SBA PPP LOAN FORGIVENESS RULES
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.
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.