NEW SBA & TREASURY CLARITY ON PAYCHECK PROTECTION PROGRAM FOR BORROWERS & LENDERS
Updated: Apr 15, 2020
As of 4/6/2020
The Small Business Administration (SBA), in consultation with the Department of the Treasury, issued additional guidance in the form of an FAQ addressing borrower and lender questions related to the Paycheck Protection Program (PPP).
If you need to change your application as a result of the FAQ guidance, we recommend that you contact your bank or financial institution immediately.
The following FAQ is a copy of the guidance issued by the SBA and Department of Treasury. FAL has not summarized or altered any of the technical direction included in the FAQ. If you require further clarity, please call 702-870-7999 to speak to a business CPA in Las Vegas.
Borrowers and lenders may rely on the guidance provided in this document as SBA’s
interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rule (“PPP Interim Final Rule”). The U.S. government will not challenge lender PPP actions that conform to this guidance,1 and to the PPP Interim Final Rule and any subsequent rule-making in effect at the time.
What to Know About the New Paycheck Protection Program & Other SBA Regulations
1. Question: Paragraph 3.b.iii of the Paycheck Protection Program Interim Final Rule
states that lenders must “confirm the dollar amount of average monthly payroll costs for
the preceding calendar year by reviewing the payroll documentation submitted with the
borrower’s application.” Does that require that the lender replicate each borrower’s calculations?
Answer: No. Providing an accurate calculation of payroll costs is the responsibility of
the borrower, and the borrower must attest to the accuracy of those calculations. Lenders are expected to perform a good faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning average monthly payroll costs. The level of diligence by a lender should be informed by the quality of supporting documents supplied by the borrower. Minimal review of calculations based on a payroll report by a recognized third-party payroll processor, for example, would be reasonable.
2. Question: Are small business concerns (as defined in section 3 of the Small Business
Act, 15 U.S.C. 632) required to have 500 or fewer employees to be eligible borrowers in
Answer: No. Small business concerns can be eligible borrowers even if they have more
than 500 employees, as long as they satisfy the existing statutory and regulatory
definition of a “small business concern” under section 3 of the Small Business Act, 15
U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-
based size standard corresponding to its primary industry. Go to www.sba.gov/size for
the industry size standards.
Additionally, a business can qualify for the Paycheck Protection Program as a small
business concern if it met both tests in SBA’s “alternative size standard” as of March 27,
2020: (1) maximum tangible 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.
A business that qualifies as a small business concern under section 3 of the Small
Business Act, 15 U.S.C. 632, may truthfully attest to its eligibility for PPP loans on the
Borrower Application Form, unless otherwise ineligible.
3. Question: Does my business have to qualify as a small business concern (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) in order to participate in the PPP?
Answer: No. In addition to small business concerns, a business is eligible for a PPP loan
if the business has 500 or fewer employees whose principal place of residence is in the
United States, or the business meets the SBA employee-based size standards for the
industry in which it operates (if applicable). Similarly, PPP loans are also available for
qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the
Internal Revenue Code (IRC), tax-exempt veterans’ organizations described in section
501(c)(19) of the IRC, and Tribal business concerns described in section 31(b)(2)(C) of
the Small Business Act that have 500 or fewer employees whose principal place of
residence is in the United States or meet the SBA employee-based size standards for the industry in which they operate.
4. Question: Are lenders required to make an independent determination regarding
applicability of affiliation rules under 13 C.F.R. 121.301(f) to borrowers?
Answer: No. It is the responsibility of the borrower to determine which entities (if any)
are their affiliates and determine the employee headcount of the borrower and their affiliates. Lenders are permitted to rely on borrowers’ certifications.
5. Question: Are borrowers required to apply SBA’s affiliation rules under 13 C.F.R.
Answer: Yes. Borrowers must apply the affiliation rules set forth in SBA’s Interim
Final Rule on Affiliation. A borrower must certify on the Borrower Application Form
that the borrower is eligible to receive a PPP loan, and that certification means that the
borrower is a small business concern as defined in section 3 of the Small Business Act
(15 U.S.C. 632), meets the applicable SBA employee-based or revenue-based size
standard, or meets the tests in SBA’s alternative size standard, after applying the
affiliation rules, if applicable. SBA’s existing affiliation exclusions apply to the PPP,
including, for example the exclusions under 13 CFR 121.103(b)(2).
As of April 6, 2020
6. Question: The affiliation rule based on ownership (13 C.F.R. 121.301(f)(1)) states that
SBA will deem a minority shareholder in a business to control the business if the
shareholder has the right to prevent a quorum or otherwise block action by the board of
directors or shareholders. If a minority shareholder irrevocably gives up those rights, is it still considered to be an affiliate of the business?
Answer: No. If a minority shareholder in a business irrevocably waives or relinquishes
any existing rights specified in 13 C.F.R. 121.301(f)(1), the minority shareholder would
no longer be an affiliate of the business (assuming no other relationship that triggers the affiliation rules).
7. Question: The CARES Act excludes from the definition of payroll costs any employee
compensation in excess of an annual salary of $100,000. Does that exclusion apply to all
employee benefits of monetary value?
