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SBA Releases New Guidance on the Paycheck Protection Program

April 8, 2020


Hoping to address some of the ambiguity surrounding the Paycheck Protection Program (PPP), the SBA, in consultation with the Treasury Department, released important updates to the highly coveted loan program this week, including clarification on eligibility requirements, the maximum loan calculation, forgiveness, and more. Updates include:

  • The following businesses are eligible to apply for the PPP even if they would not be considered a “small business concern” (as defined in section 3 of the Small Business Act, 15 U.S.C. 632):
    • A business (including qualifying tax-exempt organizations) is eligible for a PPP loan if it has 500 or fewer employees whose principal place of residence is in the United States.
    • A business (including qualifying tax-exempt organizations) is eligible for a PPP loan if it meets the SBA employee-based size standards for the industry in which it operates (if applicable).
  • It is possible that a business with more than 500 employees can still be eligible if it meets the following criteria:
    • It is a “small business concern” that meets the employee-based or revenue-based size standard corresponding to its primary industry; or
    • It is a “small business concern” with (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.
  • Borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. Contact your lender to determine the proper time period.
  • Payroll costs are gross payroll costs that include only the employee portion of FICA and withholding for all loan and forgiveness calculations. No adjustment is made for the period Feb. 15-June 30. The employer portion of tax is excluded from the calculations.

Other important PPP updates released by the SBA in recent days include an “interim final rule” that outlines key provisions in the program, including:

  • The loans will be granted on a first-come, first-served basis (up to $349 billion currently designated to PPP).
  • No more than 25% of forgiveness amount may be attributable to non-payroll costs. This is a new requirement not previously mentioned or alluded to in legislation.
  • Faith-based 501(c)(3) organizations are defined as eligible.
  • Independent contractors do NOT count as employees and are NOT included in the borrower’s PPP maximum loan or forgiveness calculations.
  • The amount of loan forgiveness can include accrued interest in addition to principal, provided that the borrower meets all applicable forgiveness requirements.
  • The term of the loan is two years at 1% with no payments required for six months (interest accrues but can be deferred).

If you have questions, comments, or concerns about the PPP program, please reach out to your KSM advisor or complete this form.

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