The Paycheck Protection Program Flexibility Act (PPP Flexibility Act) enacted on June 5, 2020 made certain changes to the terms of PPP loans, including extending the deferral period for borrower payments of interest to the date the SBA remits the borrower’s loan forgiveness amount to the lender, or ten months after the end of borrower’s loan forgiveness covered period if the borrower does not apply for loan forgiveness. Most PPP borrowers had signed promissory notes providing that interest would be deferred for only six months, and the PPP Flexibility Act did not specifically say whether promissory notes issued prior to the passage of the legislation would need to be amended to allow for the additional deferral period to apply.
On October 7, 2020 the SBA and Treasury Department updated their Frequently Asked Questions on the PPP with FAQ 52, which confirms that the additional deferral period automatically applies to all outstanding PPP loans without the need to modify a promissory note. While lenders are not required to formally modify promissory notes, the FAQ provides that lenders “should” give notice to borrowers of the changes caused by the PPP Flexibility Act.
For borrowers that do not receive full forgiveness of their PPP loans, loans made before June 5, 2020 will have a 2-year maturity while loans made on or after June 5 will have a 5-year maturity. The PPP Flexibility Act also permitted, but did not require, the extension of the maturity date from two years to five years if the PPP borrower and lender both consent. Since this change requires the mutual consent of the borrower and lender, presumably a formal modification of the PPP promissory note would be required to extend the maturity date to five years.
We will continue to monitor developments with the Paycheck Protection Program and communicate any significant changes that will impact our clients. For further questions or guidance regarding the loan forgiveness process, please contact your BT advisor by calling 770.396.2200.