Treasury Updates the PPP FAQs
The Paycheck Protection Program (PPP) continues to serve as an essential financing tool for businesses managing the COVID-19 emergency. The White House recently announced that an additional $2.2M in small business loans totaling $179B has already been approved with an average size of $79,000 under the second round of funding. These numbers reflect not only the popularity of PPP loans but also the pace at which funds are running out. For those interested in applying, it is important to start the process immediately, while approved borrowers should start investigating loan forgiveness details.
The Treasury published a list of frequently asked questions (FAQs) to update applicants and borrowers when the program started. It is quite comprehensive, and most do not check it regularly, but there is important information outlined to consider. To help clients, prospects, and others, we have provided information on the most recent guidance below.
Loan Qualification – Adequate Liquidity
There was a question added about whether businesses owned by large companies with adequate sources of liquidity to fund operations still qualify for a loan. Below is the answer provided in the FAQ document.
In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere, borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should carefully review the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, considering their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations. Any borrower that applied for a PPP loan before the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.
Loan Forgiveness – Laid Off Employees
There was a question added about how the amount of loan forgiveness will be reduced if a laid-off employee is offered re-employment, but declines. Below is the answer provided in the document.
No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and the same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the borrower must document the employee’s rejection of that offer. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
Loan Forgiveness – 8 Week Period
Finally, there was also a question about when the 8-week period begins for purposes of payroll cost calculation. Below is the answer provided.
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.
The continually changing details and daily updates about the PPP can make it challenging for New Jersey and Pennsylvania businesses to stay current. Our team is continuously monitoring the situation and will provide updates when vital information is made available. If you have questions about the information outlined above or need assistance with a COVID-19 tax issue, Klatzkin can help. For additional information, click here to contact us.
The above represents our best understanding and interpretation of the material covered as of the date of this post. Things are moving at a rapid pace, and as such, information is subject to change. This information is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.