The process has begun for businesses to apply to lenders for U.S. Small Business Administration-backed loans under the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) passed in late March by Congress and signed into law by the president. The loans are made by local SBA lenders and guaranteed by the SBA. A list of Utah SBA lenders is available at www.sba.gov/offices/district/ut/salt-lake-city/resources.
The PPP lending process has begun and will continue through June 30 or until all funds are exhausted.
The Paycheck Protection Program was established to help businesses remain viable by providing funds that will allow businesses to continue to pay their employees during the financial crisis caused by the COVID-19 pandemic. Loan amounts are based on payroll records supplied to the lenders by the borrowers. All loans have a 1 percent fixed interest rate, require no collateral or guarantor and will be due in two years with no prepayment penalties or fees.
The following are selected questions and answers concerning the PPP, but business owners should confirm actual law-based policies with their SBA lender:
Question: Paragraph 3.b.iii of the Paycheck Protection Program Interim Final Rule states that lenders must “confirm 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 that the lender replicate every borrower’s calculations?
Answer: No. Providing an accurate calculation of payroll costs is the responsibility of the borrower, and the borrower must attest to the accuracy of those calculations. 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. If lenders identify 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 error.
Question: 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?
Answer: 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-based size standard corresponding to its primary industry. Go to www.sba.gov/size for the industry size standards.
Question: 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?
Answer: 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.
Question: Are lenders required to make an independent determination regarding applicability of affiliation rules under 13 C.F.R. 121.301(f) to borrowers?
Answer: 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.
Question: Are borrowers required to apply SBA’s affiliation rules under 13 C.F.R. 121.301(f)?
Answer: 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.
Question: 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?
Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits.
Question: Do PPP loans cover paid sick leave?
Answer: Yes. PPP loans covers payroll costs, including costs for employee vacation, parental, family, medical and sick leave.
Question: 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 Feb. 15, 2020. Am I still eligible?
Answer: In evaluating a borrower’s eligibility, a lender may consider whether a seasonal borrower was in operation on Feb. 15, 2020, or for an eight-week period between Feb. 15, 2019 and June 30, 2019.
Question: 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?
Answer: 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 as of April 6, 2020, 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.
Question: May lenders accept signatures from a single individual who is authorized to sign on behalf of the borrower?
Answer: 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. Lenders may rely on that representation and accept a single individual’s signature on that basis.
Question: 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?
Answer: Yes. Businesses are only ineligible if an owner of 20 percent or more of the equity of the applicant is presently incarcerated, on probation or 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).
Question: 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?
Answer: 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.
Question: What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?
Answer: 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 Feb. 15, 2019, or March 1, 2019, and June 30, 2019.
Question: 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?
Answer: 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.
Question: 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?
Answer: Under the act, payroll costs are calculated on a gross basis without regard to 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. Borrowers should check with their lender for calculation of payroll costs.
Question: 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?
Answer: 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.