October 8, 2020
Authored by: Robert Klingler
On October 7, 2020, the Small Business Administration and Treasury Department updated their Frequently Asked Questions on the Paycheck Protection Program with FAQ 52. As reflected in the question, the PPP Flexibility Act made certain changes to the terms of loans made under the Paycheck Protection Program, including an extension of the deferral period before any payments would be required. FAQ 52 confirms that these changes automatically applied to all outstanding PPP loans, and that lenders are required to give immediate effect to the statutory extension. While no formal modification of the promissory note is required (thus avoiding any need to re-execute the promissory note or an amendment), the FAQ provides that lenders “should” give notice to borrowers of the changes caused by the PPP Flexibility Act.
As the changes of the PPP Flexibility Act were 100% in the favor of the borrower, this is consistent with the approach that Bryan Cave Leighton Paisner LLP recommended to PPP lenders in advance of the publication of the new FAQ. In addition to the extension of the deferral period, the PPP Flexibility Act also provided for a permissible extension of the covered period for potential forgiveness from 8-weeks to 24-weeks, and a reduction in the percentage of forgiveness that must be used for payroll expenses.