On August 11th, 2020, the U.S. Small Business Administration (SBA) and United States Treasury issued joint guidance answering some questions that employers have had recently on specific coronavirus measures including the federal Paycheck Protection Program (PPP). This resource builds upon guidance previously released in April 2020, and then later updated on August 4th.
Updated FAQ Content
In the August 11th update, the SBA and the Treasury issued two Frequently Asked Questions (FAQs) related to the PPP and three FAQs related to the PPP and Economic Injury Disaster Loans (EIDL). An interim final rule issued the same day establishes procedures for prospective borrowers who want to appeal certain SBA loan decisions.
In regards to the PPP, questions number 50 and 51 were added to the list of FAQs that were part of the original April 2020 document. The new FAQs:
- Establish that the payment or nonpayment of fees of an agent or other third party is not material to the SBA’s guarantee of a PPP loan or to the SBA’s payment of fees to lenders.
- Permit payments for vision and dental benefits included in the group health care benefits and insurance premiums that are eligible to be paid with PPP funds.
Loan Forgiveness FAQs
The three FAQs related to the PPP and EIDL were added to a list of PPP forgiveness FAQs, originally published on August 4th. These new FAQs:
- Describe how a lender will be able to confirm the amount of any EIDL advance that will be automatically deducted by the SBA from a PPP borrower’s loan forgiveness amount when the borrower has received both EIDL and PPP funds. Lenders can confirm the advance amount through the PPP Forgiveness Platform.
- Instruct lenders on how to handle any remaining balance due on a PPP loan after the SBA remits the forgiveness amount to the lender, including if there has been a reduction in the forgiveness amount for an EIDL advance. Lenders must notify the borrower of the amount remitted by the SBA and when the first payment will be due. The borrow must replay the loan before the maturity date, either two or five years. Previous guidance indicated that PPP loans originating before June 5th, 2020, have a two-year term, unless the lender and borrower mutually agree to extend the maturity of such loans to five years. If the loan originated on or after June 5th, 2020, the term is five years.
- Outline what a lender should do if a borrower received an EIDL advance in excess of the amount of its PPP loan. Lenders must notify the borrower when the first payment will be due, and the loan must be repaid by the borrower before the maturity date, either two or five years.
New Interim Final Rule
The new interim final rule establishes numerous review procedures, including:
- The right for a PPP borrower to request a review of a lender decision or an SBA decision that a borrower is ineligible for loan forgiveness. Businesses can appeal final SBA decisions to the Office of Hearings and Appeals (OHA). Borrowers may also request that the SBA review a lender decision outside of the OHA.
- Documentation requirements, time limits, and a walkthrough of the processes. Oral hearings are permitted only in specific scenarios following a request or at the judge’s election.
Background of the PPP
Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The legislation authorized the Treasury to use the SBA’s 7(a) small business lending program to fund forgivable loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.
The loans applied small businesses in operation on February 15th, 2020, with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries could also apply for loans. The deadline to apply for a PPP loan expired on August 8th, 2020.
Under the PPP’s guidelines, loan recipients can have their loans forgiven in full if businesses used the funds for eligible expenses, among other criteria. The amount of the loan forgiveness may adjust based on the percentage of eligible costs attributed to nonpayroll costs, any decrease in employee headcount, and decreases in salaries or wages per employee.