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Extended Deferral Period for PPP Loans Clarified

The Small Business Administration (SBA) released clarifying guidance in a FAQ on Wednesday, October 7, related to the extended deferral period of Paycheck Protection Program (PPP) loans as provided for in the Paycheck Protection Flexibility Act of 2020 (Flexibility Act) that was enacted in June. The Flexibility Act extended the deferral of PPP loan payments to either (1) the date the SBA remits the borrower’s loan forgiveness amount to the lender, or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period (the end of the eight- or 24-week period).

The Flexibility Act did not specify whether PPP loans had to be modified to reflect the extended deferral period, and some early borrowers in the program were recently notified that PPP loan payments were due. The FAQ clarified in Question No. 52 that the deferral period extension automatically applies to all PPP loans. The SBA does not require a formal modification of the promissory note. Even if the loan states there is only a six-month deferral, lenders must immediately comply with the extension of the deferral period and notify borrowers of this change. One day before the FAQ was published, the SBA issued a letter stating it has begun remitting PPP loan forgiveness payments to lenders.

This information clarifies when payments on PPP loans are officially due, which can affect classification of amounts between current and noncurrent liabilities under the debt model of accounting for PPP loans. Following is a link to the PPP Loans FAQ issued on October 7, 2020.

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