E.6 [UPDATED] Are independent contractors or K-1 partners included in calculating payroll costs? Yes. Additionally, SBA’s determination regarding the necessity of the loan request will not affect the SBA loan guarantee. Refinancing an EIDL made between January 31, 2020, and April 3, 2020. Neither SBA.com® nor Lendio can guarantee your application will be accepted or a lender will fund your loan. SIZ-5357 (2012); BR Construction, LLC, SBA No. Payroll costs consist of the following:[82]. The CARES Act waives the typical SBA requirement that a borrower show it is unable to obtain credit elsewhere. If SBA determines that such a borrower did not have an adequate basis for the certification of need, SBA will notify the borrower and seek repayment in full of the PPP loan, and tell the lender that the borrower is not eligible for loan forgiveness. SIZ-5357 (2012). E.1 [UPDATED] How may PPP loan proceeds be used? Federal Contracting. As of June 15, 2020. E.12 Are workers’ compensation insurance costs included in calculating payroll costs? SBA is providing materials in languages other than English to help business owners recover [51] Small Business Act § 7(a)(36)(D)(iv)(III). However, repaying the loan pursuant to FAQ 46 does not shield the borrower from all potential liability. This limit presumably applies to portfolio companies that are majority owned by private equity funds. Lenders may develop and implement their own versions of these forms, as they did for PPP loan applications. Subject to limitations described below, the outstanding principal amount of a PPP loan can be forgiven to the extent that PPP loan proceeds were used to pay the following:[93], However, the Flexibility Act amended the CARES Act to provide that a borrower must use at least 60% of PPP loan proceeds for payroll costs in order to be eligible for forgiveness of its PPP loan,[94] and IFR #17 revised the Interim Final Rule to require that at least 60% of PPP loan proceeds be used for payroll costs.[95]. D.8 What collateral is required for a PPP loan? [106] Forgiveness Application Instructions p. 4; EZ Forgiveness Application Instructions p. 2. C.6 When and how much must an SBIC have invested in a PPP applicant for the applicant to qualify for an affiliation waiver? Salaries, wages, commissions, and similar compensation, and cash tips or equivalents (based on employer records of past tips or, absent such records, a reasonable, good faith employer estimate of such tips), up to a maximum of $100,000 per year on an annualized basis. A borrower may even apply before the end of its chosen eight-week or 24-week covered period, but if it does so and has reduced any employee’s salary or hourly wage by more than 25%, it must account for the excess reduction for the full eight-week or 24-week covered period, as applicable. A business located in a foreign country or owned by undocumented (illegal) aliens. This document is intended to provide an overview of our understanding of the answers to commonly asked questions regarding the SBA Paycheck Protection Program (“PPP”), which was enacted as part of the stimulus package in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The applicant should be an/the entity that has employees and will spend the PPP loan proceeds for permitted purposes. B.12 Are businesses in bankruptcy eligible for PPP loans? E.23 Is prepayment of mortgage interest a forgivable use of PPP loan proceeds? No collateral or personal guaranty is required. SIZ-5222 (2011). An applicant is also specifically made ineligible by the Interim Final Rule if:[19]. [4] Small Business Act § 7(a)(36)(D)(i)(II); SBA FAQ Question 3. E.33 [UPDATED] Do I have to retain PPP documentation after my loan is forgiven? If you spend less than 60% of your PPP loan proceeds on payroll costs during your eight-week or 24-week covered period, your maximum forgiveness will be reduced. The employee test for determining PPP loan eligibility is a head-count test, including full-time, part-time, temporary, leased, and furloughed employees. SBA has not provided guidance on whether holding companies may apply for PPP loans and distribute PPP loan proceeds to their subsidiaries. Mortgage interest (but not principal payments or prepayments) on mortgage obligations on real or personal property incurred before February 15, 2020. If PPP loan funds have not been disbursed within 20 days after assignment of an Etran number, the lender must cancel the loan. On June 16, 2020, SBA published an updated PPP Loan Forgiveness Application Form, Form 3508 (the “Forgiveness Application”), together with instructions (the “Forgiveness Application Instructions”) and a short-form version of the Forgiveness Application, Form 3508EZ (the “EZ Forgiveness Application”) and Form 3508EZ Instructions (the “EZ Forgiveness Application Instructions”). The SBA updated its PPP Loan Forgiveness FAQs on October 13, 2020 to address this concern, adding Question 4 on page 2 of the FAQ: Question: The PPP loan forgiveness application forms (3508, 3508EZ, and 3508S) display an expiration date of 10/31/2020 in the upper-right corner. For example, FAQ 46 would not prevent the government or a whistleblower who believes that the borrower intentionally made a false statement in connection with its PPP loan application, knowing that it was false, from bringing or investigating a complaint under the False Claims Act. [114] CARES Act § 1106(d)(5), as amended by Flexibility Act § 3(b). The CARES Act provides