Publication

10 April 2020

Paycheck Protection Program: Update on FAQs from Small Business Administration

***Information and guidance in client updates was up to date at time of publication. During the pandemic, information and guidance has been changing rapidly. If you have any questions about the information contained in a client update, please contact the author(s) or your Miller Johnson attorney.***

Throughout this week, the Small Business Administration (SBA) has been periodically updating a list of Frequently Asked Questions (FAQs) relating to its new Paycheck Protection Program (PPP).  While the FAQs remain a work in development, at the time of this writing, the SBA had provided answers to 20 questions.  For PPP borrowers (or potential borrowers), the following questions and answers may be particularly relevant and helpful in addressing certain ambiguities and uncertainties regarding PPP loan-related issues:

  • Question 2: Clarifies that “small business concerns” are eligible for PPP loans, even if they have greater than 500 employees, as long as they satisfy the existing statutory and regulatory definition of a “small business concern” under Section 3 of the Small Business Act, 15 U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-based size standard corresponding to its primary industry.  Additionally, a business can qualify for the PPP as a “small business concern” if it met both tests in the SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the PPP application is not more than $5 million.
  • Question 5: PPP loan applicants are reminded that they must apply the SBA’s affiliation rules set forth in 13 C.F.R. 121.301(f) and in the SBA’s Interim Final Rule on Affiliation.
  • Question 6: States that a minority equityholder who would otherwise be deemed to be an affiliate of a business due to “negative control” may irrevocably waive or relinquish any existing “negative control” rights in order to sever affiliation with the business on that basis. For example, a minority equityholder could sever affiliation based on “negative control” by irrevocably waiving and relinquishing its rights to prevent a quorum or otherwise block action by the board or equityholders.
  • Question 7: Confirms that the $100,000 per employee cap on annualized salary for purposes of calculating “payroll costs” only applies to cash compensation (and not to non-cash benefits).
  • Question 11: Reminds PPP loan application signatories that they are representing to the lender and to the U.S. government that they are authorized to make the certifications contained in the Borrower Application Form (including with respect to the borrower and each owner of 20% or more of the borrower’s equity).
  • Question 14: Provides flexibility to PPP loan applicants to calculate “average monthly payroll costs” and their number of employees based on calendar year 2019 or based on the 12-month period prior to the loan application. Seasonal businesses and newly-formed businesses may use other periods.
  • Question 15: Confirms that amounts paid by a borrower to an independent contractor or sole proprietor should be excluded from the borrower’s “payroll cost” calculations, since the independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.
  • Question 16: Directs borrowers to include the employee’s share of federal payroll taxes in its calculation of “payroll costs,” but to exclude the employer-side share of federal payroll taxes from this calculation.
  • Question 20: Confirms that the eight-week “forgiveness” period for a PPP loan begins on the date the lender makes the first disbursement of the PPP loan to the borrower. Further states that the lender must make the first disbursement of the loan to the borrower no later than ten calendar days from the date of loan approval.

The SBA has also confirmed via its FAQs that borrowers who relied on the laws, rules and guidance available at the time of the borrower’s initial application do not need to make any updates to their application or take any other corrective action.  However, pending applicants whose applications have not yet been processed are permitted to revise their applications based on the current laws, rules and guidance.

If you have any questions about the Paycheck Protection Program, please contact the author or your Miller Johnson attorney.