The bill, authored by House Representative Dean Phillips (D-Minn.) and Chip Roy (R-Texas), passed with a 417-1 vote and is now awaiting a Senate vote.
The legislation seeks to relax several of the cumbersome restrictions on small businesses’ use of PPP funds. Specifically, the bill would relax the requirement for small businesses to use 75% of PPP loan proceeds on payroll, leaving only 25% of funds to spend on other operating expenses such as rent and utilities. The 75/25 formula would be replaced with a 60/40 formula.
The bill would also extend the eight-week “covered period” small businesses must spend the money (to qualify for full forgiveness), to the earlier of twenty-four weeks from loan origination or December 31, 2020. This will provide much needed relief to those small business still unable to re-open.
The bill relaxes the deadline for businesses to rehire employees to qualify for full forgiveness from June 30, 2020 to December 31, 2020. Additionally, many businesses reported significant challenges rehiring employees, due to the enhanced unemployment benefits which raised benefits to an amount that exceeded the median wage in at least 44 states.
To address this challenge, the text of the proposed bill adds the following language to the section detailing loan forgiveness criteria:
“During the period beginning on February 15, 2020 and ending on December 31, 2020, the amount of loan forgiveness under this section shall be determined without regard to a reduction in the number of full-time equivalent employees if an eligible recipient-
- Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020; or
- Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020.”
The time period to repay any portion of the loan that is not forgiven, will be extended to a “minimum maturity” of five years, which is a significant increase from the current two-year term.
The bill ensures small businesses have full access to payroll tax deferments which were provided as part of the CARES Act. The purpose of the payroll tax deferment is to allow businesses to retain much needed capital to weather the ongoing crisis.
We hope the Senate will act quickly to pass the bill to ensure those small businesses who received funding early, will have needed certainty to manage their remaining loan funds and make necessary staffing decisions.
Continue to follow ECG’s going updates on our Client Advisories Page to ensure you stay up-to-date on the ever-changing legal landscape for PPP loan borrowers.
Author: Anjuli B. Woods, Shareholder, Enterprise Counsel Group