forgiveness for “covered utility payments,” which includes transportation. This website is not a lender and does not broker loans, make loans or make any credit decisions. For a partnership, all general partners, and all limited partners owning 20% or more of the equity of the partnership. Generally, borrowers must submit the following with a PPP Loan Forgiveness Application on the EZ Forgiveness Application: Form 3508EZ PPP Loan Forgiveness Calculation Form. § 121.301(f); Affiliation Guidance. The IRS, in Notice 20-32, applied general principles of existing tax law in finding that expenses funded with the proceeds of a PPP loan are not deductible by the taxpayer up to the amount of the PPP loan that is forgiven. For this purpose, “single corporate group” refers to businesses that are majority owned, directly or indirectly, by a common parent. Where the applicant purchases foreign products, it should document that it considered purchasing American products and the reasons it was not feasible to purchase American products. [130] IFR #15 § 1(c); Forgiveness Application Instructions p. 6; EZ Forgiveness Application Instructions p. 4. Also on April 3, 2020, SBA published a summary of affiliation rules applicable to PPP (the “Affiliation Guidance”), which confirmed that the affiliation rules of 13 C.F.R. If you DID NOT receive a PPP loan in 2020 and you are interested in applying for funding in 2021, please e-mail your business name, primary contact and contact information to [email protected] to request an application link. On April 30, 2020, SBA published an Interim Final Rule on Corporate Groups and Non-Bank and Non-Insured Depository Institution Lenders (“IFR #7”). Lenders who are already qualified to participate in loans under Section 7(a) of the Small Business Act can elect to also participate in providing PPP Loans. SBA has calculated the cash compensation cap at $15,385 for an eight-week covered period and $46,154 for a 24-week covered period. Borrowers must submit to their PPP lenders a Loan Forgiveness Application plus documentation showing the permitted use of PPP loan proceeds and employment and payroll records for the relevant periods, together with certifications of accuracy. What if I spend less than 60% of my PPP loan proceeds on payroll costs during the eight-week or 24-week covered period? [104] Forgiveness Application Instructions p. 4; EZ Forgiveness Application Instructions p. 2. A speculative business (such as mining, and research & development). Borrowers will be required to maintain and provide evidence of their use of PPP loan proceeds, potentially including, for example, IRS payroll tax filings; state income, payroll, and unemployment insurance filings; and cancelled checks. In addition, the borrower must maintain written documentation of the written offer to rehire an employee, the employee’s rejection of the offer, and efforts to hire a similarly qualified individual. A contrary result would have resulted in a double tax benefit that Code Section 265 prevents. SIZ-5357 (2012); see also DHS Systems, LLC, SBA No. See E.36 below for which forgiveness application to file, E.37 below for when to file, and E.29 below for the documentation that must be submitted. Under this method, no employee may exceed 1.0 FTE. The CARES Act and initial SBA forgiveness guidance tie forgiveness of PPP loan proceeds to use during an eight-week period beginning when the PPP loan is funded or, with respect to payroll costs of certain borrowers, beginning with the start of the first pay period after the PPP loan is funded. For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million. [16] SBA FAQ Question 14; 13 C.F.R. Applicants with existing senior debt should carefully review their loan documents to determine whether the senior lender’s consent is required for incurrence of the PPP loan. If the Borrower received the SBA Loan Number on June 5, 2020, or later, the repayment term will be 5-years with 1.00% interest. In any of these situations, it is critical to properly identify affiliates and account for them in size determinations. SBA guidance specifically includes these as part of cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.[89]. Energy Partner Joe Karp addresses components of the firmâs energy and regulatory practice. For limited liability companies, all members owning 20% or more of the company. SBA has expressly stated that it will review all loans in excess of $2 million following the lender’s submission of the borrower’s forgiveness application. SBA defines “affiliation” as one business controlling or having the power to control another or when a third party (or parties) controls or has the power to control both businesses. For this item, SBA assumes the applicant will request the maximum available loan because borrowers are currently permitted to receive only one PPP loan. In many cases, such extended affiliation would make it impossible for the applicant to meet the size standards for PPP eligibility. A 20% or greater owner of the equity is incarcerated, on probation, on parole, or subject to formal criminal charges, or has been convicted of a felony. The CARES Act and SBA guidance do not require that PPP loan proceeds be deposited into a separate bank account, but we recommend doing so for ease of documenting that PPP loan proceeds were used for permitted and forgivable purposes. Created with Sketch. Financing an SBA EIDL Loan. Instructions or p. 4 of the EZ Forgiveness Application Instructions, as applicable. [25] This presumably applies to portfolio companies that are majority owned by private equity funds. E.24 [UPDATED] If I have PPP loan proceeds left over, once uses of those proceeds are no longer eligible for forgiveness, what happens? [12] SBA has determined that certain nonprofit hospitals exempt from taxation under Section 115 of the Internal Revenue Code,[13] certain electric cooperatives that are exempt from federal income tax under Section 501(c)(12) of the Internal Revenue Code,[14] and certain telephone cooperatives that are exempt from federal income tax under Section 501(c)(12) of the Internal Revenue Code are eligible if they meet the applicable size standards.