On May 22, the SBA issued two new rules that provide some additional insight into Paycheck Protection Program (PPP) loan forgiveness and for the first time explain the process for lenders and the SBA to review PPP loans and forgiveness applications. The forgiveness guidance is consistent with our May 19 Alert concerning the forgiveness application form. The review process guidance is not unexpected but should help borrowers and lenders understand the events to unfold over the coming weeks and possibly months or longer. With funds first disbursed under the PPP back on April 3, the eight-week period to spend PPP funds will be ending soon for many loan recipients.
Notably, the new rules did not extend the eight-week (56 day) period for which loan funds must be spent in order to qualify for forgiveness or change the rule requiring borrowers to spend at least 75 percent of the funds on eligible payroll costs to qualify for forgiveness. Many borrowers (particularly hotels and restaurants that have been unable to open or otherwise bring their furloughed employees back) have raised concerns about the practical application of these rules, and these issues are currently being discussed in Congress. Further, to the extent that entities with a good faith economic hardship as the result of COVID-19 elected to voluntarily return PPP funds due to lack of utility of the program due to the strict limitations of the eight-week forgiveness period (e.g., hotels or restaurants unable to open for much or all of their eight week forgiveness period), the new rules do not contemplate a path for reinstatement of loans or reapplication by those entities.