Answer: No. The exclusion of compensation in excess of $100,000 annually applies
only to cash compensation, not to non-cash benefits, including:
employer contributions to defined-benefit or defined-contribution retirement plans
payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums
payment of state and local taxes assessed on compensation of employees
8. Question: Do PPP loans cover paid sick leave?
Answer: Yes. PPP loans covers payroll costs, including costs for employee vacation,
parental, family, medical, and sick leave. However, the CARES Act excludes qualified
sick and family leave wages for which a credit is allowed under sections 7001 and 7003
of the Families First Coronavirus Response Act (Public Law 116–127).
9. Question: My small business is a seasonal business whose activity increases from April to June. Considering activity from that period would be a more accurate reflection of my business’s operations. However, my small business was not fully ramped up on February 15, 2020. Am I still eligible?
Answer: In evaluating a borrower’s eligibility, a lender may consider whether a seasonal
borrower was in operation on February 15, 2020 or for an 8-week period between
February 15, 2019 and June 30, 2019.
10. Question: What if an eligible borrower contracts with a third-party payer such as a
payroll provider or a Professional Employer Organization (PEO) to process payroll and
report payroll taxes?
Answer: SBA recognizes that eligible borrowers that use PEOs or similar payroll
providers are required under some state registration laws to report wage and other data on the Employer Identification Number (EIN) of the PEO or other payroll provider. In these cases, payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP loan payroll documentation. Relevant information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the eligible borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. In addition, employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.
11. Question: May lenders accept signatures from a single individual who is authorized to sign on behalf of the borrower?
Answer: Yes. However, the borrower should bear in mind that, as the Borrower
Application Form indicates, only an authorized representative of the business seeking a
loan may sign on behalf of the business. An individual’s signature as an “Authorized
Representative of Applicant” is a representation to the lender and to the U.S. government that the signer is authorized to make the certifications, including with respect to the applicant and each owner of 20% or more of the applicant’s equity, contained in the Borrower Application Form. Lenders may rely on that representation and accept a single individual’s signature on that basis.
12. Question: I need to request a loan to support my small business operations in light of current economic uncertainty. However, I pleaded guilty to a felony crime a very long
time ago. Am I still eligible for the PPP?
Answer: Yes. Businesses are only ineligible if an owner of 20 percent or more of the
equity of the applicant is presently incarcerated, on probation, on parole; subject to an
indictment, criminal information, arraignment, or other means by which formal criminal
charges are brought in any jurisdiction; or, within the last five years, for any felony, has
been convicted; pleaded guilty; pleaded nolo contendere; been placed on pretrial
diversion; or been placed on any form of parole or probation (including probation before judgment).
13. Question: Are lenders permitted to use their own online portals and an electronic form that they create to collect the same information and certifications as in the Borrower Application Form, in order to complete implementation of their online portals?
Answer: Yes. Lenders may use their own online systems and a form they establish that
asks for the same information (using the same language) as the Borrower Application
Form. Lenders are still required to send the data to SBA using SBA’s interface.
14. Question: What time period should borrowers use to determine their number of
employees and payroll costs to calculate their maximum loan amounts?
Answer: In general, borrowers can calculate their aggregate payroll costs using data
either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020.
Borrowers may use their average employment over the same time periods to determine
their number of employees, for the purposes of applying an employee-based size
standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average
number of employees per pay period in the 12 completed calendar months prior to the
date of the loan application (or the average number of employees for each of the pay
periods that the business has been operational, if it has not been operational for 12
15. Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs?
Answer: No. Any amounts that an eligible borrower has paid to an independent
contractor or sole proprietor should be excluded from the eligible business’s payroll
costs. However, an independent contractor or sole proprietor will itself be eligible for a
loan under the PPP, if it satisfies the applicable requirements.
16. Question: How should a borrower account for federal taxes when determining its
payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan,
and the amount of a loan that may be forgiven?
Answer: Under the Act, payroll costs are calculated on a gross basis without regard to
(i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.
17. Question: I filed or approved a loan application based on the version of the PPP Interim Final Rule published on April 2, 2020. Do I need to take any action based on the updated guidance in these FAQs?
Answer: No. Borrowers and lenders may rely on the laws, rules and guidance available
at the time of the relevant application. However, borrowers whose previously submitted
loan applications have not yet been processed may revise their applications based on
clarifications reflected in these FAQs.
18. Question: Are PPP loans for existing customers considered new accounts for FinCEN
Rule CDD purposes? Are lenders required to collect, certify, or verify beneficial
ownership information in accordance with the rule requirements for existing customers?
Answer: If the PPP loan is being made to an existing customer and the necessary
information was previously verified, you do not need to re-verify the information.
Furthermore, if federally insured depository institutions and federally insured credit
unions eligible to participate in the PPP program have not yet collected beneficial
ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.
Contact a Business CPA in Las Vegas for More Information
If you would like further clarity on the Paycheck Protection Program, contact FAL at 702-870-7999 to speak to a business CPA in Las Vegas today.