Paycheck Protection Program (PPP): Recent Treasury guidance on eligibility and more
With the passage of a $484 billion package that included $310 billion in new funding for the Small Business Association’s (SBA) Paycheck Protection Program (PPP), the Treasury has been releasing additional guidance clarifying eligibility for large companies, hedge funds, private equity (PE) firms, and portfolio companies owned by PE firms, among other topics, in the form of an Interim Final Rule, updates to its running PPP Frequently Asked Questions (FAQs), and other announcements.
Read on for our summary of some of the key clarifications that are most relevant to our clients, with corresponding text from the Treasury pulled in for each point. We will continue to add to this page as new information becomes available, so check back for updates.
- Businesses "owned by large companies [private and public] with adequate sources of liquidity to support the business’s ongoing operations" can be eligible, but, like all borrowers, must certify in good faith that their PPP loan request is necessary to support ongoing operations of the borrower. 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.
"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 review carefully 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 , 2020, will be deemed by SBA to have made the required certification in good faith."
Read more below about recent guidance on the good faith certification.
- Hedge funds and private equity firms are ineligible to receive a PPP loan.
"Hedge funds and private equity firms are primarily engaged in investment or speculation, and such businesses are therefore ineligible to receive a PPP loan. The [SBA] Administrator, in consultation with the Secretary [of the Treasury], does not believe that Congress intended for these types of businesses, which are generally ineligible for section 7(a) loans under existing SBA regulations, to obtain PPP financing."
- In addition, there is clarification on whether SBA affiliation rules prohibit a portfolio company of a private equity fund from being eligible for a PPP loan.
"Borrowers must apply the affiliation rules that appear in 13 CFR 121.301(f), as set forth in the Second PPP Interim Final Rule (85 FR 20817). The affiliation rules apply to private equity-owned businesses in the same manner as any other business subject to outside ownership or control.* However, in addition to applying any applicable affiliation rules, all borrowers should carefully review the required certification on the Paycheck Protection Program Borrower Application Form (SBA Form 2483) stating that '[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.' "
* The guidance includes a footnote: "However, the Act waives the affiliation rules if the borrower receives financial assistance from an SBA-licensed Small Business Investment Company (SBIC) in any amount. This includes any type of financing listed in 13 CFR 107.50, such as loans, debt with equity features, equity, and guarantees. Affiliation is waived even if the borrower has investment from other non-SBIC investors."
- Hospitals owned by government entities should review the Treasury guidance specific to them for eligibility.
"A hospital that is otherwise eligible to receive a PPP loan as a business concern or nonprofit organization (described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code) shall not be rendered ineligible for a PPP loan due to ownership by a state or local government if the hospital receives less than 50% of its funding from state or local government sources, exclusive of Medicaid.
"The Administrator, in consultation with the Secretary, determined that this exception to the general ineligibility of government-owned entities, 13 CFR 120.110(j), is appropriate to effectuate the purposes of the CARES Act."
- Involvement in bankruptcy proceedings generally makes a business ineligible for PPP loans.
"If the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan. If the applicant or the owner of the applicant becomes the debtor in a bankruptcy proceeding after submitting a PPP application but before the loan is disbursed, it is the applicant’s obligation to notify the lender and request cancellation of the application. Failure by the applicant to do so will be regarded as a use of PPP funds for unauthorized purposes."
- Business participation in employee stock ownership plans does not trigger application of the affiliation rules.
"For purposes of the PPP, a business’s participation in an ESOP (as defined in 15 U.S.C. Section 632(q)(6)) does not result in an affiliation between the business and the ESOP. The Administrator, in consultation with the Secretary, determined that this is appropriate given the nature of such plans. Under an ESOP, a business concern contributes its stock (or money to buy its stock or to pay off a loan that was used to buy stock) to the plan for the benefit of the company’s employees. The plan maintains an account for each employee participating in the plan. Shares of stock vest over time before an employee is entitled to them. However, with an ESOP, an employee generally does not buy or hold the stock directly while still employed with the company. Instead, the employee generally receives the shares in his or her personal account only upon the cessation of employment with the company, including retirement, disability, death, or termination."
- Agricultural producers, farmers, and ranchers are eligible for PPP loans if "(i) the business has 500 or fewer employees, or (ii) the business fits within the revenue-based sized standard, which is average annual receipts of $1 million."
