Paycheck Protection Program

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The Paycheck Protection Program (PPP) provides for small businesses to cover certain payroll and other costs. Small businesses with less than 500 employees are eligible to receive loans up to a $10 million.

The types of businesses and organizations eligible for a PPP loan include:

· Small business concerns, as well as any business concerns, a 501(c)(3) nonprofit organization, a 501(c)(3) veterans organization, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees, or the applicable size standard in number of employees for the North American industry Classification System (NAICS) industry as provided by SBA, if higher.

· Individuals who operate a sole proprietorship or as an independent contractor and eligible self employed individuals.

· Any business concern that employs not more than 500 employees per physical location of the business concern and that it is assigned a NAICS code beginning with 72, for which the affiliation rules are waived.

· Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company.

Affiliation rules become important when SBA is deciding whether a business affiliations preclude them from being considered “small”. Generally, affiliation exists when one business controls or has the power to control both businesses.

Loan proceeds must be used for allowable purposes including:

• Payroll costs

• Costs related to the continuation of group health care benefits during period of paid sick, medical or family leave, and insurance premiums

• Employee salaries, commissions, or similar compensation

• Payments of interest on any mortgage obligation

• Rent

• Utilities

• Interest on any other debt obligations incurred before the covered period

Recipients of PPP loans may not be used for the following:

· Employee/owner compensation over $100,000

· Taxes imposed or withheld under Chapters 21, 22, and 24 of the IRS Code

· Compensation of employees whose principle place of residence is outside the U.S.

· Qualified sick and family leave for which a credit is allowed under the FFCRA.

The loan amount is determined in different ways as follows:

· For businesses open between February 15, 2019 – June 30, 2019 the max loan is equal to 250% of the average monthly payroll costs. If the business is a seasonal employer, the max loan is equal to 250% of the average monthly payroll costs between February 15, 2019 and June 30, 2019. A business can also choose March 1, 2019 as the time period start date.

· For businesses not open between February 15, 2019 and June 30, 2019 the max loan is equal to 250% of the average monthly. Payroll costs between January 1, 2020 and February 29, 2020.

· If the business took out an Economic Injury Loan (EIDL) (discussion below) between February 15, 2020 and June 30, 2020 and the business wants to refinance that loan into a PPP loan, the business would add the outstanding loan amount to the payroll sum.

Eligibility considerations include whether the business:

Was in operation on February 15, 2020, and Had employees whom the borrower paid salaries and payroll taxes, or Paid independent contractors

The Small Business Administration (SBA) requires lenders to provide complete payment deferment relief (including payment of principal, interest, and fees) for impacted borrowers with covered loans for a period of at least six months, but not more for one year.

Loan recipients are eligible for loan forgiveness in an amount determined by a particular calculus provided by the Act. Employers must apply through their lender for forgiveness. In the application for forgiveness the employer must include:

· Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings;

· Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities;

· Certification from a representative of the business or organization who is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.

Loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%. Principal and interest will continue to be deferred for 6 months to a year after disbursement of the loan.

A business cannot apply for more than one PPP loan but may for other SBA assistance, including Economic Injury Disaster Loans (EIDLS), SBA 7(a) loans, SBA 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporation.

A business cannot use the PPP loan for the same purpose as its other SBA loan(s). For example, if a business uses its PPP loan to cover payroll for the 8 week covered period, the business cannot use a different SBA loan product for payroll for those same costs in the same period, although it can be issued for payroll for a different period or for different workers.

Businesses can apply for loans through all current SBA 7(a) lenders. The Department of the Treasury will authorize additional lenders, including no bank lenders, to help meet the needs of small business owners.

For further information please see https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp

Paycheck Protection Program Frequently Asked Questions: Paragraph 3.b.iii of the PPP Interim Final Rule states that lenders must “[c]onfirm the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll

documentation submitted with the borrower’s application.” Does that require the lender to replicate every borrower’s calculations? No. Providing an accurate calculation of payroll costs is the

responsibility of the borrower, and the borrower attests to the accuracy of those calculations on the Borrower

Application Form. Lenders are expected to perform a good faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning average monthly payroll cost. For example, minimal review of calculations based on apayroll report by a recognized thirdparty payroll processor would be

reasonable. In addition, as the PPP Interim Final Rule indicates, lenders may rely on borrower

representations, including with respect to amounts required to be excluded from payroll costs. If the lender identifies errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents, the lender should work with the borrower to remedy the issue.

