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Update To Paycheck Protection Program (PPP) Loan Forgiveness Application


On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into law providing, among other relief, up to $349 billion to fund loans to small businesses affected by the outbreak of COVID-19 (the “Paycheck Protection Program”).  On April 24, 2020, funding for the Paycheck Protection Program was reauthorized in the amount of $310 billion when the President signed H.R.266 – the Paycheck Protection Program and Health Care Enhancement Act into law.  On June 5, 2020, H.R – 7010 – the Paycheck Protection Program Flexibility Act of 2020 (the “PFA”) was signed into law by the President.  The PFA dramatically changed the framework of the Paycheck Protection Program, greatly benefiting borrowers and their ability to achieve loan forgiveness, and as expected, a revised loan forgiveness application has been issued in connection with these changes.

On Wednesday, June 17, 2020, the U.S Department of the Treasury and the U.S. Small Business Administration released the Paycheck Protection Program Loan Forgiveness Application Revised June 16, 2020 (OMB Control Number 3245-0407) (the “Revised Forgiveness Application”), which can be found at: Revised Forgiveness Application. Instructions for use when completing the Revised Forgiveness Application can be found at: Instructions. The streamlined Revised Forgiveness Application accounts for the many changes enacted by the PFA, including, without limitation, the PFA’s requirement that not less than 60% of the loan proceeds must be used for Eligible Payroll Costs.  The release of the Revised Forgiveness Application comes just a day after the final interim rules recognized and confirmed that the 60% requirement set forth in the PFA did not create a threshold for receiving any loan forgiveness, but rather only results in a proportional reduction in the amount eligible for loan forgiveness. See Federal Register, Vol. 85, No. 116, Tuesday, June 16, 2020, Rules and Regulations. This confirmed our earlier prediction  that the creation of a threshold was a drafting error in the legislation rather than the intent of the drafters.  This is fantastic news for borrowers.

In addition to the Revised Forgiveness Application, a new Paycheck Protection Program PPP Loan Forgiveness Application Form 3508EZ (OMB Control Number 3245.0407) was also released (the “EZ Forgiveness Application”), which can be found at: EZ Forgiveness Application. Instructions for use when completing the Revised Forgiveness Application can be found at: EZ Instructions.   The new EZ Forgiveness Application can only be used by borrowers that have satisfied at least one of the following three criteria (taken directly from the EZ Forgiveness Application):

“☐ The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).

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☐ The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);

AND

The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused. See 85 FR 33004, 33007 (June 1, 2020) for more details.

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☐ The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);

AND

The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 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 the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.”  See, EZ Forgiveness Application.

The EZ Forgiveness Application is a result of pressure from industry professionals to make the loan forgiveness process less onerous and costly to borrowers who have already suffered negative economic impacts due to the outbreak of COVID-19. The initial loan forgiveness application was complex and likely to result in borrowers spending significant sums of money on professionals to assist them in completing the application and schedules to maximize their ability to achieve loan forgiveness, which is counterintuitive to the implementation and goals of the PPP loan program. The EZ Forgiveness Application greatly streamlines the application for applicable borrowers reducing costs associated with achieving loan forgiveness.

There is continuing substantial push by industry professionals to further streamline the loan forgiveness process by instituting automatic loan forgiveness for loans below a certain threshold, such as $100,000 or $150,000.  A $150,000 threshold would cover over 85% of the loans granted under the PPP, but only about 25% of the loan dollars disbursed to borrowers under the PPP, the net result being substantial savings to those borrowers most in need of the PPP funds and a reduction of work by lenders that granted the PPP loans.

As with the PPP, we are closely monitoring this continually developing area and will keep our clients updated as the Paycheck Protection Program progresses.  We encourage our clients to reach out not only to us, but also to their local lenders with any questions that they may have regarding the economic assistance programs available.

If you have any questions, please feel free to reach out to our Commercial Finance and Secured Lending attorneys, Christine H. Price at (516) 265-1176 or cprice@moritthock.com,  Brett P. Garver at (516) 880-7266 or bgarver@moritthock.com and Brian P. Boland at (516) 880-7239 or bboland@moritthock.com.

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