PPP Amendments Make It Easier to Get Loan Forgiveness

Many of you have heard that Congress has passed a bill that would change some of the standards associated with the Paycheck Protection Program (PPP).

H.R.7010 is entitled the “Paycheck Protection Program Flexibility Act of 2020.”  That bill was signed into law today by the President.  We have a short status update at the bottom of this post.

The Changes

The bill features a number of important changes to the CARES Act Paycheck Protection Program (PPP) and the loan forgiveness program associated with it.

Covered Period for Spending and Loan Forgiveness

The covered period is changed in two different places in the new law.

First, the covered period for basic PPP program is changed the so that it ends at the end of the year (not June 30, 2020) as originally established.  Technically, this covered period is the period during which applicants can seek a loan.  More importantly, this is also the period during which PPP funds may be expended.  So, companies that were worried about whether they could pay out the money they received for PPP loans (on authorized expenses), will have a longer period for spending that money.

Second, the covered period for purposes of PPP loan forgiveness is also changed.  This is slightly more complicated.  For loan forgiveness purposes the covered period will end on the earlier of (A) 24 weeks after PPP loan origination or (B) December 31, 2020.

How will this work?  Let’s say that you received a PPP loan on April 28, 2020.  The 24-week period should end on or about October 12.  This means that you would have until December 31 to spend the PPP money to comply with the loan program requirements, but if you want to obtain loan forgiveness for the loan then you would need to spend the money on forgivable expenses by the earlier deadline of 24 weeks after PPP Loan origination (in this hypothetical that begins with an April 28 loan origination, October 12, 2020 appears to be the last day for forgivable expenditures).

Thus, for most PPP businesses (who intend to seek PPP loan forgiveness), it will be important to spend the PPP Loan on forgivable expenses by the 24th week after the loan origination.  For many businesses, this means spending the money on verifiable forgivable expenses before the 24-week anniversary of the loan origination.

But if you get a late PPP loan (a loan that is originated after July 16, 2020), then your ‘spend period’ and ‘forgiveness period’ will be the same.  Both would end on December 31, 2020; so, your total time period may be less than 24 weeks.

One other note on the covered period.  If you received your loan before June 5 (the date of enactment) and want to elect to retain an eight week period as your covered period then may elect to do that (retaining a covered period that begins on the date of the loan origination).

Minimum Floor – 60% of PPP Must Be Spent on Payroll to Obtain Forgiveness

Under the original law, one generally wanted to spend a certain percentage of the loan on payroll and spend no more than a certain percentage of the loan on authorized non-payroll expenses like rent. This was because the loan program was designed to set a maximum loan based on 80% payroll and 20% other expenses (like rent).  Assuming your headcount remains the same, you keeps salaries at 75% or more of spending from the reference period in order to maximize your potential for forgiveness.  Everyone’s numbers are different but in an ‘optimized’ situation, that meant keeping your payroll at about 60% of the loan amount (or more) in order to maximize forgiveness.  Under the old law, anything less would likely be subject to a reduction in forgiveness.

Treasury regulations applied a flat 75% test, requiring 75% of the funds provided to be spent on payroll if you intended to seek forgiveness.  This interfered with the numerical simplicity of the ‘optimized’ situation.  The new law returns the 60% threshold as the minimum amount that must be spent on payroll in order to qualify for forgiveness.

For those who do spend less than 100% of the PPP Loan on payroll, the new law imposes a “60% floor” for those who seek loan forgiveness.

The new law sets a minimum threshold that requires at least 60% of the PPP be spent on payroll, or else you lose all possibility of loan forgiveness.  You can still spend 100% of the PPP loan on payroll without penalty – you don’t need to hit the 60% mark exactly – but if you spend less than 60%  of your PPP loan on payroll then you may be ineligible for loan forgiveness.  This does means you can spend up to 40% of your PPP Loan on other forgivable expenses (covered mortgage interest, covered rent, or covered utility payments) and still get some or all of your loan to be forgiven.

What if I Can’t Rehire Employees?

