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June 16, 2020

Statement from Treasury on PPP Forgiveness Threshold

The Department of Treasury and Small Business Administration issued a joint statement following the enactment of the Paycheck Protection Program Flexibility Act that announces the following upcoming procedure changes.

  • Extension of the covered period for loan forgiveness from eight weeks to 24 weeks after loan disbursement. If you’ve already received a PPP loan then you ae still able to retain an eight-week covered period.
  • Lowering the minimum percentage of PPP funds borrowers have to spend on payroll costs to have the loans forgiven from 75% to 60%. Additional clarification was provided stating that partial loan forgiveness will be available to those who spend less than 60% of its PPP loan amount on payroll costs.
  • Providing a safe harbour from reductions in loan forgiveness based on reductions in full-time employees for borrowers that are unable to return to the same level of business activity due to compliance with governmental requirements or guidance issued between March 1, 2020 and December 31, 2020. In order to qualify for this safe harbour your business must have been operational prior to February 15, 2020.
  • Providing a safe harbour from reductions in loan forgiveness based on reductions in full-time equivalent employees, for borrowers that are both unable to rehire individuals who were employees prior to February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
  • Increase the maturity of PPP loans that were approved by the SBA on or after June 5, 2020 to five years instead of two years. However, clarification released by the SBA states that for loans made before June 5, 2020, the borrower and lender can mutually agree to extend the maturity of the loan to five years.
  • Extension of the deferral period for borrower payments of principal, fees, and interest on PPP loans to the date that the SBA remits the borrower’s loan forgiveness amount to the lender. If you do not apply for loan forgiveness, this will be 10 months after the end of the borrower’s loan forgiveness period.
    • Here is an example from the SBA: If a borrower’s PPP loan is disbursed on June 25, 2020, the 24-week period ends on December 10, 2020. If the borrower does not submit a loan forgiveness application to its lender by October 10, 2021, the borrower must begin making payments on or after October 10, 2021.
  • New rules confirming that June 30, 2020 remains the last date on which PPP loan applications can be approved.
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