"Additionally, agricultural producers, farmers, and ranchers can qualify for PPP loans as a small business concern if their business meets SBA’s 'alternative size standard.' The 'alternative size standard' is currently: (1) maximum 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 application is not more than $5 million. For all of these criteria, the applicant must include its affiliates in its calculations. Link to Applicable Affiliation Rules for the PPP."
GOOD-FAITH CERTIFICATION, LOAN REVIEW, AND SAFE HARBORS
As noted above, consistent with Section 1102 of the CARES Act, the Borrower Application Form requires PPP applicants to certify that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."
A safe harbor was established for borrowers that applied for a PPP loan before April 24: Any that repaid their loan in full by May 7, 2020, would be deemed by SBA to have made the required certification in good faith. “The Administrator, in consultation with the Secretary, determined that this safe harbor is necessary and appropriate to ensure that borrowers promptly repay PPP loan funds that the borrower obtained based on a misunderstanding or misapplication of the required certification standard," the update said.
The IRS later extended that safe harbor deadline to May 14, 2020, and noted that SBA intended to provide additional guidance by that date on how it would review the good-faith certification.
That guidance arrived May 13 with an additional repayment deadline extension to May 18, 2020, and another safe harbor: Any borrower that (together with its affiliates) received a PPP loan with an original principal amount under $2 million will be deemed to have made the required certification in good faith. The SBA had previously announced that it will now review all loans in excess of $2 million, and others as needed, following the lender’s submission of the borrower’s loan forgiveness application.
The May 13 update read:
“…SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to [the required good-faith certification]: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
“SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.
“Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.”
In a May 22 Interim Final Rule, SBA established that they may review any individual PPP loan, “as the Administrator deems appropriate,” and that the Administrator is authorized to review the following borrower representations and statements:
- “Borrower Eligibility: The Administrator may review whether a borrower is eligible for the PPP loan based on the provisions of the CARES Act, the rules and guidance available at the time of the borrower’s PPP loan application, and the terms of the borrower’s loan application.”
- Use of Proceeds: “The Administrator may review whether a borrower calculated the loan amount correctly and used loan proceeds for the allowable uses specified in the CARES Act.”
- “Loan Forgiveness Amounts: The Administrator may review whether a borrower is entitled to loan forgiveness in the amount claimed on the borrower’s Loan Forgiveness Application (SBA Form 3508 or lender’s equivalent form).”
The guidance states that any size loan may be reviewed at any time, and “the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.” Borrowers may receive requests for additional information from either the lender or from SBA itself, and “failure to respond to SBA’s inquiry may result in a determination that the borrower was ineligible for a PPP loan or ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.”
If the SBA review determines that a borrower is ineligible for a PPP loan, the borrower’s loan cannot be forgiven.
“Further, if SBA determines that the borrower is ineligible for the loan amount or loan forgiveness amount claimed by the borrower, SBA will direct the lender to deny the loan forgiveness application in whole or in part, as appropriate. SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.”
LOAN INCREASES, DISBURSEMENTS, AND SBA FORM 1502
The SBA released an interim final rule on May 13 with new information on loan increases for partnerships and seasonal employers, following recent updated guidance for those groups. The interim final rule also included procedural guidance on disbursements and how to report the loan on SBA Form 1502, “Guaranty Loan Status & Lender Remittance Form.”
- Partnerships: An interim final rule posted April 14 described how partnerships, rather than individual partners, are eligible for a PPP loan, and explained that “the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership.” (For guidance on how to calculate partnership PPP loan amounts and define partners’ self-employment income, see Question 4 of this IRS publication.) The May 13 release addressed the question, “If a partnership received a PPP loan that did not include any compensation for its partners, can the loan amount be increased to include partner compensation?”
“Yes. If a partnership received a PPP loan that only included amounts necessary for payroll costs of the partnership’s employees and other eligible operating expenses, but did not include any amount for partner compensation, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate partner compensation, even if the loan has been fully disbursed, provided that the lender’s first SBA Form 1502 report to SBA on the PPP loan has not been submitted. After the initial SBA Form 1502 report on the PPP loan has been submitted to SBA, or after the date the first SBA Form 1502 was required to be submitted to SBA, the loan cannot be increased. In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower or $20 million for a corporate group. Additionally, the borrower must provide the lender with required documentation to support the calculation of the increase.