The PPP loan forgiveness program also has a reduction in the percentage of a loan that can be forgiven for businesses that lose headcount as compared to their previous headcount. The comparison period is either February 15, 2019 – June 30, 2019, or January 1, 2020 – February 29, 2020 (at the option of the borrower).  If your average headcount in the comparison period was 40 and your average headcount in the covered period, today, is 30 then the maximum loan forgiveness would be reduced to 75%.

A concern expressed by a number of ASA members has been that they are seeking to rehire furloughed/laid-off workers and those workers refuse to return (for a variety of reasons, including because of fears about continuing danger from Covid-19, and because of lucrative unemployment benefits currently offered pursuant to the CARES Act).  Thus, they are encountering difficulties in returning to the higher numbers based on this refusal.

The new law provides a safe harbor for businesses that make a good faith effort to rehire, but are rebuffed by the past employee.  To make use of this safe-harbor, the employer must be able to document that it has tried and failed to rehire individuals who were employees on February 15, 2020; and that it has also tried and failed to hire similarly qualified employees for the unfilled positions on or before December 31, 2020.

As an alternative, the new law also permits the employer to document an inability to return to the same level of business activity (as compared to the level of activity as of February 15, 2020) due to certain legal compliance requirements (e.g. if CDC rules or OSHA rules would preclude a return to work).  This latter provision is unlikely to apply to most members of the ASA community, but it would apply to businesses that cannot return to work because inability to engage in social distancing makes the job dangerous for employees.

Interest Deferral

Under the original provisions, interest on the PPP loan was deferred for six months.  The new law changes this so that interest is deferred until the you apply for the loan forgiveness and tell the bank the amount of loan forgiveness to which you are entitled.  After you apply for loan forgiveness the law requires a decision within 60 days about whether loan forgiveness is warranted.  The new law is a little vague on whether interest accrues during this 60-day period – it is likely that this question will be answered in regulations.

Don’t look at this provision and think that if you never apply for loan forgiveness then your obligation to pay the loan back never applies.  The law set up a ten-month limit.  If you haven’t applied for PPP loan forgiveness within 10 months after the last day of the covered period, then you will need to start making payments of principal, interest, and fees on the loan beginning 10 months after the last day of the covered period.

If the PPP Funds Remain as a Loan …

PPP loans can remain unforgiven (it is legal to use them on certain non-forgivable expenses).  In such a case it becomes a low-interest loan.

The new law establishes a minimum maturity of five years for loans that remain unforgiven (the original bill set 10 years as a maximum, so this means the term for remaining unforgiven portions of loans will be 5-10 years).

Tax Status Not Fixed

Congress anticipated that the PPP would be forgiven if the payroll-related purposes of the PPP loan were met. To ensure that the debtor doesn’t need to pay extra taxes for this life-line, Congress explicitly stated that the forgiven amount is not included in gross income.

Congressional intent was thwarted by IRS Notice 2020-32 which explains that 26 U.S.C. § 265 disallows a deduction to a taxpayer for any amount that is allocable to income that is exempt from income taxes. The IRS Notice interprets this to mean that the expenses on which the forgiven loan is spent become non-deductible expenses.

The net result of the IRS Notice for many businesses would be the same as if they had treated the loan forgiveness as taxable income in the first place.  This issue has not been addressed in the new law.

Bills to address this concern have been introduced in the House (H.R.6821) and Senate (S.3612).  A full analysis of this provision is found here.


The House passed H.R. 7010 on May 28 by an overwhelming vote of 417-1.  The bill has been held up in the Senate, where Senators Lee and Johnson have expressed concerns with some details in the bill.  They feel that the bill was intended to be a short-term solution and that loan applications should be limited to Aug. 15 (not through the end of the year).  The concerns were resolved and the bill was passed in the Senate.  The next step is for the President to sign it.  There is no reason to believe that the President won’t sign the Bill into law.

Update: The President signed the bill into law this afternoon.  June 5, 2020

About Jason Dickstein
Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. Since 1992, he has represented aviation trade associations and businesses that include aircraft and aircraft parts manufacturers, distributors, and repair stations, as well as both commercial and private operators. Blog content published by Mr. Dickstein is not legal advice; and may not reflect all possible fact patterns. Readers should exercise care when applying information from blog articles to their own fact patterns.

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