Paycheck Protection Program Updates – May 22, 2020

Memorial Day American Flay in the Sky

One of the highly publicized centerpieces of the Federal government’s COVID-19 response is the Paycheck Protection Program (“PPP”) enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act). We’ve written extensively about the PPP. You can find our PPP observations and explanations on the COVID-19 Resources page of our website. We’ve got some updates today for you about the PPP.

The PPP provides through the Small Business Administration (“SBA”), via approved lenders, forgivable loans to small businesses and nonprofit. The $349 billion appropriated in the CARES Act for the PPP was spoken for within two weeks. In late April, another $310 billion was added to PPP loan funds. Everyone expected the second round of money to go flying out the door, too.

Not so fast. As of 5:00 p.m. EDT, May 21, 2020, about $147 billion of that new money remains to be loaned.

Why? Several reasons come quickly to mind.

First, more than 1.66 million small businesses and nonprofits already were approved for PPP loans during the first round, according to the SBA website.

Second, led by Treasury Secretary Stephen Mnuchin, a chorus of government officials chilled the hot market with threats of prosecution, if a company looking for a PPP loan was bigger than bug and if the company did not really, really badly need the money. (“Bigger than a bug” and “Really, really badly” are not terms found in the enabling statute. They may not be verbatim quotes, either). As a result of this browbeating, a substantial number of companies gave the PPP money back to their lenders. Others just opted out of applying.

Third, the press, the lenders and the various newly-minted PPP professionals have turned their attention to PPP loan forgiveness measures.

Fourth, businesses are finding out that, under the current rules, it is hard to spend the money in a way that allows total forgiveness of the loan.

So, how do we stand, currently? Tentatively, I would say.

The SBA released the loan forgiveness application last Friday, May 15. It was generally borrower-friendly. It explained a number of previously uncertain concepts. At the same time, it raised some more questions. Knowledgeable sources tell us that the guidance in the form of more than 20 Questions and Answers (fondly referred to as “FAQs”) is on its way. We are told to expect them any day, or maybe any moment on this Friday, May 22.

Congress has bipartisan support for changes in the PPP loan program that will, we are assured, be passed and signed into law within two or three weeks. First, the 8-week “spend period” to calculate loan forgiveness will be extended, possibly to as long as 24 weeks. It will probably shorter than that, but it will be long enough to significantly increase the dollar amount of loans forgiven. Second, a non-statutory requirement that 75 percent of loan proceeds must be used for “total payroll costs” will be driven from the scene by statute. Third, while not discussed in the press as much this week, we still expect for Congress to make clear by law that expenses funded by nontaxable forgiven loans are still tax deductible. Sweet!

Finally for today, we address a question that seems to have no answer. When is the deadline for applying for PPP loan forgiveness? Most observers were trying to identify in all the statutes and guidance a fairly near-term deadline. For the time being, it seems like the deadline may be 12/31/2020, when the PPP loan disbursements may cease.

This discourse leads me to the main point of my treatise. There is no reason to work on the PPP this weekend.

Enjoy the Memorial Day weekend. Remember what Memorial Day is about. Stay safe.

Vance Maultsby

For more information check out HM&M’s COVID-19 Resources page.

HM&M COVID-19 Resources

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