- Seasonal employers: An alternative criterion was released April 28 for determining the maximum loan amount for seasonal employers:
“Under Section 1102 of the CARES Act, a seasonal employer may determine its maximum loan amount for purposes of the PPP by reference to the employer’s average total monthly payments for payroll ‘the 12-week period beginning Feb. 15, 2019, or at the election of the eligible [borrower], March 1, 2019, and ending June 30, 2019.’ Under this interim final rule issued pursuant to Section 1109 of the Act, a seasonal employer may alternatively elect to determine its maximum loan amount as the average total monthly payments for payroll during any consecutive 12-week period between May 1, 2019, and Sept. 15, 2019.”
The May 13 release addressed the question of whether a seasonal employer that received their PPP loan before that criterion became available could have their loan amount increased based on the revised calculation.
“If a seasonal employer received a PPP loan before the alternative criterion for such employers was posted on April 28, 2020, and would be eligible for a higher maximum loan amount under the alternative criterion, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount, even if the loan has been fully disbursed, provided that the lender’s first SBA Form 1502 report to SBA on the PPP loan has not been submitted. After the initial SBA Form 1502 report has been submitted to SBA, or after the date the initial SBA Form 1502 report was required to be submitted to SBA, the loan cannot be increased. In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower or $20 million for a corporate group. Additionally, the borrower must provide the lender with required documentation to support the calculation of the increase.”
- Disbursements and 1502 reporting on increased PPP loans: The SBA said in an interim final rule posted April 28 that lenders must “make a one-time, full disbursement of the PPP loan within 10 calendar days of loan approval.” However, the May 13 release said that if the PPP loan is increased for one of the above reasons (i.e., the updates for partnerships or seasonal employers, “the lender may make a single additional disbursement of the increased loan proceeds prior to submission of the initial SBA Form 1502 report for that loan.” As to how those lenders would report those increased-loan disbursements, and whether the increase would delay their the timeframe to report the loan on the SBA Form 1502, the May 13 release said:
“SBA set forth in the interim final rule on disbursements and 1502 reporting posted on April 28, 2020, the process lenders must follow to electronically upload SBA Form 1502 information on PPP loans. The interim final rule provided that lenders must submit the SBA Form 1502 information within 20 calendar days after a PPP loan is approved or, for loans approved before availability of the updated SBA Form 1502 reporting process, by May 18, 2020. In its interim final rule posted on May 8, 2020, SBA revised that date from May 18, 2020, to May 22, 2020. Lenders must comply with the initial 1502 reporting deadline. SBA may review at any time an increase submitted by the lender to confirm that the increase was submitted within the required timeframe; increases submitted outside the required timeframe will not be forgiven and no processing fee will be earned on such amounts. Additionally, lenders are not entitled to processing fees on increases submitted outside of the required timeframe.”
In general, an employer that receives a loan under the PPP is not eligible for the Employee Retention Credit (ERC), a fully refundable federal payroll tax credit equal to 50% of the first $10,000 of “qualified wages” paid by an “eligible employer” during the period March 13 – Dec. 31, 2020, under certain circumstances related to the COVID-19 pandemic. However, employers that receive then repay their loans by the safe harbor deadline (May 18, 2020) can take the ERC.
“An employer that applied for a PPP loan, received payment, and repays the loan by the safe harbor deadline [May 18, 2020] will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit. Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer for purposes of the credit.”
Number of employees
Regarding the employment thresholds the CARES Act establishes for PPP eligibility, the Treasury clarified:
"For purposes of loan eligibility, the CARES Act defines the term employee to include 'individuals employed on a full-time, part-time, or other basis.' A borrower must therefore calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees."
On May 22, the Treasury released an Interim Final Rule clarifying certain aspects of loan forgiveness. Key points included:
Timing of forgivable costs
Payroll costs are generally eligible for forgiveness if they are paid or incurred during an eight-consecutive-week (or 56-day) “covered period” beginning on either 1) the date of disbursement of the borrower’s PPP loan proceeds or 2) the first day of the first payroll cycle in the covered period (the “alternative payroll covered period”). The Interim Final Rule clarifies:
“Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an ACH credit transaction. Payroll costs incurred during the borrower’s last pay period of the covered period or the alternative payroll covered period are eligible for forgiveness if paid on or before the next regular payroll date; otherwise, payroll costs must be paid during the covered period (or alternative payroll covered period) to be eligible for forgiveness. Payroll costs are generally incurred on the day the employee’s pay is earned (i.e., on the day the employee worked).”
