What You Need To Know About Updates to the PPP Loan Program

The Treasury and the Internal Revenue Service continue to issue guidance on the PPP Loan Program and other COVID-19 relief programs. The updates have included additional FAQs, program reports and statements from the Treasury.

Business owners continue to seek clearer information and certainty regarding the relief programs established by the Treasury to support businesses through these challenging times. Anchin will continue to provide you with specific updates on key aspects of these programs. Additional updates will include expected critical guidelines on the loan forgiveness calculation and process.

Here are several updates of interest:

1. Pursuant to Treasury FAQ #31 and the related Interim Final Rule, May 7, 2020 was the deadline to return your PPP loan proceeds, if you applied for your loan prior to April 24 and have reconsidered your certification and concluded you do not meet the criteria.  The certification states: “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” New Treasury FAQ #43 issued on May 5 has extended this safe harbor deadline to May 14, 2020.  This extension is automatic.  Borrowers do not have to apply for the extension.

a. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere, borrowers still must certify in good faith that their PPP loan request is necessary.

b. This is a judgment call that companies must make for themselves based on their specific facts and circumstances.  We encourage you to consider your eligibility in light of the new guidance and to speak with your legal counsel.

c. If you keep your PPP loan proceeds, we strongly recommend that you document the specific issues you are facing that led you to conclude that the loan is “necessary.”

2. The SBA released the PPP loan report for week one of the Second Round of the PPP Loan Program (4/27/2020-5/1/2020).

a. 2.21 million loans were approved, totaling approximately $176 billion, during the Second Round so far, as compared to 1.66 million loans for $342 billion during the two-week period of the First Round.

b. Small lenders (under $50 billion in assets) accounted for more than half of the quantity of new loans.

c. Average loan size was $79k for the Second Round as compared to $206k in the First Round.

d. For more details on the PPP loan report, see the following SBA link under Additional Program Information:

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program

3. A New Treasury FAQ #40 issued on May 3 addressed: Will a borrower’s PPP loan forgiveness amount be reduced if the borrower offered to rehire a laid-off employee and the employee declined?

a. No. Treasury intends to issue an Internal Final Rule excluding such employees from the loan forgiveness reduction calculation.  The offer to rehire must have been made in writing and the employee’s decline of the offer must be documented by the borrower.

b. This guidance appears to only address the % reduction from the FTE headcount test and not the reduction in qualified payroll costs that will impact the amount eligible for forgiveness.

4. New FAQ #44, also issued on May 5, attempts to clarify the 500-employee size standard for applicants with both U.S. and foreign affiliates.

a. Applicants must count all of its employees and the employees of its U.S. and foreign affiliates, absent a waiver of or an exception to the affiliation rules.

b. This appears to contradict FAQ #3, which said that the 500-employee size standard applied to employees whose principal place of residence is in the U.S.

c. If you believe you now fail the size standard under FAQ #44, presumably you have until May 14, 2020 to return your PPP loan proceeds.  We strongly recommend that you consult with legal counsel in making this determination.

5. Congress is expected to start negotiating the next round of “stimulus” soon.  Many members of Congress have indicated a desire to make modifications to PPP.  Some of the ideas being considered include:

a. Changing the federal tax law to allow the qualified expenses covered by a forgiven PPP loan to be tax deductible despite the forgiveness being tax-exempt.

b. Modifying the conditions for PPP loan forgiveness to clarify the rules and guidance, but also to potentially add additional requirements to qualify.

c. Adding flexibility to the 8-week benefit period that currently begins the date you receive your PPP loan proceeds. Several industries remain effectively shut down during the crisis, yet would need to maintain significant payroll costs during this 8-week period in order to qualify for loan forgiveness.  Certain industries which have been impacted by the shutdown are lobbying to have their 8-week period deferred or extended until they are either able and/or permitted to reopen.

As you can see, there is still so much activity related to the PPP Loan Program. Please speak with your Anchin Relationship Partner with any questions, or contact our COVID-19 Resource Team at [email protected].

Disclaimer: Please note this is based on the information that is currently available and is subject to change.