Are small business concerns (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) required to have 500 or fewer employees to be eligible borrowers in the PPP? No. Small business concerns can be eligible borrowers even if they have more than 500 employees, as long as they satisfy the existing statutory and regulatory definition of a “small business concern” under section 3 of the Small Business Act, 15 U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-www.sba.gov/size for the industry size standards.

Additionally, a business can qualify for the Paycheck Protection Program as a small business concern if it met both tests in SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.

Abusiness that qualifies as a small business concern under section 3 of the Small Business Act, 15 U.S.C. 632, may truthfully attest to its eligibility for PPP loans on the Borrower Application Form, unless otherwise ineligible.

Does my business have to qualify as a small business concern (as defined in section 3 of the Small

Business Act, 15 U.S.C. 632) in order to participate in the PPP? No. In addition to small business

concerns, a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States, or the business meets the SBA employee-based size standards for the industry in which it operates (if applicable). Similarly, PPP loans are also available for qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code (IRC), tax-exempt veterans organization described in section 501(c)(19) of the IRC, and Tribal business concerns

described in section 31(b)(2)(C) of the Small Business Act that have 500 or fewer employees whose principal place of residence is in the United States, or meet the SBA employee based size standards for the industry

in which they operate.

Are lenders required to make an independent determination regarding applicability of affiliation rules under 13 C.F.R. 121.301(f) to borrowers? No. It is the responsibility of the borrower to determine which entities (if any) are its affiliates and determine the employee headcount of the borrower and its affiliates. Lenders are permitted to rely on borrowers’ certifications.

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 (15 U.S.C. 632), 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).

The affiliation rule based on ownership (13 C.F.R. 121.301(f)(1)) states that SBA will deem a minority shareholder in a business to control the business if the shareholder has the right to prevent a quorum otherwise block action by the board of directors or shareholders. If a minority shareholder irrevocably gives up those rights, is it still considered to be an affiliate of the business? No. If a minority shareholder in a business 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 that triggers the affiliation rules).

The CARES Act 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 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 (Public Law 116–127).

My small business is a seasonal business whose activity increases from April to June.

Considering activity from that period would be a more accurate reflection of my

business’s operations. However, my small business was not fully ramped up on February 15, 2020. Am I still eligible? In evaluating a borrower’s eligibility, a lender may consider whether a seasonal borrower was in operation on February 15, 2020 or for an 8 week period between February 15, 2019 and June 30, 2019.

What if an eligible borrower contracts with a third-party payer such as a payroll provider or a Professional Employer Organization (PEO) to process payroll and report payroll taxes? SBA recognizes that eligible borrowers that use PEOs or similar payroll providers are required

under some state registration laws to report wage and other data on the Employer Identification Number (EIN) of the PEO or other payroll provider. In these cases, payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP loan payroll documentation. Relevant information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the eligible borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. In addition, employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.

May lenders accept signatures from a single individual who is authorized to sign on behalf of the borrower? Yes. However, the borrower should bear in mind that, as the Borrower Application Form indicates, only an authorized representative of the business seeking a loan may sign on behalf of the business. An individual’s signature as an “Authorized Representative of Applicant” is a representation to the lender and to the U.S. government that the signer is authorized to make the certifications, including with respect to the applicant and each owner of 20% or more of the applicant’s equity, contained in the Borrower Application Form. Lenders may rely on that representation and accept a single individual’s signature on that basis.

I need to request a loan to support my small business operations in light of current economic uncertainty. However, I pleaded guilty to a felony crime a very long time ago. Am I still eligible for the PPP? Yes. Businesses are only ineligible if an owner of 20 percent or more of the equity of the applicant is presently incarcerated, on probation, on parole; subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or, within the last five years, for any felony, has been convicted; pleaded guilty; pleaded nolo contendere; been placed on pretrial diversion; or been placed on any form of parole or probation (including probation before judgment).

Are lenders permitted to use their own online portals and an electronic form that they create to collect the same information and certifications as in the Borrower Application Form, in order to complete implementation of their online portals? Yes. Lenders may use their own online systems and a form they establish that asks for the same information (using the same language) as the Borrower Application Form. Lenders are still required to send the data to SBA using SBA’s interface.

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 aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was 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).

Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs? No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s 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 a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven? Under the Act, payroll costs are 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 Federal Insurance Contributions Act

(FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, 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.

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 in these FAQs? 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 clarifications reflected in these FAQs.

Are PPP loans for existing customers considered new accounts for FinCEN Rule CDD purposes? Are lenders required to collect, certify, or verify beneficial ownership information in accordance with the rule requirements for existing customers? If the PPP loan is being made to an existing customer and the necessary information was previously verified, you do not need to re-verify the information.

