We’ve been telling our readers since August that there is no rush to apply for forgiveness, and that no payments would be due for 10 months following the end of the borrower’s covered period. Apparently there has been confusion since many PPP promissory notes include language that set the deferral of loan payments at 6 months – consistent with the original term of the PPP Loan program.
On June 11, 2020, the SBA revised the deferral period to be ten months following the end of the covered period. New guidance issued recently by the SBA instructs lenders to follow the 10 month extended deferral period for borrower payments of principal, interest, and fees on ALL PPP loans. This new guidance clarifies that even if the promissory note states a 6 month deferral, the extended deferral is automatic for all PPP loans; lenders must comply and notify borrowers of the change in terms.
The extended deferral period ends either one of two ways:
1: On the date the SBA remits the borrower’s loan forgiveness amount to the lender
2: If the borrower does not apply for forgiveness, 10 months after the END of the borrower’s loan forgiveness covered period.
Presumably the “covered period” for this purpose is 24 weeks, as earlier PPP loan guidance lengthened the covered period from the original 8 weeks, leaving use of the shorter period at the discretion of borrowers who received a PPP loan before June 5, 2020.
Borrower Paperwork Does Not Need to Be Updated
You may have received notices from your lender that payments were due, but this deferral period automatically applies to all loans without a formal modification to the loan documents. Therefore, you do not need to have updated paperwork.
Other Reminders on Key PPP provisions:
Maturity Dates of PPP loans
If a PPP loan was received on or after June 5, 2020, the loan has a 5-year maturity.
If the loan was received before June 5, 2020, the loan has a two-year maturity, unless the borrower and lender mutually agree to extend the term to 5 years. The five year term is not automatically applied to the early PPP loans.
Reminder on Forgiveness Eligibility
PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs. However, the amount of loan forgiveness may be reduced if certain employment and compensation levels are not maintained or if less than 60% of the funds are spent on payroll over a loan forgiveness period of either eight weeks or 24 weeks.
To see other frequently asked questions on PPP loans, please visit: https://dhjj.com/ppp-loan-frequently-asked-questions/