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Frequently Asked Questions about the Paycheck Protection Program

ppp faqs

Update April 27, 2020: PPP Application Process Reopened

Both the Economic Injury Disaster Loan and Paycheck Protection Program hit funding caps on Thursday, April 16. But a $484-billion funding package was passed on April 24 to inject additional funds into both programs. The SBA began accepting PPP loan applications again at 10:30 am on Monday, April 27. Get more info in our piece on SBA loan applications.

Despite its best efforts, the administration’s roll out of the new SBA Paycheck Protection Program hasn’t gone as smoothly as many businesses or lenders would have hoped. As of the opening of the application period on April 3, many lenders didn’t feel they’d received proper guidance to warrant processing applications.

All of these hiccups have led to an excessive amount of debate and uncertainty about key components of the loan program. Questions were like Hydras, and for every one that was answered, two popped up to take its place. If a business owner had tried to keep up to date on the ever-changing facts about the Paycheck Protection Program through that first week, it would have been a literal full-time job.

Not all concerns about the Paycheck Protection Program were answered fully or sufficiently before the initial $349-billion tranche of funds ran out. Though the program has been refunded, Treasury and SBA are still attempting to provide answers to many of the questions that businesses are asking. Here are some of the most important.

Source: Treasury & SBA FAQs, Updated April 26

  • The PPP 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?

    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.

  • Do PPP loans cover paid sick leave?

    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.

  • What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?

    In general, borrowers can calculate their payroll costs using either the previous 12 months or from calendar year 2019. For seasonal businesses, you can use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. Those companies 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).

  • Are payments made to an independent contractor or sole proprietor included in calculations of payroll costs?

    No. Any amounts that a borrower has paid to an independent contractor or sole proprietor should be excluded from the 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.

  • How should federal taxes be accounted for when determining payroll costs for purposes of 1) the maximum loan amount and 2) the amount of a loan that may be forgiven?

    Under the CARES Act, payroll costs are calculated on a gross basis without regard to federal taxes, such as the employee’s and employer’s share of FICA and income taxes required to be withheld from employees. As a result, payroll costs are not reduced based on taxes imposed on the employee or withheld from employee wages, but payroll costs do not include the employer’s share of payroll tax. (E.g. 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.)

  • If 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 issued by the SBA?

    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 future guidance and clarifications.

  • Are borrowers required to apply SBA’s affiliation rules under 13 C.F.R. 121.301(f)?

    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, 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).

  • If a minority shareholder, deemed to control the business per the SBA affiliation rule based on ownership, irrevocably gives up those rights, is it still considered to be an affiliate of the business?

    No. If a minority shareholder in a business, which has the right to prevent a quorum or otherwise block action by the board of directors or shareholders, 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 exists that triggers the affiliation rules).

  • Should borrowers only count full-time equivalent employees toward the 500-employee threshold?

    Yes and No. The CARES Act defines an "employee" for purposes of loan eligibility as "individuals employed on a full-time, part-time, or other basis." So, for example, if a borrower has 200 full-time employees and 50 part-time employees, the borrower has a total of 250 employees in terms of loan eligibility.

    By contrast, the standard of "full-time equivalent employees" is used for purposes of loan forgiveness to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.

  • Do businesses owned by large companies with sources of liquidity adequate to support the business’ ongoing operations qualify for a PPP loan?

    Yes and No. 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 are still required to certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” 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. For 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.

    Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to 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.

Remember, the Paycheck Protection Program is just one of many funding programs available to help small businesses right now. The SBA also has Economic Injury Disaster Loans and Express Bridge Loans. Florida has its own Bridge Loan program. 

Read More: Small Business Resources to Survive an Economic Crisis

Times may seem tough right now, but we will make it through this crisis. As much as is possible, try to focus on and plan for what comes next. Taking the necessary steps now will allow your business to recuperate much faster when the storm finally passes.

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