New Bill Introduces Favorable PPP Changes for Restaurants

In what is considered a tremendous victory for the restaurant industry, the House voted 417-1 on May 28, 2020 to pass a stand-alone, bipartisan Paycheck Protection Program Flexibility bill (H.R. 7010), which would allow more businesses to receive Paycheck Protection Program (PPP) loan forgiveness and perhaps greater liquidity afterwards.

The House-passed bill would make the following changes:

1. Extend the PPP loan “covered period” from 8 weeks after loan origination to the earlier of 24 weeks after loan origination or December 31, 2020 (and borrowers that received their loans before the enactment this change can elect to use their original 8 week covered period).

2. Extend the date for the rehire exception from June 30 to December 31, 2020.

3. Expand the exemption based on the non-availability of former employees. Specifically, PPP loan forgiveness would not be reduced due to a lower number of full-time equivalent (FTE) employees for the following situations:

• the employer is unable to rehire individuals who were employed by the employer on February 15, 2020, and

• the employer shows the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or

• the employer documents its inability to return to the same level of business activity as it had before February 15, 2020, due to having to comply new COVID-19 standards for sanitation, social distancing or other safety requirements during the period of March 1 through December 31, 2020.

4. At least 60% of the PPP funds would have to be used for payroll costs (down from the 75% that was noted in guidance released by the SBA).  The remaining 40% can be used on mortgage interest, rent or utilities. If the borrower does not use at least 60% of the loan on payroll costs, then it appears that no forgiveness would be available.

5. All new PPP loans disbursed after these changes are enacted would have a five-year loan term (loans disbursed before these changes would retain their original two-year term unless the lender and borrower renegotiate the term).

6. All PPP borrowers could defer deposit of the employer’s share of Social Security tax, regardless of whether their PPP loan is forgiven. Previously, the CARES Act prohibited such payroll tax deferral after a borrower’s PPP loan was forgiven.

The Senate has also been working on a bipartisan bill which would extend the PPP loan repayment period from 8-weeks to 16-weeks and would rebalance the 75%/25% allocation of permissible expenses. It is anticipated that the Senate will take their bill up next week, and then we wait to see what type of bill will make it to the President’s desk.