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Financial Services Law Insights and Observations

Treasury and SBA release PPP updates

Federal Issues Department of Treasury SBA Small Business Lending CARES Act Covid-19

Federal Issues

On April 8, the Small Business Administration (SBA), in consultation with the Treasury Department, updated the Paycheck Protection Program (PPP) frequently asked questions to provide clarification concerning the SBA’s interpretation of the CARES Act and the PPP Interim Final Rule. Newly released Questions 2 through 20 discuss topics including the following:

  • Businesses may be eligible for PPP loans even if they have more than 500 employees, provided that they meet certain criteria and satisfy the existing definition of a “small business concern.” However, businesses with fewer than 500 employees do not have to qualify as a small business concern in order to participate in the PPP.
  • Lenders may rely on borrower certifications as to the applicability of affiliation rules, and borrowers must apply the affiliation rules under the SBA’s Interim Final Rule on Affiliation and certify on the application form that they are eligible to receive a PPP loan and meet the required criteria.
  • The exclusion of employee compensation in excess of $100,000 does not apply to non-cash benefits, including coverage of health care, insurance premiums, state and local taxes, and paid leave. The CARES Act provides for a separate paid sick leave refundable credit.
  • Methods and guidance concerning seasonal operational activity, the use of third-party payroll providers and authorized signers, the impact of criminal information or criminal charges on PPP eligibility, and whether lenders may use their own online systems and forms to collect information required by the Borrower Application.
  • When calculating aggregate payroll costs to determine the maximum loan amount, borrowers can generally use data from either the previous 12 months or from calendar year 2019. Seasonal business exceptions are provided and borrowers are instructed to omit independent contractor or sole proprietor costs from the calculation. Guidance is also provided on how to account for federal taxes when calculating payroll costs.
  • Borrowers and lenders who processed applications based on the April 2 PPP Interim Final Rule may rely on the laws, rules and guidance available at the time.
  • Lenders are not required to re-verify beneficial ownership information for existing customers. In addition, if participating federal depository institutions and credit unions have not yet collected beneficial ownership information on existing customers, they are not required to do so for those customers applying for PPP loans unless otherwise instructed.
  • Lenders may use either their own promissory note or an SBA form.
  • The eight-week period starts on the date the lender makes the first PPP loan disbursement to the borrower. Lenders are required to make the first disbursement no later than 10 calendar days after the loan is approved.

Additionally, the SBA also released a promissory note form for use with PPP loans and unveiled the Paycheck Protection Lender Gateway (available here) to assist lenders in submitting loan authorization requests. Lenders can also contact the SBA hotline at 888-572-0502 if they experience technical difficulties.

Please see Buckley’s dedicated SBA page, which includes additional SBA resources.