveness, borrowers will have 24 weeks to spend the funds.  The House bill drops the requirement that borrowers use 75% of the PPP loan balance to pay payroll costs and allows the money to be spent on rent, utilities and mortgage interest.  Finally, additional “head count” relief is provided if employees are unable or unwilling to return to work.

The House bill (Sec. 20235) reverses the IRS Notice 2020-32 and will allow taxpayers to exclude the PPP loan forgiveness from income and still deduct all the expenses used to justify loan forgiveness.  However, the House bill (Sec. 20201) restricts the use of any resulting tax losses by limiting the NOL carryback period to 2018 and 2019.

The Senate is not expected to start discussing its version of the next Stimulus bill until after May 25 (Memorial Day).

For questions regarding this subject, please contact S. John Kelly at jkelly@smgglaw.com.