Resources for PPP Borrowers

On June 5th, President Trump signed the Paycheck Protection Flexibility Act (PPP Flex Act), which includes several significant changes to the Paycheck Protection Program, including with regard to covered periods, payroll implications and forgiveness deadlines.

The signing of the PPP Flex Act extended the original 8-week covered period following the loan’s origination period to 24 weeks or to December 31, 2020, whichever comes first. This additional time to incur forgivable costs is particular critical to businesses who have not yet been able to re-open fully or partially due to state or local restrictions. It not only increases the ability for businesses to achieve maximum loan forgiveness but, and maybe more importantly, it opens up new opportunities for maximizing the overall business benefit of this added liquidity.

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The law extends the forgiveness-related deadline of June 30th to December 31st, meaning as long as businesses are able to restore the February 15th levels of full-time equivalent employees (FTEs) or salary/hourly wage prior to the end of 2020, no attributable reduction in forgiveness will be required. Additionally, the PPP Flex Act includes exceptions for borrowers who are unable to restore their FTE levels due to COVID-19 related restrictions issued by certain governmental authorities.

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A PPP borrower may submit a loan forgiveness application based on the use of the funds during the eight weeks after receipt of the funds or as soon as all the loan proceeds have been used after the eight weeks and before 24 weeks have passed. However, if the borrower is not using the eight-week covered period, any reduction on account of a greater than 25% decrease of employee salaries or wages must be calculated for the entire 24-week covered period.

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Your lender has up to 60 days after submission to perform a good-faith review of your loan application before submitting the application to the SBA along with an approval (in whole or in part) or denial of the forgiveness amount calculated by the borrower. The SBA then has 90 days to process the application and, if approved, remit the forgiveness amount to the lender.

If a forgiveness application is denied, the borrower has up to 30 days to appeal the decision.

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While there is limited guidance from the SBA regarding M&A impacts, we’ve noted a few key areas to consider and review with your transaction parties, legal counsel and PPP lender.

• Review Your Promissory Note. Ideally, before proceeding with any transaction (as a buyer or seller), you should review the promissory note signed in connection with your PPP loan.
• Determine Necessary Consent. Certain transactions and asset sales may be subject to SBA consent; therefore you’ll need to review SBA guidelines. In some instances, a change in ownership up to 12 months after a PPP loan disbursement may require consent from the SBA.
• Review Impact to Forgiveness Eligibility. Depending on at which point during your covered period a transaction occurs, it could significantly impact your eligibility for forgiveness. For example, if a company is sold during the covered period and no longer retains employees, it would no longer meet the SBA requirements for forgiveness.
• Determine How to Address Outstanding PPP Loans. In some cases, buyers & sellers may wish to account for PPP loan proceeds that have not yet been used. Parties could look to make adjustments in the purchases price, advocate for separate escrow amounts to be released upon forgiveness or produce specific covenants for how proceeds should be allocated after the transaction is completed.

This is far from an exhaustive list of considerations to think about if you’re entering into a transaction in the near future. We recommend you connect with your fellow parties, legal counsel and PPP lender to assess potential impacts and develop a path forward.