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Additional Guidance On Paycheck Protection Program

on Friday, 3 April 2020 in Covid-19 Information Hub

On April 2, 2020, the U.S. Treasury and Small Business Administration released additional guidance regarding the Paycheck Protection Program (the “PPP”) established under the CARES Act, including the issuance of an interim final rule (“IFR”).  For our earlier articles summarizing the PPP, please visit the Baird Holm COVID-19 Hub.  

New Application Form

There is a new application form for PPP loans.  The application form is available here.  To the extent an application has previously been submitted, it should be re-submitted utilizing such form.   

Loan Processing 

The IFR states that loans will be processed on a “first come, first-served” basis.  Given the interest in the PPP nationwide, interested parties should submit applications promptly. 

Other Terms  

  • Maximum Borrowing Amount. The IFR includes the following methodology for determining the maximum amount that may be borrowed:

    Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.

    Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.

    Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).

    Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.

    Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid). 

  • Inclusion of Federal Taxes in Payroll Costs. The IFR provides that federal employment taxes imposed or withheld, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees, may be included for any period other than the period between February 15, 2020 and June 30, 2020. Previously, the CARES Act provided that these federal taxes were excluded.  Thus, since the maximum amount is based on average monthly payroll costs for the prior 12 month period, this appears to increase the maximum amount that be borrowed. 

  • Limitations on Non-Payroll Costs. No more than 25% of the loan may be used for non-payroll costs.  Forgiveness for non-payroll costs is also limited to 25% of the loan amount. 
  • Status of Independent Contractors. There has been some confusion as to whether independent contractors count as employees for purposes of the PPP loan calculation.  The IFR states that independent contractors do not count, since they have the ability to apply for PPPs on their own.
  • Interest Rate. The interest rate on the portion of the PPP that is not forgiven will be 1.00% per annum. Previous guidance from the SBA suggested the rate would be 0.50% per annum.
  • E-Signatures. Applications may be submitted with e-signatures (i.e., Docusign).
  • Lender Underwriting; Borrower Documentation. The IFR provides that lender underwriting is limited to the following:

    • Review of the PPP application from the applicant, including the completed certifications therein
    • Confirmation that the applicant was in existence and paying employees as of February 15, 2020
    • Confirmation of the average monthly payroll costs for purposes of determining the loan amount
    • Payroll processor records and payroll tax filings are methods listed for verifying
    • Compliance with Bank Secrecy Act “know your customer” requirements
  • This may include information to verify identity of individuals and beneficial ownership of entities
  • Loan Forgiveness. The IFR provides that lenders do not need to conduct any verification The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs.  

More to Come 

The IFR states that the SBA will be issuing additional guidance on (a) the applicability of existing SBA affiliation rules to PPP loan applicants and (b) the forgiveness process.  We will provide updates as such guidance is released.   

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