By Henry L. Goldberg, Esq., STA General Counsel
By Henry L. Goldberg, Esq., STA General Counsel
Henry L. Goldberg
Subcontractors Trade Association
Moritt Hock & Hamroff LLP
In response to the Coronavirus pandemic and the resulting government-ordered shutdowns, the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) was enacted. This Act included the Paycheck Protection Program (“PPP”). PPP was originally designed to aid businesses affected by the government shutdown in order to help maintain current staffing and payroll expenses.
Significantly, under the PPP, affected businesses which obtained a PPP loan could request forgiveness of that loan if the proceeds met the statutory requirements. Under PPP, affected businesses were originally required to utilize 75% of the proceeds for payroll expenses and had to use those proceeds within eight weeks from when the loan was funded. This presented an unworkable situation from a business standpoint as many such businesses were also subject, at the time, to government-ordered Stay-At-Home (quarantine) mandates. Thus, despite having access to PPP funds, the businesses (and their employees) were shut down as being “nonessential.”
On June 5, 2020, the Paycheck Protection Program Fairness Act of 2020 (“PPPFA”) was enacted to “fine tune” the original CARES Act. PPPFA modified the PPP protections by loosening the requirements for how those funds could be utilized.
Applicability of PPP Loan Funds Modified
During these quarantine mandates, other non-payroll related costs were increasing, as well as additional costs resulting from government-ordered PPE and “social distancing requirements.”
Therefore, under PPPFA, the rules were modified so the business owner could expend 60% (originally 75%) of the proceeds towards actual payroll expenses, thus leaving the business with 40% (originally only 25%) of the proceeds available to use for other qualified business expenses.
Keep in mind, however, that PPPFA did not change the list of eligible expenses to qualify for forgiveness, which includes rent, mortgage payments, utilities and interest on loans that were in existence prior to the COVID-19 pandemic.
Extension of the Time to Rehire Employees/Rebuild Staffing Levels
PPPFA further increased the time in which a business owner had to spend the loan proceeds from eight weeks after initial loan funding to twenty-four weeks. This was necessary as a result of the quarantine orders. The businesses were not incurring any payroll expenses. It was difficult for businesses to spend the relief funds that they obtained through the CARES Act in the eight week period because they were shut down and unable to operate when its PPP loan was funded.
Furthermore, the PPPFA eliminates the previous requirement for a business to wait twenty-four weeks after loan funding to apply for forgiveness. Now, PPP loan recipients may apply for loan forgiveness as soon as eight weeks after loan funding.
PPPFA also further extended the time in which the business owner was required to re-hire any employees that had been laid-off from June 30th to December 31, 2020 in order to meet the loan forgiveness criteria. Again, it was not practical to require the business owner to re-hire employees as early as June 30, 2020. Many PPP loan recipients had trouble rehiring employees by June 30th. Their businesses were not permitted to return to full capacity or faced delayed re-entry into reopening stages set by local officials. In these cases, it was next to impossible for businesses to rehire workers by the June 30th deadline.
Recognizing the difficulty a business owner faces to maintain the same level of employment prior to the shutdown, under PPPFA a business owner can still receive forgiveness of his PPP loans even if he or she is unable to rehire the employees that he or she had to lay off during this period of time. As long as the business owner can demonstrate that either he or she is unable to hire similarly qualified employees or that his or her business has not rebounded to the pre-pandemic levels, he or she may still obtain forgiveness of the loan.
“Forgiveness” Rules/Timetable Extended
As long as the business owner submits a Loan Forgiveness application within ten months from the “completion of the covered period” (as defined by the Act), the business owner is not required to make any payments until the forgiveness amount has been calculated and has been submitted to the SBA.
Under the Act, the covered period is either twenty-four weeks beginning when the PPP loan was distributed, or if the loan proceeds were received on or before June 5, 2020, the business owner may elect an eight week period of time. But, in no event shall the covered period extend beyond December 31, 2020.
If the loan is fully forgiven, the borrower is not responsible for any repayment. If, however, only a partial forgiveness is granted or the application for forgiveness is denied in total, the business owner is then responsible to repay the balance of the PPP proceeds within five years, at an interest rate of 1% per year from the date of loan origination (funding).
Possible further Modifications/Extensions of the Payroll Protection Program
As of the publishing of this article, Senator Rubio has introduced a bill to establish the “Paycheck Protection Program Second Draw Loan” to expand upon the policies of the CARES. Act. Senator Rubio’s proposed bill would permit severely affected small businesses to receive a second PPP loan. It would also create a new long-term recovery loan program, to provide working capital to industries that have been hardest hit by the COVID-19 pandemic and would expand forgivable PPP loan expenses to include covered supplier costs, covered worker protection expenditures, and covered operations expenditures. To what extent, or whether the bill will ultimately be signed onto law, is unknown at this time.
Brian P. Craig, Esq. is Of Counsel at Moritt Hock & Hamroff, LLP and assisted in the preparation of this article.