Updates on the Paycheck Protection Program Under the CARES Act

June 25, 2020

On June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law. The PPPFA alters some key aspects of the Paycheck Protection Program (PPP) run by the Small Business Administration (SBA). The PPP loans from the SBA, available under Section 7(a) of the Small Business Act, are still 100% federally guaranteed and subject to forgiveness under certain circumstances. The PPPFA provides greater flexibility on PPP loan terms and loan forgiveness.

Applications for PPP loans must be submitted to SBA 7(a) lenders by June 30, 2020.

Following the passing of the PPPFA, the SBA has issued additional guidance for the PPP loan program in the last few days. The SBA also released a revised PPP Loan Forgiveness Application, as well as a new EZ PPP Loan Forgiveness Application which many businesses may qualify for. This alert first discusses the recent updates that small businesses should know, then outlines the two Forgiveness Applications.

A. Updated PPP Aspects

The PPPFA and implementing regulations issued by the SBA and Treasury have made the following important changes to the PPP:

1. Extending the “covered period” window. The “covered period” is the borrower’s time period to spend the PPP loan proceeds in order to qualify for loan forgiveness. Originally 8 weeks, under Section 3(a) of the PPPFA the “covered period” is the earlier of (a) 24 weeks from the date the PPP loan is disbursed, or (b) December 31, 2020. Extending the “covered period” extends the obligation to maintain employee headcount and compensation levels (or to rehire and restore wages by the end of the “covered period”). However, borrowers who received PPP funds before June 5, 2020 may opt to retain the original 8 week “covered period”.

2. Altering the loan forgiveness safe harbors for headcount reductions. PPP borrowers are eligible for full loan forgiveness only if they maintain full-time equivalent employee (FTE) headcount and employee wages. If headcount and wages have been reduced, the borrower is still eligible for full loan forgiveness provided they “cure” by rehiring and restoring wages to February 15, 2020 levels. Under the PPPFA, a borrower has until December 31, 2020 to “cure” and return to February 15 levels in order to maintain full loan forgiveness eligibility. However, a borrower who has not resumed February 15 headcount or wages can maintain full loan forgiveness eligibility by providing to the SBA documentation that shows the borrower, in good faith, was unable to resume February 15 levels for one of the following reasons:

(a) Inability to rehire or hire. If borrower was unable to rehire individuals who were employees on February 15, 2020, and was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, borrower will retain loan forgiveness eligibility.

(b) Inability to return to full activity/operation. If borrower was unable to return to the same level of business activity/operation as before February 15, 2020 due to compliance with requirements or guidance from the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020 and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19, borrower will retain loan forgiveness status.

3. Changing the ratio of funds which must be spent on payroll expenses. The PPPFA allows borrowers to spend more of the PPP loan proceeds on non-payroll expenses such as rent, mortgage interest, and utilities rather than payroll. Originally, 75 percent of the PPP loan had to be spent on payroll while 25 could be spent on fixed expenses. Now, borrowers can now spend 60/40 on payroll vs. fixed expenses. Failure to use at least 60 percent of the borrowed amount on payroll expenses would proportionally reduce the amount of the loan eligible for forgiveness by the difference in the amount spent on payroll expenses and the 60 percent threshold.

(a) Payroll expenses include salary, wages, and tips, up to $100,000 of annualized pay per employee. For an 8-week “covered period” employees’ cash compensation is forgivable up to $15,385, and up to $46,154 is forgivable for a 24-week period. In addition, employees’ covered benefits are forgivable.

(b) Owner compensation also counts as payroll expenses, subject to some exceptions, such as owners cannot deduct health care expenses. Owner cash compensation is forgivable up to $15,385 for an 8-week “covered period”. For the 24-week period, owner compensation is forgivable up to $20,833, and should be calculated as 2.5 months’ worth of owner’s 2019 compensation. The lower cap on owner compensation is designed to prevent a “windfall”. This $20,833 cap on forgivable payroll expenses also applies to self-employed business owners who file a Schedule C or F with their federal tax returns.

4. Extending the minimum maturity date for PPP loans. Section 2(a) of the PPPFA changes the minimum maturity date for PPP loans “made” on or after June 5, 2020 to 5 years, up from the 2-year minimum under the initial PPP guidance. A loan is “made” on the date the SBA assigns a loan number. Borrowers with PPP loans “made” before June 5 may be able to use the PPPFA to extend the maturity date on those loans as well, provided those borrowers are able to reach a new agreement with the loan’s lender.

