SBA PPP – New IFR Implements (Some of) PPPFA

SBA and Treasury this morning released new application forms for borrowers and lenders and a new IFR 17 that amends the original IFR 1 to implement some of the changes required by the PPPFA.  I have attached a “conformed redlined copy” of the main sections of IFR 1, which shows how IFR 17 changes IFR 1.  

IFR 17 generally follows the terms outlined in last week’s press release, which is summarized in the email below.  It generally limits flexibilityfor borrowers in ways that many of us were hoping to avoid.  Also,  IFR 17 unfortunately does NOT address or modify the forgiveness rules created in IFR 14 or the provisions of the Forgiveness Application.  Thus, SBA will need to issue yet another IFR addressing the more detailed forgiveness mechanic.

·         IFR 17 does not extend the period during which PPP loans can be made.   However, nowhere in IFR 17 does it affirmatively impose a June 30 deadline.  Each remaining reference to June 30, is merely a passive reference to the deadline imposed under the original CARES Act.  This is pretty poor drafting by SBA, and leaves some ambiguity.

·         The biggest takeaway is that IFR 17 expressly states that there are only two options for a forgiveness period:

o   “the 24-week period beginning on the date your PPP loan is disbursed”; or

o   borrowers who had PPP loans before and who do not want to use the 24-week period, can elect to use “the eight-week period beginning on the date your PPP loan was disbursed.”

IFR 17 includes a footnote clarifying that no forgiveness period will extend beyond December 31, 2020 (which addresses our concern below).

·         Thus , IFR 17 notably does NOT include:

o   The “ “alternative payroll covered period that begins on the first day of the first payroll cycle in the covered period and continues for the following eight weeks” which IFR 14 (May 22, 2020) allowed borrowers to use.  It thus appears that such an “alternative” forgiveness period is no longer permissible.

o   Any ability to use “up to” 24 weeks.  The duration thus seems to be binary:  24 weeks or the original statutory 8-week period (either of which ends on the earlier of December 31, 2020).

·         As noted below, the “forgiveness cliff” that is created under a literal reading of the PPPFA has been abolished in favor of simply changing the former 75-25 approach to be a 60-40 approach, as described below.  To be clear, irrespective of whether a minimum of 60% of the loan is spent on payroll costs, borrowers can obtain forgiveness for 5/3 of the amount spent on payroll costs.  

·         PPP loans that receive a eTran number after June 5 will all have a five year maturity.   The maturity date of PPP loans approved before that day may be modified by mutual agreement of borrowers and lenders to be five years.  Again, this is a binary option.  Those existing loans can remain at two years or can be extended ONLY to five.

In short, IFR 17 seems to largely dash our hopes for an improved, more streamlined rulemaking approach for the PPFA “improvements.” So, stay tuned for still more updates.