The SBA and the Department of Treasury released updated guidance and FAQs for the Paycheck Protection Program (PPP). SBA and Treasury released the updated version of the guidance to provide additional clarification to address borrower and lender questions related to the implementation of the PPP. Specifically, this update clarifies that lenders must recognize the previously established extended deferral period for payments on the principal, interest, and fees on all PPP loans, even if the executed promissory note indicates only a six-month deferral – meaning that lenders must comply with the extended deferral period, implemented by the Paycheck Protection Program Flexibility Act of 2020, and notify borrowers of the change.
The new guidance, found in question No. 52 in the SBA’s frequently asked questions document is below:
- Question: The Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period). Previously, the deferral period could end after 6 months. Are lenders and borrowers required to modify promissory notes used for PPP loans to reflect the extended deferral period?
- Answer: The extension of the deferral period under the Flexibility Act automatically applies to all PPP loans. Lenders are required to give immediate effect to the statutory extension and should notify borrowers of the change to the deferral period. SBA does not require a formal modification to the promissory note. A modification of a promissory note to reflect the required statutory deferral period under the Flexibility Act will have no effect on the SBA’s guarantee of a PPP loan.