Furthermore, if federally insured depository institutions and federally insured credit unions eligible to participate in the PPP program have not yet collected beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.

Do lenders have to use a promissory note provided by SBA or may they use their own? Lenders may use their own promissory note or an SBA form of promissory note.

The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin? 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.

Do lenders need a separate SBA Authorization document to issue PPP loans? No. A lender does not need a separate SBA Authorization for SBA to guarantee a PPP loan. However, lenders must have executed SBA Form 2484 (the Lender Application Form for the Paycheck Protection Program) to issue PPP loans and receive a loan number for each originated PPP loan. Lenders may include in their promissory notes for PPP loans any terms and conditions, including relating to amortization and disclosure, that are not inconsistent with Sections 1102 and 1106 of the CARES Act, the PPP Interim Final Rule and guidance, and SBA Form 2484.

I am a non-bank lender that meets all applicable criteria of the PPP Interim Final Rule. Will I be automatically enrolled as a PPP lender? What criteria will SBA and the Treasury Department use to assess whether to approve my application to participate as a PPP lender? We encourage lenders that are not currently 7(a) lenders to apply in order to increase the scope of PPP lending options and the speed with which PPP loans can be disbursed to help small businesses across America. We recognize that financial technology solutions can promote efficiency and financial inclusion in implementing the PPP. Applicants should submit SBA Form 3507 and the relevant attachments to NFRLApplicationForPPP@sba.gov. Submission of the SBA Form 3507 does not result in automatic enrollment in the PPP. SBA and the Treasury Department will evaluate each application from a non-bank or non-insured depository institution lender and determine whether the applicant has the necessary qualifications to process, close, disburse, and service PPP loans made with SBA’s guarantee. SBA may request additional information from the applicant before making a determination.

How do the $10 million cap and affiliation rules work for franchises? If a franchise brand is listed on the SBA Franchise Directory, each of its franchisees that meets the applicable size standard can apply for a PPP loan. (The franchisor does not apply on behalf of its franchisees.) The $10 million cap on PPP loans is a limit per franchisee entity, and each franchisee is limited to one PPP loan.

Franchise brands that have been denied listing on the Directory because of affiliation between franchisor and franchisee may request listing to receive PPP loans. SBA will not apply affiliation rules to a franchise brand requesting listing on the Directory to participate in the PPP, but SBA will confirm that the brand is otherwise eligible for listing on the Directory.

How do the $10 million cap and affiliation rules work for hotels and restaurants (and any business assigned a North American Industry Classification System (NAICS) code beginning with 72)? Under the CARES Act, any single business entity that is assigned a NAICS code beginning with 72 (including hotels and restaurants) and that employs not more than 500 employees per physical location is eligible to receive a PPP loan.

In addition, SBA’s affiliation rules (13 CFR 121.103 and 13 CFR 121.301) do not apply

to any business entity that is assigned a NAICS code beginning with 72 and that employs

not more than a total of 500 employees. As a result, if each hotel or restaurant location

owned by a parent business is a separate legal business entity, each hotel or restaurant

location that employs not more than 500 employees is permitted to apply for a separate

PPP loan provided it uses its unique EIN.

The $10 million maximum loan amount limitation applies to each eligible business entity,

because individual business entities cannot apply for more than one loan. The following

examples illustrate how these principles apply.

Example 1. Company X directly owns multiple restaurants and has no affiliates.

· Company X may apply for a PPP loan if it employs 500 or fewer employees per location (including at its headquarters), even if the total number of employees employed across all locations is over 500.

Example 2. Company X wholly owns Company Y and Company Z (as a result, Companies X, Y, and Z are all affiliates of one another). Company Y and Company Z each own a single restaurant with 500 or fewer employees.

· Company Y and Company Z can each apply for a separate PPP loan, because each has 500 or fewer employees. The affiliation rules do not apply, because Company Y and Company Z each has 500 or fewer employees and is in the food services business (with a NAICS code beginning with 72.

Example 3. Company X wholly owns Company Y and Company Z (as a result, Companies X, Y, and Z are all affiliates of one another). Company Y owns a restaurant with 400 employees. Company Z is a Company Y is eligible for a PPP loan because it has 500 or fewer employees.

· The affiliation rules do not apply to Company Y, because it has 500 or fewer employees and is in the food services business (with a NAICS code beginning with 72). construction company with 400 employees.

