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Paycheck Protection Program Loans: New SBA Guidance

ppp loans

Update April 21, 2020: Paycheck Protection Program Refunded

Both the Economic Injury Disaster Loan and Paycheck Protection Program hit funding caps on Thursday, April 16. The Senate passed a $484 billion package on April 21 to inject additional funds into both programs. If you plan to apply for these new funds either through the PPP loan program or the Disaster loan program, have your applications ready to go! Get more info in our piece on SBA loan applications.

The SBA and Treasury have been slowly trickling out much-needed guidance on the Paycheck Protection Program (PPP) loans. In particular, on April 15, a Third Interim Final Rule was issued and their FAQ was updated. We’ve posted rundowns of previous updates on these FAQs as well.

However, the SBA also issued a statement that as of Wednesday, April 15, 1.3 million PPP loans had been approved at a value of more than $296 billion. With the current funding capped at $349 billion, it’s likely that the program will reach its ceiling this week, either Thursday, April 16 or Friday, April 17.

Pro Tip

Remember, there are other sources of funding available from federal and local agencies as well. These programs also have funding caps, so if you intend to apply for loans or grants, do so now.

Below are some of the updates to the PPP loan process that you need to know.

  • Do Not Count Foreign Employees

    The Interim Final Rules and the FAQ make it clear that only employees whose principal place of residence is in the United States count towards the 500-employee threshold for PPP Loans. This is good news for those businesses with foreign affiliates.

  • $100,000 Salary Cap

    The newest FAQ finally confirmed that the exclusion of compensation in excess of $100,000 annually applies only to “cash compensation” and not to non-cash benefits, such as “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.”

  • Use Gross Pay in Calculations

    Payroll costs should be calculated on a gross basis without regard to (i.e. not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of FICA and income taxes required to be, or elected to be, withheld from employees. However, employer-paid state and local taxes assessed on compensation of employees are still included in the PPP calculation.

  • Start Date of 8-Week Period

    The 8-week period during which spent funds can be eligible for forgiveness 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 10 calendar days from the date of loan approval. Thus, companies will have limited flexibility in dictating the timing of the start of the 8-week period.

  • Members of LLCs and Partners in Partnerships

    If you are an owner in an entity taxed as a partnership, the new guidance indicates that you should not file a separate PPP Loan application. Instead, if you are a “general active partner,” you may include your guaranteed payments and equity distributions (up to $100,000) as your annual wages for the loan amount calculation. However, it's unclear what “general active partner” means. We think that the intended meaning is that the owner must not be merely a passive investor but instead must be actively providing services to the company.

What we’ve included here is just the tip of the iceberg. It’s definitely worth your time to read the entire FAQ and to check back here regularly for new updates on these critical loan programs. 

As always, if you have any questions about your business, don’t hesitate to contact us. 

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