Financial Management

Flexibility likely for PPP, not a moment too soon

UPDATE: this bill has been signed into law as of 6/5/20 and new provisions are covered in this on-demand webinar held 6/10/20:
PPP forgiveness deep dive and preparing for what’s next” 
with UBS Financial Services

On Thursday, the House of Representatives overwhelmingly passed the Paycheck Protection Program Flexibility Act (“the Act”) by a vote of 417-1. The Senate will likely vote on their own proposal in the days to come. Current drafts of the Senate version differ in several ways, but the overwhelming bipartisan support of the House bill may push the Senate to instead take up the House bill.

When the Paycheck Protection Program (“PPP”) was enacted, business owners were told they must use loan proceeds within an 8-week period starting from the date they received funds. With economic lockdowns looming longer than originally anticipated and many of the program’s rules in flux, owners may be hesitant to take advantage of the program. After extremely strong demand in its early days, which saw $350 billion in approvals in about two weeks, demand has effectively dried up. As of 28 May 2020, more than $150 billion in funding remains per the the Small Business Administration’s website.

The business owners that I speak with have been incredibly thoughtful about the PPP rules. Over the last month of client conversations, clients have expressed their concerns about the 8-week period and meeting the 75% payroll requirement to maximize forgiveness. With many on the initial group of approved borrower’s 8-week period nearing completion in the next few weeks, these potential changes couldn’t come a moment too soon.

—James Jack, Head of the UBS Business Owner Client Segment

The Act, which is not final and subject to changes based on alternative proposals in the Senate, offers several key changes:

  1. More non-payroll expenses: The Act would reduce the 75% payroll requirement to 60% and allow more expenses for rent, utilities, and mortgage interest.
  2. More time to spend the proceeds: The Act would increase the 8-week covered period to the earlier of 24 weeks of 31 December 2020, which would greatly increase flexibility for business owners to delay re-opening in line with longer lockdowns. For existing loans, borrowers would be allowed to maintain the 8-week period if they desire.
  3. More exemptions to the workforce reduction calculation: In addition to allowing borrowers more time to re-hire workers by 31 December 2020 from 30 June 2020, the Act would allow borrowers additional exceptions to workforce reductions if they can demonstrate an inability to hire similarly qualified employees for any workforce reductions or if the borrower can “demonstrate an inability to return to the same level of business activity” compared to before 15 February 2020.
  4. More time to pay back the loan: The Act would increase the loan from two to five years, but does not address if or how existing signed promissory notes would be modified to this new timeline.
  5. More time to apply: The Act would allow new borrowers to apply through the end of the year. 

Review a detailed overview of the latest guidance on loan forgiveness recently released by the UBS Business Owner Segment, which includes loan forgiveness equations and business scenarios.

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Avatar About the Author: James Jack

James is the Head of the Business Owner Client Segment within the Strategic Client Segments team, taking the role at its creation in 2018. James has been with UBS since 2006 where he has worked in the WMA Banking G…

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