· The waiver of the affiliation rules does not apply to Company Z, because Company Z is in the construction industry. Under SBA’s affiliation rules, 13 CFR 121.301(f)(1) and (3), Company Y and Company Z are affiliates of one another because they are under the common control of Company X, which wholly owns both companies. This means that the size of Company Z is determined by adding its employees to those of Companies X and Y. Therefore, Company Z is deemed to have more than 500 employees, together with its affiliates. However, Company Z may be eligible to receive a PPP loan as a small business concern if it, together with Companies X and Y, meets SBA’s other applicable size standards,” as explained in FAQ #2.

Does the information lenders are required to collect from PPP applicants regarding every owner who has a 20% or greater ownership stake in the applicant business (i.e., owner name, title, ownership %, TIN, and address) satisfy a lender’s obligation to collect beneficial ownership information (which has a 25% ownership threshold) under the Bank Secrecy Act?

For lenders with existing customers: With respect to collecting beneficial ownership information for owners holding a 20% or greater ownership interest, if the PPP loan is being made to an existing customer and the lender previously verified the necessary information, the lender does not need to re-verify the information. Furthermore, if federally insured depository institutions and federally insured credit unions eligible to participate in the PPP program have not yet collected such beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to Bank Secrecy Act (BSA) compliance.

For lenders with new customers: For new customers, the lender’s collection of the following information from all natural persons with a 20% or greater ownership stake in the applicant business will be deemed to satisfy applicable BSA requirements and FinCEN regulations governing the collection of beneficial ownership information: owner name, title, ownership %, TIN, address, and date of birth. If any ownership interest of 20% or greater in the applicant business belongs to a business or other legal entity, lenders will need to collect appropriate beneficial ownership information for that entity. If you have questions about requirements related to beneficial ownership, go to https://www.fincen.gov/resources/statutes-and-regulations/cdd-final-rule. Decisions regarding further verification of beneficial ownership information collected from new customers should be made pursuant to the lender’s risk-based approach to BSA compliance.

SBA Regulations require approval by SBA’s Standards of Conduct Committee (“SCC”) The SCC has authorized a blanket approval for PPP loans to such entities so for SBA Assistance, other than disaster assistance, to an entity, if its sole proprietor, partner, officer, director or stockholder with a 10 percent or more interest is a current SBA employee; a Member of Congress, appointed official or employee of the legislative or judicial branch; and a member or employee of an SBA Advisory Council or SCORE volunteer; or by household members of any of the preceding Do these entities need the approval of the SCC in order to be eligible for a PPP loan? The SCC has authorized a blanket approval for PPP loans to such entities so that further action by the SCC is not necessary in the PPP program.

SBA regulations require a written statement of no objection by the pertinent Department or military service before it provides any SBA Assistance, other than disaster loans, to an entity, if its sole proprietor, partner, officer, director or stockholder with a 10 percent or more interest, or a household member, is an employee of another Government Department or Agency having a grade of at least GS-13 or its equivalent. Does this requirement apply to PPP loans? : No. The SCC has determined that a written statement of no objection is not

required from another Government Department or Agency.

Is a Lender permitted to submit a PPP loan application to SBA through E-Tran before the Lender has fulfilled its responsibility to review the required borrower documentation and calculation of payroll costs? No. Before a Lender submits a PPP loan through E-Tran, the Lender must have collected the same information and certifications contained in the Borrower Application Form and the Lender must have fulfilled its obligations set forth in paragraphs 3.b.(i)-(iii) of the PPP Interim Final Rule. Please refer to the Interim Final Rule and FAQ 1 for more information on the Lender’s responsibility regarding confirmation of payroll costs.

Lenders who did not understand that these steps are required before submission to E-Tran

need not withdraw applications submitted to E-Tran before April 14, 2020, but must

fulfill Lender responsibilities with respect to those applications as soon as practicable and

no later than loan closing.

Can lenders use scanned copies of documents or E-signatures or E-consents permitted by the E-sign Act? Yes. All PPP lenders may accept scanned copies of signed loan applications

and documents containing the information and certifications required by SBA Form 2483

and the promissory note used for the PPP loan. Additionally, lenders may also accept

any form of E-consent or E-signature that complies with the requirements of the

Electronic Signatures in Global and National Commerce Act (P.L. 106-229).

If electronic signatures are not feasible, when obtaining a wet ink signature without in-

person contact, lenders should take appropriate steps to ensure the proper party has

executed the document.

This guidance does not supersede signature requirements imposed by other applicable

law, including by the lender’s primary federal regulator.

SEE ALSO

• Other sections in this book

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