The U.S. Small Business Administration (“SBA”), in consultation with the U.S. Department of the Treasury, has from time to time issued responses to frequently asked questions by lenders and borrowers regarding the PPP (the “SBA PPP FAQs”). A current copy of the SBA PPP FAQs is available here.
On October 7, 2020, as set forth below, the SBA updated the SBA PPP FAQs with Q/A 52, to clarify that the Paycheck Protection Program Flexibility Act of 2020 enacted June 5, 2020 automatically extended the deferral period for repayment of PPP loans without further action required by lenders and borrowers.
Question 52: 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.