Insights

On January 8, 2021, the Small Business Administration (SBA) issued revised Paycheck Protection Program (PPP) Borrower Application forms for new “first-draw” loans and “second-draw” loans for prior PPP borrowers. SBA and the Treasury Department also announced that the PPP will re-open the week of January 11 for new borrowers and certain existing PPP borrowers eligible for second-draw loans. 

On January 7, 2021, the Small Business Administration (SBA) released two Interim Final Rules (IFRs) regarding amendments to the Paycheck Protection Program (PPP) by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act).

The U.S. Congress passed a combined COVID-Relief and Omnibus Spending Bill on Monday, December 21, 2020.  The Consolidated Appropriations Act of 2021—both funded the U.S. government for FY 2021 and included a variety of COVID-19-related relief measures. The COVID-19 bill includes about $900 billion in new federal spending. It also repurposes $429 billion in unused CARES Act funding for the Federal Reserve Main Street Lending Program. The combined appropriations-COVID-19 stimulus relief package is the second largest in the nation’s history behind the CARES Act passed earlier this year.

From the inception of the Paycheck Protection Program (PPP), borrowers questioned the meaning of the economic necessity certification that the Small Business Administration (SBA) required borrowers to make in the PPP loan application. While the SBA provided some definition to this certification in such Frequently Asked Questions as FAQs 31, 37, and 46, uncertainty remained. Now, months after the last PPP loan application was submitted, the SBA is beginning to undertake an information collection effort to allow SBA loan reviewers to scrutinize a borrower’s certification that economic necessity made the loan request necessary. 

On October 2, 2020 (almost two months after the August 10, 2020 commencement of the acceptance period for forgiveness applications), the Small Business Administration (SBA) released an SBA Procedural Notice (the “Notice”) concerning required procedures for change of ownership of an entity that has received PPP loans (the “PPP Borrower”). Under the Notice, SBA approval or funding PPP loan balances into escrow may be required in connection with a change of ownership transaction and purchasers may be required to assume the PPP Borrower’s obligations, in addition to PPP Lender notice and approval.

On August 4, 2020, the Small Business Administration (SBA) released a Frequently Asked Questions (FAQs) addressing numerous technical issues on PPP Loan Forgiveness. On August 11, 2020, the FAQs were updated to include additional guidance for recipients of both PPP Loans and Economic Injury Disaster Loans.

On July 6, 2020, the Small Business Administration (SBA) has made publicly available various types of information about all Paycheck Protection Program (PPP) loans, and targeted media scrutiny has immediately followed. For loans of $150,000 and above, the SBA has released the loan range (e.g., $150,000 – 350,000, $1,000,000 – 2,000,000, $5,000,000 – 10,000,000) and the recipients’ business name and street address. For loans of less than $150,000, the SBA has released the exact amount of the loan but has not released the name of the PPP loan recipient or its street address. For all loans, the SBA has published the recipient’s NAICS code, the recipient’s business type, the date the loan was approved, the “jobs retained,” the lender, and the congressional district. The SBA is also releasing voluntarily-provided demographic information although it has noted that “approximately 75% of all PPP loans did not include any demographic information because that information was not provided by the borrowers” and that the SBA is “working to collect more demographic information from borrowers to better understand which small businesses are benefiting from PPP loans.” The SBA has indicated that this PPP data includes only active loans and that loans that were cancelled for any reason have not been included.

On Wednesday June 17th, SBA and Treasury issued a revised Paycheck Protection Program (PPP) loan forgiveness application implementing the extended 24-week “covered period” and the reduction in payroll cost limitation on forgiveness from 75% to 60% of costs, per the PPP Flexibility Act of 2020 enacted June 5, 2020.  In addition to revising the full forgiveness application (and issuing revised instructions), SBA also published a new “EZ” version of the forgiveness application (and associated instructions) intended for borrowers that meet one of three requirements: 1) are self-employed and have no employees; 2) did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; or 3) experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.  While the “EZ version” of the application requires fewer calculations and less documentation for applicants seeking forgiveness, it still maintains numerous certification requirements and includes additional certifications for the borrower to attest to their eligibility to use the EZ application form. Both applications give borrowers the option of using either the original 8-week covered period (if their loan was made before June 5, 2020) or the extended 24-week covered period. 

On June 11, 2020, the Small Business Administration (SBA) posted a new interim final rule (the IFR) which clarifies certain key changes made to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act of 2020 (Act). We addressed in a previous alert how the Act, signed into law on June 5, 2020, made important changes to many aspects of the PPP, including extending the minimum maturity period, extending the forgiveness period, reducing the payroll cost limitation on forgiveness, adding exemptions to employee rehiring requirements, revising the loan deferral period, and lifting the CARES Act’s prohibition on payroll tax deferral. The IFR largely implements the Act as written with the SBA providing further clarity in the IFR on two key changes.

