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SBA Updates Guidance on Paycheck Protection Program

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| Legal Advisory

Late on April 6, the Small Business Administration (the “SBA”) issued a set of FAQs addressing some of the questions that have been raised about the Paycheck Protection Program (“PPP”) provided for in the CARES Act. The FAQs can be relied on by borrowers and lenders as the SBA’s interpretation of the CARES Act and the Paycheck Protection Program Interim Final Rule. Most recently updated on April 8, the current version of the FAQs can be found here. The FAQs address a number of important issues for borrowers and lenders, including:

  • Identifying the borrower’s affiliates and counting employees. The FAQs provide that it is up to the borrower to identify its affiliates and determine its headcount for purposes of establishing PPP eligibility, and that lenders can rely on borrowers’ certifications in this regard.
  • The $100,000 cap. The definition of “payroll costs” under the PPP excludes “compensation of an individual employee in excess of an annual salary of $100,000.” There had been some confusion as to whether the $100,000 cap applied to just wages or to wages and benefits combined. Some questioned whether the cap would exclude those benefits (such as retirement plan contributions) attributable to wage over $100,000. The FAQs confirm that the cap applies only to cash compensation (e.g. salary, commissions, and bonuses) and not to non-cash benefits such as retirement plan contributions or health insurance premiums paid by the employer.
  • PPP eligibility for borrowers who lease employees. Businesses that employ workers through third-party PEOs or payroll providers do not have their own payrolls. While the CARES Act did not seem to provide a mechanism for such businesses to obtain PPP loans, the FAQs confirm that these businesses may apply based upon payroll information provided by their PEOs or payroll providers. The FAQs caution, however, that the same employees may not be counted twice and will not be considered employees of the PEO or payroll provider for PPP purposes.
  • Alternative size test. According to the SBA FAQs, an applicant that does not otherwise qualify as a small business concern based upon the number of employees could qualify if it meets the alternative size standard. An applicant satisfies that alternative size standard if (1) it has a maximum tangible net worth as of March 27, 2020 of not more than $15 million, and (2) for the last two full fiscal years, it has average net income (after payment of federal income taxes and excluding carryover losses) of less than $5 million. Note, however, that affiliation rules still apply, so affiliates must be included in this analysis. Additionally, the SBA’s recent guidance does not more specifically define “maximum tangible net worth” or “net income.”
  • Form of promissory note: The FAQs confirm that lenders are not required to use the form of promissory note released by the SBA for PPP loans. The SBA’s form of promissory note for PPP loans is available here.

As of April 8, there were 20 such FAQs addressed, and it seems likely that the SBA will continue to add to that list. 

This advisory was prepared by David Rubin in Nutter’s Labor, Employment and Benefits practice group; Michael Krebs and Josh French in the Corporate and Transactions Department; and Melissa Sampson McMorrow in the Tax Department. For more information, please contact any of the above individuals; or your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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