Be aware of the modifications and their implications.

The federal coronavirus stimulus bill—the Paycheck Protection Program (PPP)—provided two rounds of funds totaling $660 billion for small businesses. The relief was designed to support job retention and other specified expenses.

The PPP program was an addition to existing federal loan programs, including SBA’s traditional 7(a) loan and the Economic Injury Disaster Loans (EIDL). Businesses could apply for an EIDL in conjunction with the PPP loan if the use of funds was for different purposes.

The intent of the program was to offer fast relief to American small businesses; the execution, however, did not go as fast as planned due to various challenges. The program guidelines have undergone numerous changes since inception. The final date to obtain a PPP loan was June 30, 2020.

Modifications
On June 8, 2020, the secretary of the treasury and SBA administrator issued a statement on the enactment of the PPP.

According to the SBA, the modification included the following changes:

  • Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.

  • Lower the requirements that 75% of a borrower’s loan proceeds must be used for payroll costs and that 75% of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60% for each of these requirements. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.

  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before Feb. 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020, and Dec. 31, 2020 by the secretary of Health and Human Services, the director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.

  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on Feb. 15, 2020, and unable to hire similarly qualified employees for unfilled positions by Dec. 31, 2020.

  • Increase to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.

  • Extend the deferral period for borrower payments of principal, interest and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

Traditional Alternatives
Under the CARES Act, traditional SBA loans have specific benefits for borrowers seeking financing for their business. The program states the SBA will pay the principal, interest and any “associated fees” borrowers owe on qualified SBA 7(a), 504 or microloan programs.

The loan request must meet repayment ability qualifications for successful underwriting and fund by Sept. 27, 2020. SBA will make the first six payments of the loan. Current SBA loans also qualify for this program. The borrower should reach out to their lender to confirm eligibility.

Businesses primarily engaged in lending are not eligible for the program unless they can meet the following limited circumstances and provide documentation to support it:

  • A mortgage servicing company that distributes loans and sells them within 14 calendar days of loan closing is eligible.

  • Mortgage companies primarily engaged in the business of servicing loans are eligible.

  • Mortgage companies that make loans and hold them in their portfolio are not eligible.

Mortgage servicing companies should reach out to SBA lenders with a very detailed overview of their business revenue streams to confirm eligibility. Supporting documentation either from a CPA or a business attorney will strengthen the file for the lender’s review.

A good resource is an overview of SBA 7(a) program parameters put together by SBA Complete. The U.S. Department of the Treasury continues to update their website with resources for both lenders and borrowers related to the CARES Act programs.