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020, which makes the following key changes to the Paycheck Protection Program:

On May 18, 2020, the Small Business Administration (SBA) released a new interim final rule addressing the confusion raised by the SBA’s FAQ 44 on how PPP applicants are to count employees of foreign and U.S. affiliates for purposes of determining eligibility against the 500 or fewer employee size standard provided for in the CARES Act. 

On May 15, 2020, the Small Business Administration (SBA) released the Paycheck Protection Program Loan Forgiveness Application which is comprised of a PPP Loan Forgiveness Calculation Form (SBA Form 3508), including related certifications, and worksheets to assist in making the calculations. Although the SBA has yet to release further guidance on PPP Loan forgiveness, the Loan Forgiveness Application does provide some guidance on elements of forgiveness that were not clear from either the text of the Cares Act, or the SBA’s Interim Final Rules and FAQs. However, the complexity of the application and the onerous submission requirements present challenges for small businesses and create a further need for guidance and legal/accounting support. 

Yesterday we reported on the publication of FAQ 46 by the Small Business Administration (SBA) regarding the economic necessity certification contained in the Paycheck Protection Program (PPP) application and that the safe harbor deadline of May 14, 2020 remained in place. Late last night though, the SBA issued FAQ 47 in which it automatically extended the safe harbor deadline to May 18, 2020 for borrowers to return their PPP loan and still be deemed by the SBA to have made the necessity certification in good faith.

The Small Business Administration’s (SBA) shifting guidance on the economic necessity certification required by the Paycheck Protection Program (PPP) application has launched borrowers on a roller coaster ride the past few weeks. The SBA originally provided a safe harbor deadline of May 7, 2020 for PPP applicants who lacked an adequate basis for the certification to return their loans. Two days before the deadline, the SBA extended this deadline to May 14, 2020, while promising additional guidance on how the SBA “will review the certification.”

The Small Business Administration (SBA) has committed to providing additional guidance regarding many fundamental aspects of the Paycheck Protection Program (PPP) including loan forgiveness. While awaiting the SBA’s additional guidance on forgiveness, other relevant guidance and analysis has been published.  

On May 5, 2020—a mere two days before the close of the “safe harbor” period established by the Small Business Administration (SBA) for borrowers to return Paycheck Protection Program (PPP) loans if recipients did not believe they could make the economic need certification in good faith—Treasury and the SBA have updated their FAQ document with key changes. The SBA is extending the “safe harbor” repayment date from May 7, 2020 to May 14, 2020. This is an automatic extension that applies to all borrowers. Further, the SBA intends to provide additional guidance on how it will review the economic need certification prior to May 14, 2020. During this additional week, borrowers should also consider the impact of another new FAQ addressing affiliation with foreign entities and providing that “[f]or purposes of the PPP’s 500 or fewer employee size standard, an applicant 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.” While confirming that the affiliation rules apply to both U.S. and foreign affiliates, this new guidance raises questions about which employees are included in the headcount for the size standard and contradicts the prior FAQs and interim final rule statements that the size standard only counted employees whose principal place of residence is in the U.S.

On April 30, 2020, the Small Business Administration (SBA) released an interim final rule imposing a $20 million cap on the aggregate amount of loans a single corporate group can receive from the Paycheck Protection Program (PPP). Given the high demand for PPP loans and finite appropriations, the SBA has imposed this limit in order to ensure PPP funds reach the largest possible number of borrowers.

On April 23, 2020, Congress passed the Paycheck Protection and Health Care Enhancement Act, including additional funding for small businesses, health care providers, and testing. As described in greater detail below, the new package approves over $480 billion in total additional funding for programs addressed previously in the CARES Act. Another stimulus bill addressing the COVID-19 pandemic is anticipated in May.

On April 23, 2020, Treasury drastically complicated the landscape for the Paycheck Protection Program (PPP) by updating a Frequently Asked Questions document with a response to the question: “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?” 

Over the past two days, SBA has released in the middle of the night two draft Interim Final Rules as well as a final application and additional guidance – including on affiliation – on the overhauled Paycheck Protection Program (“PPP”) loans, implementing Sections 1102 and 1106 of the CARES Act.  Since the passage of the legislation a week ago and with only limited preliminary guidance and now-superseded applications from both Treasury and SBA, businesses and lenders have been scrambling to understand loan eligibility, how to apply, as well as key loan terms.  The new SBA Form 2483, confirmation of the applicable affiliation test, and the two draft Interim Final Rules reflect significant developments.  With the opening of the PPP application process in the midst of this dynamic process, we are providing a revised and essential summary of the PPP and eligibility questionnaire.  (Updated summary - April 9, 2020) We will also be scheduling a webinar on Tuesday afternoon at 3:00 p.m. Eastern (invitation to follow) with Crowell & Moring as well as from SBA Lender – Live Oak Bank – to provide you with the most up-to-date information of this important program.  The Crowell & Moring team is working with clients across many industries since application day one and before, and we hope you will reach out with questions.