The SBA Resumes the Paycheck Protection Program and Provides Additional Clarifications

On Friday, the President signed the Paycheck Protection Program and Health Care Enhancement Act, which provided an addition $310 billion into the CARES Act’s Paycheck Protection Program. The program goes live again on April 27 at 10:30 EDT. While the basics of the program remain unchanged, there are a few issues worth noting.

• Those with Existing Applications: A large portion of the funds have been reserved for community banks and community development financial insinuations. This may allow smaller companies who could only apply with smaller lending institutions a chance to receive funding. If you previously applied for the program prior to the lapse in funding and received a SBA certification number, it is more likely that you will receive a loan. If you did not receive a SBA certification number but your application was received by a lending institution, you should be considered next in line after those who have already received a certification number.

• SBA Additional Clarifications: The SBA updated its FAQs regarding the program. You can view the complete FAQ guidance by clicking here. Here are a few highlights:
  • An employer may include the cost of a housing stipend or allowance provided to an employee as part of compensation towards its payroll costs calculation.
  • For purposes of loan eligibility under the 500-employee threshold, the borrower must include all employees employed on a full-time, part-time or other basis. However, for purposes of loan forgiveness, only the number of full-time equivalent employees will be considered when determining to what extent loan forgiveness will be reduced based on a reduction in staffing levels. The terms “full-time”, “part-time” and “full-time equivalent” are not defined in the CARES Act or subsequent SBA guidance. However, because borrowers must document staffing levels using tax filings reported to the IRS, it may be reasonable to use the Internal Revenue Code definitions. Borrowers should contact their lenders and request and explanation on how these terms will be applied to loan forgiveness.    
  • In response to public criticism regarding the disbursement of loans to larger companies, the SBA reminded employers that they must certify that the economic uncertainty makes the loan request necessary to support their ongoing operations. The SBA added that this certification must be made in good faith, by considering their current business activities and their ability to access other sources of liquidity sufficient to support their ongoing operations. The SBA specifically noted that it is unlikely that a large public company with substantial market value and access to capital markets would be able to make this certification in good faith. However, if an employer received funding and returns the loan in full by May 7, 2020, the SBA will find that the employer acted in good faith.

We will continue to monitor all updated and developments regarding this program.