Devine Millimet | NH Law Firm

H.R. 7010: New Legislation Expands Chances of Full PPP Loan Forgiveness

Joseph P. Rheaume, Esq.

June 4, 2020

Legislation regarding the Paycheck Protection Program (PPP), H.R. 7010 entitled the “Paycheck Protection Program Flexibility Act of 2020”, passed by the U.S. House of Representatives last week by a 417-1 vote was taken up and passed without change by the Senate by unanimous vote on Wednesday, June 3rd.  The intent of the legislation is to improve the PPP, which was created in March 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act with the goal of keeping American workers employed.  There are several key points of the new legislation, which, if signed by President Trump, will become law.

Duration of PPP Loan Extended

Borrowers initially had eight weeks to spend their PPP loan proceeds in order to have a chance to have 100% of the PPP loan forgiven.  Many business owners are having trouble spending all of the loan proceeds in eight weeks within the parameters of the original program, particularly those businesses that were forced to shut down operations and are not able to reopen still.  The new legislation extends the “covered period” from eight to twenty-four weeks, allowing business owners more time to spend the loan proceeds on allowable expenses in order to maximize forgiveness.  To be clear, the 24 week extension is not mandatory, as any borrowers who obtained PPP loans prior to the bill being signed into law can still opt to use the eight-week covered period.

Deadline for Rehiring Workers Extended

Initially, employers had until June 30, 2020 to (i) rehire employees to attain pre-COVID-19 (February 15, 2020) levels of full-time equivalent (FTE) employees, and (ii) return employees to pre-COVID-19 salary/hourly wage levels in order to qualify for a “safe harbor” exemption from certain reductions to forgivable amounts.  Absent the safe harbor, employers’ PPP loan forgiveness will be reduced due a reduction in FTEs or a greater than 25% reduction to an employee’s salary/hourly wages during the covered period.  With the new legislation, employers would have until December 31, 2020 to rehire employees to meet the full-time equivalency and wage level requirements so that they can qualify for the safe harbor exemption.

Allowable Expenses Relaxed

Currently, borrowers must spend at least 75% of the PPP loan proceeds on “payroll costs” to qualify to receive maximum loan forgiveness.  Many employers with greater overhead expenses are finding it difficult to impossible to meet this threshold.  The new legislation reduces the threshold amount to 60%, meaning that instead of having an allowance of 25% to spend on non-payroll costs, borrowers will have 40% to spend on non-payroll costs (covered mortgage obligations, covered rent obligations and covered utility payments), again increasing the chances for more borrowers to maximize loan forgiveness.  One remaining challenge with the legislation is that it states “to receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs....”  Does that mean that if borrowers do not use at least 60% of the loan proceeds on payroll costs that none of the loan will be forgiven?  Time will tell, as again, borrowers will have to wait for the SBA to publish additional guidance on the new legislation.

New Exceptions to Reductions in Forgiveness

The new legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they do not fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The PPP loan forgiveness application also contains exceptions to FTE reduction for any employees who during the covered period or the “alternative payroll covered period” (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours if the position was not filled by a new employee.  FTE reductions in those cases would not reduce loan forgiveness.  The new legislation additionally allows borrowers exceptions to reductions because they, in good faith, could not find qualified employees or were unable to restore business operations to pre-COVID-19 levels due to COVID-19 related operating restrictions. There are additional good faith exceptions.

The legislation contains other changes that are more favorable to borrowers as well.  Borrowers will have five years to pay back amounts not forgiven instead of two years, as is currently the case, and the six-month deferral of borrowers’ payments on the PPP loan will be extended to the date the lender receives the forgiveness amount from the SBA, which could be longer than six months.  The legislation also allows borrowers that obtained PPP loans to delay payment of their payroll taxes, which is currently prohibited under the CARES Act.

As was the case upon the passing of the CARES Act, questions linger for the new legislation.  For example, cash compensation is limited to $15,384 ($100,000 annualized) per individual for the covered period, but with the extension of the covered period, will there be a corresponding increase in allowable cash compensation per individual? When will borrowers using a 24-week covered period be able to apply for loan forgiveness?  It may be that (hopefully) the SBA has answers for these questions and many more and is simply waiting on the President to sign the bill into law.  Again, time will tell.  For more detail on what is currently known about loan forgiveness and what effects the new legislation has on a borrower’s ability to maximize loan forgiveness, please contact a Devine Millimet attorney at (603) 669-1000.


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