5. Modifying the loan payment deferral date. Originally 6 – 12 months as agreed between borrower and lender, under the PPPFA payments can be deferred until the borrower’s lender receives from the SBA the amount of loan forgiveness (or notice that no forgiveness is forthcoming). This extended deferral is available only if the borrower applies to the loan lender for loan forgiveness within 10 months, otherwise deferral ceases at the end of the 10-month window. Interest remains at 1.0% and accrues during the deferral period.

6. Allowing for PPP borrowers with loan forgiveness to defer federal payroll tax under the CARES Act. Section 2302 of the CARES Act allows employers to defer federal payroll tax, interest-free and penalty-free, through December 31, 2020. Employers would have to pay one-half the amount deferred on December 31, 2021 and the remainder on December 31, 2022. Initially under the CARES Act, borrowers who received PPP loan forgiveness had to resume timely payroll tax deposits. The PPPFA eliminates that provision so that PPP borrowers who receive loan forgiveness may continue to defer federal payroll tax under Section 2302 of the CARES Act.

B. Updated Loan Forgiveness Applications

1. EZ PPP Loan Forgiveness Application

The new SBA Form 3508EZ is only two pages, requires fewer calculations and less documentation than the full forgiveness application. Borrowers can qualify for the EZ application by meeting one of the following criteria:

(a) Borrower is self-employed and has no employees. Borrower can be a self-employed individual, a sole proprietor, or an independent contractor. Borrower cannot have had any employees at the time of the PPP loan application and cannot have included any employee salaries in the PPP loan amount calculation.

(b) Borrower has employees and (1) did not reduce employee salaries/wages during the “covered period” by more than 25 percent compared to the period between January 1, 2020 and March 31, 2020, AND (2) did not reduce the number of employees or average paid hours worked by employees between January 1, 2020 and the end of the applicable “covered period”.

(c) Borrower has employees and (1) did not reduce employee salaries/wages during the “covered period” by more than 25 percent compared to the period between January 1, 2020 and March 31, 2020, AND (2) was unable to return to the same level of business activity as of February 15, 2020 due to health and safety guidelines (see A.2(b) above).

Corporations can only qualify under (b) or (c). Borrowers who are able to meet one of those criteria can use SBA Form 3508EZ. With the EZ application, borrowers will not need to provide detailed information for every employee and their cash compensation and hours, but rather can provide a company-wide overview of the number of employees and the total cash compensation and hours worked. Borrowers using the EZ application must still provide documentation of claimed payroll costs, such as bank account statements, tax forms, etc. Borrowers must also maintain documentation showing employee-by-employee hours and wages/salaries from January 1, 2020 through the “covered period”, and documentation regarding all employment matters, especially as it would relate to the borrower’s ability to certify to qualifying for the EZ application under (a), (b), or (c).

2. Revised PPP Loan Forgiveness Application

(a) The updated form reflects the extended “covered period” in use after June 5, and allows borrowers who received funds prior to June 5 to choose between the original 8-week period and the extended 24-week period. The “covered period” obligation to maintain employee headcount and salary/wages ends on the earlier of (1) December 31, 2020, and (2) the date the loan forgiveness application is submitted.

(b) The application caps cash compensation for an employee during an 8-week “covered period” at $15,385, or $46,154 for the 24-week period. Additionally, the revised form limits owner compensation to $20,833 in forgivable payroll expenses over the 24-week “covered period”.

(c) The updated application form gives effect to the two new employee headcount safe harbor provisions detailed in Part A.2(a) and A.2(b) above, providing space for borrowers to “check the box” to indicate use of these safe harbors.

(d) The “Alternative Payroll Covered Period” is still available for borrowers whose payroll cycle is bi-weekly or more frequent, and is available for both an 8 week or 24 week “covered period”.

(e) The language of the application has been updated to clarify that eligible amounts incurred before the “covered period” may be forgiven if the amount is paid during the “covered period”.

Please contact us if you have any questions about the CARES Act or the PPP. We look forward to your questions and calls.

Patrick E. Croke


Jessica B. Fairchild


Geoffrey R. Morgan


About Croke Fairchild Morgan & Beres

Croke Fairchild Morgan & Beres is a corporate law firm providing services to businesses, private equity and venture firms and their portfolio companies, public companies, founders and family offices. Formed by partners who worked at preeminent international law firms, the firm boasts a deep bench of sophisticated and experienced corporate lawyers. With offices in Chicago, Lake Forest, and Milwaukee, our team provides exceptional legal service while affording our clients the benefits of working with a small, agile, and driven law firm. For more information, please visit us online at crokefairchild.com