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On June 3, the Senate cleared for the President's signature a bill (HR 7010) that would make a number of changes to the CARES Act's $670 billion Paycheck Protection Program (PPP), an initiative managed by the US Small Business Administration that provides forgivable emergency loans to smaller businesses. Among other changes, the bill would give businesses 24 weeks to use the funds while still qualifying for forgiveness (an increase from the program's current eight-week limit); increase to 40% (up from 25%) the amount of the loan that can be used for non-payroll costs; and allow businesses to defer payroll tax payments if they receive a PPP loan.

The PPP Flexibility Act, sponsored by Reps. Dean Phillips (D-MN) and Chip Roy (R-TX), was brought up and passed in the Senate under unanimous consent. The House had passed the same bill by a vote of 417-1 on May 28. A PDF of the text of HR 7010 is attached with this alert.

Roll Call reported that Senate Majority Leader Mitch McConnell (R-KY), along with the chairs and ranking members of the Senate and House Small Business Committees, signed a letter clarifying that an extension of the PPP to the end of December would apply only to spending and would not extend the deadline for applying for PPP loans, which will remain June 30. Earlier Wednesday, Senate Democrats had asked for unanimous consent to bring up the bill, but Sen. Ron Johnson (R-WI) objected, citing problems related to the loan application deadline and the 60/40% payroll language. "What we're working on is not a change to this bill," Johnson said on the floor. "We'll still be able to pass this piece of legislation, unamended, unchanged, with a letter of intent from the chairs and ranking members of the House and Senate Small Business Committees … Then we can work in good faith to make these changes that I think we all agree need to be made in the future."

Bloomberg reported that the office of Sen. Mike Lee (R-UT) said Lee agreed to lift his objection to the bill after securing the letter from the committee leaders clarifying that the loan application deadline remains June 30.

Senate Small Business Committee Chairman Marco Rubio (R-FL) and Sen. Susan Collins (R-ME) told reporters earlier Wednesday that if the Senate were to clear the bill, the chamber would follow with another bill to fix what they called a technical drafting error with HR 7010. Rubio and Collins have said that a provision of the House bill (reducing to 60% the amount of the loan that must be spent on payroll costs to qualify for forgiveness) could be misinterpreted to prohibit any loan forgiveness at all if borrowers do not reach the 60% payroll threshold, whereas the program is meant to have a proportional scale of forgiveness.

Provisions of HR 7010. The PPP Flexibility Act would:

• Extend the period within which a company's incurred costs qualify for loan forgiveness under PPP to 24 weeks after the loan is issued, or through December 31, 2020, whichever comes first. Loans issued before the bill's enactment could retain the program's current eight-week period if the borrower chooses.
• Extend from June 30 until December 31 the period in which businesses can restore their previous staffing or salary levels and still qualify for loan forgiveness under PPP. Under the bill, the time period in which a company's staffing and salary cuts would apply as the baseline is from February 15 through 30 days after enactment of the CARES Act (which was signed March 27).
• Lower to 60% the program's current requirement that 75% of a business's forgivable expenses come from payroll costs. The original version of HR 7010 eliminated the payroll-expenses requirement altogether, but that language was dropped in the House after objections from labor unions.
• Create an "Exemption Based on Employee Availability" from the PPP's requirement that any loan forgiveness be reduced in proportion to the number of full-time equivalent employees the company does not restore. A company would be exempt from this requirement if it is able to document: 1) that it was unable to rehire people who were employees on February 15; 2) that it was unable to hire similarly qualified employees for unfilled positions on or before December 31; or 3) that it was unable to return to the same level of business activity it was operating at before February 15, 2020, because it complied with certain federal guidance or requirements "for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19."
• Repeal a CARES Act provision that prohibited companies with forgiven PPP loans from deferring their payroll tax payments.
• Allow PPP borrowers to defer their principal and interest payments until the Small Business Administration compensates lenders for any forgiven amounts. The program currently has a six-month deferral period. Borrowers would have at least 10 months after the PPP expires to start making payments if they don't seek loan forgiveness.
• Extend the minimum maturity period for PPP loans from two years to five years following an application for loan forgiveness. This new term would apply to PPP loans issued after enactment of HR 7010, though the bill says nothing in it (or the CARES Act or subsequent PPP legislation) "shall be construed to prohibit lenders and borrowers from mutually agreeing to modify the maturity terms" of loans that were issued before then.

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ATTACHMENT

H.R. 7010