On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.” The CARES Act includes an expansion of the so-called 7(a) loan program administered through The United States Small Business Administration (the “SBA”) to include Paycheck Protection Program loans (“PPP Loans”). On April 2, the SBA issued a final rule implementing the PPP Loans and providing guidance to applicants and lenders. This rule included some guidance that was contradictory to the CARES Act and created some confusion for lenders and borrowers. On April 6, the Department of the Treasury issued some additional guidance on PPP Loans that clarifies some of the issues with PPP Loans. The additional guidance is in the form of questions and answers. The additional guidance can be found here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf. Here are some highlights of the additional guidance:
- The SBA clarifies that lenders are not charged with recalculating an applicant’s payroll costs from the payroll records submitted with the PPP Loan application. The lender need only undertake a “good faith” review and the applicant is responsible for the accuracy of the information provided in the certifications the applicant makes in the PPP Loan application. The lender should work with the applicant if the lender identifies any errors.
- Similarly, it is the responsibility of the applicant and not the lender to apply the affiliation rules applicable to PPP Loans for purposes of determining the applicant’s number of employees. Under the affiliation rules, generally related companies may have to aggregate their employees if the companies are under common control or ownership.
- In determining payroll costs, the exclusion of compensation annually in excess of $100,000 applies only to cash compensation. Non-cash benefits such as retirement plan contributions, group health care benefits (including insurance premiums), and payment of state and local taxes on employee compensation may be included.
- If the applicant utilizes a third party payroll provider or Professional Employer Organization where wage data is reported under the third party payroll provider’s or Professional Employer Organization’s employer identification number, payroll documentation provided by the third party provider or Profession Employer Organization that indicates the wages and payroll taxes paid on the applicant’s employees is acceptable payroll documentation and may be used to apply for a PPP Loan. Relevant information from Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the payroll provider’s or Professional Employer Organization’s Form 941, Employer’s Federal Quarterly Tax Return, should be used if available. Otherwise, the applicant should obtain a statement from the payroll provider or Professional Employer Organization documenting the amount of wages and payroll taxes.
- Payments made to independent contractors may not be included in the calculation of the applicant’s payroll costs.
- Generally, applicants can use payroll costs from the previous 12 months or for calendar year 2019.
- If an applicant applied prior to the issuance of this guidance, the applicant does not have to amend its application or re-apply. Applicants and lenders may rely on the rules that were in place at the time the application was submitted. However, an applicant who has submitted an application that has not been processed, can modify its application based on this guidance.
The Banking and Finance attorneys at Dvorak Law Group have the knowledge and experience to efficiently assist our clients with financing needs. Please contact Dvorak Law Group for specific questions and recommendations regarding how PPP Loans may assist your business and with help in the application process.
Read other articles related to COVID-19 here.
Understanding the Small Business Exemption under the Families First Coronavirus Response Act
SBA Subsidy Of Existing SBA Loans Under The CARES Act
SBA Issues Guidance On Applying For A Paycheck Protection Loan Under The CARES Act
Coronavirus’ Impact On Commercial Landlords
APPLYING FOR A PAYCHECK PROTECTION LOAN UNDER THE CARES ACT
SBA ECONOMIC INJURY DISASTER LOANS EXPANDED BY THE CARES ACT
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