SBA FAQ Update: Modifying Promissory Notes Used for PPP Loans

SBA FAQ Update: Modifying Promissory Notes Used for PPP Loans

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By Scott Zickefoose, CPA, CM&AA, Tax Partner | Business Turnaround Services Team

What PPP Lenders and Borrowers Need to Know About Deferral Period Extension and Promissory Notes

The Paycheck Protection Program (PPP) was included as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Administered by the Small Business Administration (SBA), the PPP allocated funding of up to 10 million dollars per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.

The SBA, in consultation with the Department of the Treasury, has been providing additional guidance concerning the implementation of the PPP. On October 7, 2020, new guidance, FAQs, was released on the SBA website. A summary of the latest guidance is provided below.

PPP Flexibility Act and Extended Deferral Period

The Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period). Previously, the deferral period could end after 6 months.

Lenders and borrowers questioned if they were required to modify promissory notes used for PPP loans to reflect the extended deferral period.

In response, the SBA provided guidance in FAQ 52 stating the extension of the deferral period under the Flexibility Act automatically applies to all PPP loans. Lenders are required to give immediate effect to the statutory extension and should notify borrowers of the change to the deferral period. The SBA does not require a formal modification to the promissory note. A modification of a promissory note to reflect the required statutory deferral period under the Flexibility Act will have no effect on the SBA’s guarantee of a PPP loan.

Should you have questions about the impact of any of the above information on your business, please contact your Keiter team member or a member of Keiter AdvisorsEmail | Call: 804.747.0000.


Additional Resources

COVID-19 Business Resource Library

About the Author

Scott Zickefoose works with both large and mid-market clients in the real estate, construction, and manufacturing industries, as well as with private equity firms and emerging businesses. He works closely with his clients to identify tax planning and savings opportunities.  His experience includes single and multi-state corporate and flow-through tax planning and compliance, corporate tax provisions (FAS 109 and FIN 48), and individual income taxation. Scott is a member of the Keiter Merger and Acquisition team and Future Leaders group.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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