On Friday, April 24, 2020, President Donald J. Trump signed a $484 billion stimulus bill, amending the Paycheck Protection Program, Economic Injury Disaster Loans, and Emergency Grants which included an additional $310 billion in the paycheck protection program and an additional $10 billion in funding for the SBA’s Emergency Injury Disaster Loan Program. In response, the SBA announced that it would begin accepting application on Monday, April 27, 2020 at 10:30 a.m. This is welcome news for many businesses whose applications were not processed or were pending when the initial $349 billion in funding quickly ran out. Of course, with the news of big, well-funded, companies accepting funds that are earmarked for small businesses, questions have arisen as to which businesses should benefit from these funds. To assist with these questions, the Treasury Department has provided some much-needed guidance on the PPP program in the form of an FAQs.

In order to qualify for the PPP funding, all borrowers are required to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The FAQs published by the Treasury Department, explains that with respect to this certification “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” The FAQ continues to explain that “[f]or example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.” (emphasis added)

If any Borrowers received these funds, and in reassessing their financial position determine that these funds were not necessary to support its ongoing operations, borrowers may return these funds, in full, by May 7, 2020 and the SBA will determine that the certification was made in good faith. The Federal Reserve also announced on Thursday that to foster transparency it would be providing a monthly report, which would disclose: (a) names and details of participants in each facility; (b) amounts borrowed and interest rates charged; and (c) overall costs, revenues and fees for each facility, for any facility receiving funding under any of the CARES Act programs. (see: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200423a.htm). While the focus on these new guidelines is for large, publicly traded companies, who should have alternative sources of liquidity, if any company has applied for the PPP funding, the need for the funding should be documented in the event an audit is conducted questioning the need for funding.

Other common questions asked regarding the use of PPP funds were also addressed in this FAQs:

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; and
• payment of state and local taxes assessed on compensation of employees.

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). Learn more about the Paid Sick Leave Refundable Credit here.

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.

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 months).

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.

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 who previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs.

Question: The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin?
Answer: The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.

All of the Treasury Department FAQs may be found here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf, which include a number of issues important to lenders.

The attorneys in Forchelli Deegan Terrana Employment & Labor practice group will continue to keep you updated on any changes to your requirements as an employer as updates become available. Should you have and questions, do not hesitate to contact me at the below contact information.

Battling the novel Coronavirus is difficult for everyone. We are here if you need us. With best wishes for your, and your family’s health and safety.

Gregory S. Lisi, Esq.
Partner-in-Charge, Employment & Labor practice group
GLisi@Forchellilaw.com | 516.248.1700