What Does the 60/40 Rule Actually Mean?

The Paycheck Protection Program Flexibility Act (PPPF) was signed into law by President Trump on June 5th. Although the PPPF was put into place to provide businesses with further relief, like anything else having to do with the CARES Act it was consumed with confusion. In a joint statement released on June 8th U.S. Treasury Secretary Steve Mnuchin and Small Business Administration Administrator Joe Carranza said “this bill will provide businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as we safely reopen our country.”

In addition to praise and gratitude, the statement also addressed one key piece of confusion relating to the PPPF, the 60/40 rule. The 60% cliff is essentially abolished.

What does this mean?

If a borrower spend less than 60% on payroll costs during the 8 or 24 week period they are still eligible for partial forgiveness. However, it is important to note that the SBA and Treasury department do not have the ability to actually change the law in this manner. On the flip side, we do think that this statement is the right move towards what will be included in the final iteration of the actual law.

There is one more twist. If a borrower spends less than 60% on payroll costs then payroll costs will be multiplied by 66 2/3% (or divided by 1.5) to determine the maximum amount of interest, rent and utilities costs than can go towards forgiveness.

An example:

If a borrower received a loan for $100,000, and the borrower spends only $50,000 on payroll costs and $40,000 on interest, rent and utilities then the amount to be forgiven will equal $50,000 + $33,333 ($50,000 / 1.5 = $33,333).  Total forgiveness for this borrower is $83,333.

Note: Total forgiveness is still subject to FTE and Salary Wage Reductions. 

For further questions please reach out to a member of our task force at [email protected] or visit or COVID-19 Resource Center Here.