Nonpayroll costs – i.e., interest on mortgages or pre-existing debt, rent, and utilities – must be 1) paid during the covered period or 2) “incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.” The Interim Final Rule provides an example:
“A borrower’s covered period begins on June 1 and ends on July 26. The borrower pays its May and June electricity bill during the covered period and pays its July electricity bill on August 10, which is the next regular billing date. The borrower may seek loan forgiveness for its May and June electricity bills, because they were paid during the covered period. In addition, the borrower may seek loan forgiveness for the portion of its July electricity bill through July 26 (the end of the covered period), because it was incurred during the covered period and paid on the next regular billing date.”
The release further clarifies the forgivability of mortgage-related payments:
“Advance payments of interest on a covered mortgage obligation are not eligible for loan forgiveness because the CARES Act’s loan forgiveness provisions regarding mortgage obligations specifically exclude ‘prepayments.’ Principal on mortgage obligations is not eligible for forgiveness under any circumstances.”
Types of forgivable “payroll costs”
Salary, wages, or commission payments to furloughed employees; bonuses; and hazard pay during the covered period are eligible for loan forgiveness, the May 22 guidance says.
“The CARES Act defines the term “payroll costs” broadly to include compensation in the form of salary, wages, commissions, or similar compensation. If a borrower pays furloughed employees their salary, wages, or commissions during the covered period, those payments are eligible for forgiveness as long as they do not exceed an annual salary of $100,000, as prorated for the covered period. The Administrator, in consultation with the Secretary, has determined that this interpretation is consistent with the text of the statute and advances the paycheck protection purposes of the statute by enabling borrowers to continue paying their employees even if those employees are not able to perform their day-to-day duties, whether due to lack of economic demand or public health considerations. This intent is reflected throughout the statute, including in section 1106(d)(4) of the Act, which provides that additional wages paid to tipped employees are eligible for forgiveness. The Administrator, in consultation with the Secretary, has also determined that, if an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation.”
Caps on loan forgiveness for owner-employees and self-employed individuals’ own payroll compensation
The May 22 Interim Final Rule states:
“The amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses. … In particular, owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf.
“… General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.”
Calculating reductions to loan forgiveness amounts
In general, employers are subject to a reduction in their PPP loan forgiveness amount corresponding with reductions in their average number of full-time equivalent employees during the covered pandemic period, unless they eliminate that reduction – i.e., rehire those employees. The CARES Act lays out a specific calculation for determining these circumstances.
If the employer offers to rehire a laid-off employee and the employee declines, that employee can be excluded from the calculation, according to a May 3 update to the Treasury’s PPP FAQ.
The May 22 Interim Final rule noted that the exception is also available “if a borrower previously reduced the hours of an employee and offered to restore the employee’s hours at the same salary or wages” and the employee declined, and established that in either case, the borrower can such employee from their calculation if:
i. “the borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
ii. “The offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
iii. “The offer was rejected by such employee;
iv. “The borrower has maintained records documenting the offer and its rejection; and
v. “The borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.” [Note: The May 3 guidance noted that “employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”]
If an employee “is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period or the alternative payroll covered period (FTE reduction event), the borrower may count such employee at the same full-time equivalency level before the FTE reduction event when calculating the … FTE employee reduction penalty.”
In calculating their average number of FTE employees during the covered and reference periods, borrowers are instructed to “divide the average number of hours paid for each employee per week by 40, capping this quotient at 1.0. For example, an employee who was paid 48 hours per week during the covered period would be considered to be an FTE employee of 1.0.” The Interim Final Rule gives borrowers a choice of two ways to calculate full-time equivalency for employees who were paid for less than 40 hours per week:
- “First, the borrower may calculate the average number of hours a part-time employee was paid per week during the covered period. For example, if an employee was paid for 30 hours per week on average during the covered period, the employee could be considered to be an FTE employee of 0.75. Similarly, if an employee was paid for ten hours per week on average during the covered period, the employee could be considered to be an FTE employee of 0.25.
