The Treasury and SBA issued or updated several items over the past few days regarding the Paycheck Protection Program (PPP) for small businesses. See the attachments for more details:
- Paycheck Protection Program Loans – Frequently Asked Questions (FAQs)
- Paycheck Protection Program –Requirements – Disbursements
- Additional Criterion for Seasonal Employers
- How to Calculate Maximum Loan Amounts – By Business Type
- Requirements – Promissory Notes, Authorizations, Affiliation, and Eligibility
- A seasonal employer may use any consecutive 12-week period between May 1, 2019, and September 15, 2019, for determining the maximum loan amount.
- A seasonal business, even if not fully operating as of February 15, 2020, will be considered to have been in operating as of February 15, 2020, if the business was in operating for any 8-week period between May 1, 2019, and September 15, 2019.
- Agricultural producers, farmers, and ranchers, as well as agricultural and other cooperatives, are eligible to receive PPP loans if the other eligibility requirements are met.
- Payroll costs for partners subject to self-employment tax are computed using K-1, box 14a (reduced by any Section 179 deduction claimed, unreimbursed partnership expenses claimed, and any depletion claimed on oil and gas properties) multiplied by 0.9235, up to $100,000 per partner.
- The lender must make a one-time, full disbursement of the loan within ten calendar days of loan approval. A loan is considered approved when the SBA assigns a loan number. For loans that received an SBA loan number prior to the posting of the interim final rule, the following transition rules apply:
a. The ten calendar-day period begins on April 28, 2020
b. The eight-week covered period begins on the date of the first disbursement
- The Treasury Secretary has indicated that any company receiving a PPP loan of $2 million or more would be audited before the loan is forgiven
- The FAQ was revised to address private companies with adequate sources of liquidity prior to applying for the PPP loan. (see below)
Question #37: Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
Answer: See response to FAQ #31
Question #31: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should carefully review the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.
There are currently no objective tests for determining if the PPP loan was “necessary to support the ongoing operations of the Applicant.” Given the Treasury and SBA’s expansion of the FAQ to include private companies, the audit of all companies with loans of $2,000,000 or more, and the upcoming May 7, 2020 deadline to return funds that may not meet the Treasury and SBA’s interpretation of the certification requirement, businesses should strongly consider the following:
- Documenting reasonable, good faith determination of need. This could include actual or projected disruptions to revenue, operations, cash flows, supply chain, workforce, etc.
- Documenting the inability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business.
- Continue to monitor additional guidance from the Treasury and SBA.
It may also be necessary to consult with legal counsel regarding loan repayment and forgiveness options, especially if you are a business that is publicly traded, has a loan of $2 million or more, and/or has had minimal disruptions to your revenue, operations, cash flows, supply chain, and/or workforce.
The Whitinger team remains available to you throughout this situation and we have a variety of methods for answering questions and consulting on matters important to you and your organization. Please do not hesitate to reach out if you have questions or would like to discuss these programs further.
We are here and ready to help.