[15]. See our Advertiser Disclosure. If the lender denies the application on its own, the borrower may request SBA review within 30 days of notice of denial from the lender. Meet the Rest of the Team . If you spend less than 60% of your PPP loan proceeds on payroll costs during your eight-week or 24-week covered period, your maximum forgiveness will be reduced. The SBA formerly levied fees of around 2 to 3.75 percent of the guaranteed portion of a loan… D.2 How do I calculate payroll costs? PPP SBA Loan Forgiveness FAQ; We are happy to announce that WaFd Bank’s PPP Loan Forgiveness Portal is now ready for you. Some borrowers and lenders prefer to have a holding company as the applicant. If Company Y is a restaurant with 400 employees, it would qualify for a waiver of affiliation because it is within NAICS category 72 and has fewer than 500 employees. By default, PPP borrowers should use its lender’s version of the Forgiveness Application on SBA Form 3508. Yes, at least with respect to the bill for the most recent billing period before the eight-week or 24-week PPP period. When in doubt, we recommend erring on the side of disclosure. D.9 [UPDATED] What is the deadline for applying for a PPP loan? The 7(a) loan program is the Small Business Administration’s most popular program. What if the applicant is relying on a different size test to qualify for a PPP loan? A pawn shop where more than 50% of its revenue for the previous year was from interest on loans. ALLSTATE AGENCY VALUE INDEX. In addition, the borrower must maintain written documentation of the written offer to rehire an employee, the employee’s rejection of the offer, and efforts to hire a similarly qualified individual.[120]. SBA intends to issue further guidance regarding the process for appealing adverse determinations.[129]. The CARES Act included a new federally guaranteed Small Business Administration (SBA) loan program called the Paycheck Protection Program (PPP). SIZ-5303 (2011); McLendon Acres, Inc., SBA No. Basil Godellas discusses the firmâs Disruptive Technologies Team. A business that earns 1/3 or more of its gross annual revenue from packaging SBA loans. [60] PPP loans funded before the enactment of the Flexibility Act mature two years from the date of funding[61] unless modified by the lender and borrower.[62]. Simon Luk discusses Winstonâs ability to serve clients globally and how the firmâs presence abroad benefits his private equity matters in Asia. If a private equity or venture fund is deemed to be an affiliate of a PPP applicant, all other affiliates of the fund (e.g., all other portfolio companies controlled by the fund) will be deemed affiliates of that PPP applicant. We also recommend that the applicant document any projections for further declines or inability to operate at full capacity. Fill out our loan request form and our partner Lendio will help you with your application and submit it to a PPP lender that is actively funding PPP loans. [135] We recommend that the applicant carefully review and document (a) any actual and projected decrease in its business due to COVID-19, including any metrics that indicate a decline in revenue or inability to operate the business at full capacity; (b) any actual or projected furloughs or layoffs, including those that could or would occur if the PPP loan is not obtained; and (c) what other liquidity sources may be available, on what terms, and for what purposes. PPP is also subject to SBA affiliation rules in 13 C.F.R. part 120. and Tech., Inc., SBA No. § 121.301(f) as currently in effect. Payments of salary, wages, and commissions during the applicable eight-week or 24-week period are eligible for forgiveness up to the $100,000 annualized cap. [17] Independent contractors and K-1 partners are not included, but note that independent contractors are separately eligible for PPP loans. [122], The lender has 60 days after it has received a complete forgiveness application to make a determination of the forgiveness amount, if any, and submit its determination and supporting documentation to SBA. A minority member’s power to approve the addition of any new members or the withdrawal of any old members, to increase or decrease the size of the Board, to increase or decrease the number of authorized interests, or to reclassify interests. A borrower may even apply before the end of its chosen eight-week or 24-week covered period, but if it does so and has reduced any employee’s salary or hourly wage by more than 25%, it must account for the excess reduction for the full eight-week or 24-week covered period, as applicable. CLICK HERE. [128] In any SBA review, the borrower will have the opportunity to respond to SBA’s questions. The Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on