The Small Business Administration (SBA), Treasury, and the Internal Revenue Service (IRS) continue the steady pace of issuing additional guidance for the Paycheck Protection Program (PPP) including repayment guidance and PPP interaction with the employee retention credit and other provisions under CARES.
On May 13, the SBA issued an additional loan repayment FAQ item with two significant clarifications by the SBA. First, the SBA states that any borrower, along with any affiliates, that received total PPP loans with an original principal amount of less than $2 million will be deemed to have met the required economic uncertainty certification under the program. Second, the SBA clarifies that borrowers with loans of more than $2 million will be directed to repay the funds should the SBA determine in its review that the borrower did not meet the required need based certification under the PPP. If the borrower repays the amounts, the SBA will not pursue enforcement or referral to other agencies.
Over the two past weeks (April 30 through May 13), the SBA issued two additional interim final rules on Corporate Groups and Additional Eligibility Criteria, five additional FAQ items, and a round two program update. The additional guidance includes the following:
- An extension of time for the SBA safe harbor repayment date for companies to repay funds if they misunderstood or misapplied the certification surrounding ‘uncertain economic conditions’. The repayment deadline is extended until May 14.
- Confirmation that a borrower is to include in the employee count the employees of foreign and U.S. affiliates, absent a waiver of or an exception to the affiliation rules.
- A de minimis exemption from the loan forgiveness reduction formulas.
- Clarity that an employer that repays the PPP loan by the safe harbor deadline is eligible for the Employee Retention Credit under CARES.
From an overall perspective, as of May 1, 2020, the average loan size has shrank from $206K in round one to $73K in round two. The number of loans in excess of $2 million has also dropped significantly between round one and round two. It is not certain if that drop can be attributed to the SBA stating that a loan in excess of $2 million will be subject to SBA review prior to forgiveness and the uncertainty surrounding that review and criteria.
The SBA has also restricted the amount of funding a single corporate group can receive under the PPP. Guidance issued on April 30 restricts such a group to no more than $20 million in funding in the aggregate. This limitation is applicable to any loan that was not fully disbursed by April 30 and also applies to borrowers that have a waiver of any of the SBA affiliation rules or would not be considered affiliates.
In the first guidance solely applicable to loan forgiveness, the SBA FAQ provides a de minimis exemption to the loan forgiveness reductions based on FTE reductions or salary and wage reductions. The FAQ item, which will be added to an interim final rule, provides that if an employer makes a good faith, written offer of rehire to an employee at the same salary/wage and the same number of hours, and the employee rejects such offer, the employer’s loan forgiveness amount will not be reduced as a result. Rejecting the offer though may cause the employee to forfeit eligibility for continued unemployment compensation.
While additional guidance on covered costs and loan forgiveness is necessary for borrowers, we are pleased to see the start of loan forgiveness guidance start to trickle out from the SBA. We anticipate additional guidance in short order and commend the SBA and Treasury for the amount of PPP guidance issued in a relatively short period.