- “Second, for administrative convenience, borrowers may elect to use a full-time equivalency of 0.5 for each part-time employee.”
- “…Borrowers may select only one of these two methods, and must apply that method consistently to all of their part-time employees for the covered period or the alternative payroll covered period and the selected reference period. In either case, the borrower shall provide the aggregate total of FTE employees for both the selected reference period and the covered period or the alternative payroll covered period, by adding together all of the employee-level FTE employee calculations. The borrower must then divide the average FTE employees during the covered period or the alternative payroll covered period by the average FTE employees during the selected reference period, resulting in the reduction quotient.”
Per the May 22 release, the CARES Act also establishes that “a reduction in an employee’s salary or wages in excess of 25 percent will generally result in a reduction in the loan forgiveness amount,” with an exception for those that later restore those salaries (more information below). The guidance says:
“Specifically, for each new employee in 2020 and each existing employee who was not paid more than the annualized equivalent of $100,000 in any pay period in 2019, the borrower must reduce the total forgiveness amount by the total dollar amount of the salary or wage reductions that are in excess of 25 percent of base salary or wages between Jan. 1, 2020, and March 31, 2020 (the reference period), subject to exceptions for borrowers who restore reduced wages or salaries (see below). This reduction calculation is performed on a per employee basis, not in the aggregate.
“Example: A borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a full-time basis during the covered period with an FTE of 1.0. In this case, the first $250 (25 percent of $1,000) is exempted from the reduction. Borrowers seeking forgiveness would list $400 as the salary/hourly wage reduction for that employee (the extra $50 weekly reduction multiplied by eight weeks).”
The May 22 Interim Final Rule lays out an exception for borrowers who eliminate these reductions in FTEs, salaries, and wages by June 30, 2020:
“Section 1106(d)(5) of the CARES Act provides that if certain employee salaries and wages were reduced between Feb. 15, 2020 and April 26, 2020 (the safe harbor period), but the borrower eliminates those reductions by June 30, 2020, or earlier, the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries and wages under Section 1106(d)(3) of the CARES Act. Similarly, if a borrower eliminates any reductions in FTE employees occurring during the safe harbor period by June 30, 2020, or earlier, the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in FTE employees. (In light of the flexibility the Act provides to borrowers with respect to their selection of the reference time period for any potential reduction in loan forgiveness, and the statutory authority for SBA and the Department of the Treasury to grant de minimis exemptions from this requirement, if the borrower meets the requirements for the FTE reduction safe harbor, it will not be subject to any loan forgiveness reduction based on a reduction in FTE employees.)”
Lender responsibilities on loan forgiveness
A separate May 22 Interim Final Rule included new guidance for lenders. Key points include:
- “Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the Loan Forgiveness Application.”
- “The borrower shall not receive forgiveness without submitting all required documentation to the lender.”
- Timeline: “The lender must issue a decision to SBA on a loan forgiveness application not later than 60 days after receipt of a complete loan forgiveness application from the borrower. That decision may take the form of an approval (in whole or in part); denial; or (if directed by SBA) a denial without prejudice due to a pending SBA review of the loan for which forgiveness is sought. In the case of a denial without prejudice, the borrower may subsequently request that the lender reconsider its application for loan forgiveness, unless SBA has determined that the borrower is ineligible for a PPP loan.”
Eligible payroll costs: Housing stipends and allowances
The cost of a housing stipend or allowance provided to an employee as part of compensation does count toward payroll costs.
"Payroll costs includes all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation."
Determining principal place of residence
For determining whether an individual employee’s principal place of residence is in the U.S., the Treasury advises: "PPP applicants and lenders may consider IRS regulations (26 CFR Section 1.121-1(b)(2)) when determining whether an individual employee’s principal place of residence is in the United States."
For more information on these and other considerations, see the full Treasury documents:
- PPP FAQ
- Interim Final Rule on Requirements for Promissory Notes, Authorizations, Affiliation, and Eligibility (April 24)
- Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (May 22)
- Interim Final Rule on Loan Forgiveness (May 22)
As the Treasury publishes further guidance, we will continue to provide additional information on the PPP funding and its qualifications, so keep checking this page for updates. In the meantime, contact our national SBA loan task force or your CohnReznick engagement team for assistance with filing for these loans and providing required financial documentation.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
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