Friday, March 27, 2020. [137], On May 13, 2020, SBA posted FAQ Question and Answer 46 (“FAQ 46”), which provides a new safe harbor based on the principal amount of PPP loans received by a borrower and its affiliates: “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” Affiliation for this purpose is determined based on the rules that apply for determining eligibility for a PPP loan, as announced in IFR #2. We recommend consulting with counsel on any questions regarding whether a person or entity constitutes an affiliate and whether to disclose that applicant’s relationship with any person or entity. SBA has not provided guidance on whether this number includes only the employees covered by the average monthly payroll or includes foreign employees or employees of the applicant’s affiliates. Yes. The SBA may issue additional guidance on PPP Loan forgiveness. 4-5. On May 14, 2020, SBA published an Interim Final Rule on Eligibility of Certain Electric Cooperatives (“IFR #11”). Utilities where service began before February 15, 2020. who was fired for cause, voluntarily resigned or voluntarily requested and received a reduction of hours during the applicable eight-week or 24-week period; or. E.4 What happens if PPP loan proceeds are used for unauthorized purposes? This briefing was originally written on April 14 and was updated on June 23. [11] Individuals intending to seek PPP loans should consult counsel; this document does not address application of the CARES Act or implementing regulations and guidance to individuals who apply for PPP loans. Differing realities remain depending on your particular geography, but if you’re like many North American painting contractors, the light at the end of the COVID-19 tunnel appears to be brighter, at least in terms of how it has affected your business. A business that derives more than 1/3 of its gross annual revenue from legal gambling, or is a racetrack or casino, or otherwise has gambling as its primary reason for being. Menu. SIZ-5357 (2012); Size Appeal of BR Construction, LLC, SBA No. D.7 Are there any fees on a PPP loan? Borrowers should carefully review the instructions to the applicable Forgiveness Application or EZ Forgiveness Application form to confirm documents that must be submitted and documents that must be retained but not submitted. SBA 7(a) Loan Rates. A PPP borrower may submit its forgiveness application any time on or before the maturity date of the loan if the borrower has used all of the PPP loan proceeds for which it is requesting forgiveness. [97], Nonpayroll costs are eligible for forgiveness if paid during the eight-week or 24-week period beginning on the day the PPP loan is funded or if incurred during that eight-week or 24-week period and paid on or before the next regular billing date, even if the billing date is after the eight-week or 24-week period. SBA has not issued guidance on this point, and absent further guidance, we believe it is reasonable to exclude the fund from the tangible net worth and net income tests to avoid double-counting of the tangible net worth and net income of portfolio companies and because the fund is not an operating business. If the business has been operational for less than 12 months, it may use the average number of employees for each of the pay periods that it has been operational.[16]. Our profession is dedicated to advancing the rule of law. The precise materials required vary from lender to lender, but lenders generally require the following: F.13 How are loan applications submitted? It is unclear whether this limitation applies across multiple private equity funds under common control, but there is a risk that SBA could apply the cap across multiple funds. To determine an applicant’s maximum loan amount, multiply its average monthly payroll by 2.5. [90] Businesses that were not in business from February 15, 2019, to June 30, 2019, may use January 1, 2020, through February 29, 2020.[91]. Seasonal businesses may use the period between February 15 or March 1, 2019, through June 30, 2019, or any consecutive 12-week period between May 1, 2019, and September 15, 2019. E.36 below for which forgiveness application to file, E.37 below for when to file, and, should carefully review the instructions to the applicable Forgiveness Application or EZ Forgiveness Application form to confirm documents that must be submitted and documents that must be retained but not submitted. [6] 13 C.F.R. On June 11, 2020, SBA published an Interim Final Rule on Revisions to First Interim Final Rule (“IFR #17”) to revise the Interim Final Rule to account for changes made by the Flexibility Act. If the applicant is a holding company, it should disclose that fact and disclose the subsidiaries that will use the proceeds on Addendum A. [34] 13 C.F.R. F.5 Who are the “owners” that must be disclosed on page 1 of the application form? Generally, no, but SBA guidance issued on April 23, 2020, colors this analysis. A.3 [NEW] What forms have been issued regarding forgiveness of PPP loans? The maximum amount of your PPP loan is 2.5 times your average monthly payroll costs in the fiscal or calendar year prior to the time of your loan application, up to a cap of $2 million (down from $10 million in the previous funding round). Coronavirus SBA Paycheck Protection Program Small business Small business lending. SBA will deem a minority shareholder to be in control if that individual or entity has the ability, under the concern’s charter, bylaws, or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders. Documentation demonstrating that the applicant had employees for whom the applicant paid salaries and payroll taxes on or around February 15, 2020. PPP applicants may use (a) their average number of employees over the previous 12 months, (b) their average number of employees for calendar year 2019, or (c) their average number of employees for each pay period during the last 12 calendar months completed prior to the loan application. SBA has determined that the statutory purpose is served by permitting borrowers to continue paying employees, even if those employees are not able to work due to lack of economic demand or public health considerations. There is no SBA guidance on what this certification requires. As such, you should not act or refrain from acting on the basis of any content included herein without seeking legal or other professional advice. In its rule, the SBA states that borrowers must spend at least 75% of their loans on payroll costs. This website is not an agent, representative or broker of any lender and does not endorse or charge you for any service or product. In addition, SBA notes that “all borrowers should carefully review the required certification on the Paycheck Protection Program Borrower Application Form (SBA Form 2483) stating that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’”[23] SBA guidance further provides that “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”[24] SBA has not provided further guidance on how private equity fund portfolio companies should apply this standard. SBA permits borrowers with a biweekly (or more frequent) payroll schedule to calculate payroll costs eligible for forgiveness, but not other forgiveness amounts, based on an eight-week or 24-week period, as applicable, that starts on the first day of the first pay period after the PPP loan is funded. BUSINESS BUILDERS, ONLINE EXTRAS. Yes. The franchisor does not apply for PPP loans on behalf of its franchisees. PPP loans funded after the enactment of the Flexibility Act on June 5, 2020, mature five years after the date of funding. A business involved in any illegal activity. The creation of debt and the payment of dividends. [71] IFR #5 provides an alternative method for calculating the maximum PPP loan amount for seasonal employers: average total monthly payments for payroll during any consecutive 12-week period between May 1, 2019, and September 15, 2019. As SBA fees are generally not disbursed immediately, this may require establishing a receivable balance as part of the entry to capitalize the loan fee against the loan balance. The official application has been released and the program will re-open on January 11 for new borrowers, January 13 for 2nd draw. We recommend listing the total number of employees of the applicant and its affiliates. If the applicant is relying on a size test that is not based on employees (see B.1 above), it should disclose on Addendum A which test it is relying on and the facts that support its eligibility under that test. Generally, yes, assuming that they meet the size standards (see B.1 above) and are not in an ineligible business (see B.6 above) or otherwise disqualified. See B.5 above for how to count employees. Documentation of payroll costs for the eight-week period selected by the borrower for determining payroll costs eligible for forgiveness (see E.17 above), consisting of the following: Documentation of FTE employees for relevant periods, which documentation may include payroll tax filings (typically Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings. E.17 [NEW] What if I spend less than 60% of my PPP loan proceeds on payroll costs during the eight-week or 24-week covered period? C.9 How do the $10 million PPP loan cap and affiliation rules apply to franchises? § 107.50, including loans, debt with equity features, equity, and guarantees, would qualify a PPP applicant for a waiver of affiliation and that affiliation would be waived even if the applicant has non-SBIC investors.[52]. In addition, the applicant should disclose all other businesses owned by any direct owner of 20% or more of the applicant that is not an affiliate. Nothing on this website is an offer or a solicitation for a loan. The IRS reasoned that PPP loan forgiveness constitutes a category of tax-exempt income because of the application of Section 1106(i) of the CARES Act and thus expenses funded by PPP loan proceeds are not deductible to the extent of loan forgiveness. E.11 Are housing stipends and housing allowances included in calculating payroll costs? [36] Size Appeal of Southern Contracting Solutions III, LLC, SBA No. [12] See Small Business Act § 7(a)(36)(A)(vii), which defines “nonprofit organization” only to include 501(c)(3) organizations. Due to the ongoing COVID-19 pandemic, Winston & Strawn's lawyers and professional staff are now primarily working remotely. SIZ-5303 (2011). E.5 How do I calculate payroll costs? SIZ-5864 (2017); see also Carntribe-Clement 8AJV # 1, LLC, SBA No. Amending bylaws, issuing additional capital stock, and entering into any substantially different business. PPP borrowers must also permit authorized representatives of SBA, including representatives of SBA’s Office of Inspector General, to access such files upon request. B.2 Are non-U.S. employees excluded when counting employees?
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