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Recent Developments Concerning Paycheck Protection Program Loans

As discussed in prior issues of this Client Advisory, Congress in the CARES Act extended a lifeline to many small businesses through the Paycheck Protection Program. This program is available to most businesses and non-profits with up to 500 employees as well as sole proprietors. It provides low-interest loans to be used for payroll expenses (including salaries and benefits) as well as mortgage interest, rent, and utilities. The loan may be eligible for forgiveness in whole or part if the proceeds are used for these purposes during the eight weeks following funding. Although the initial $349 billion appropriated for this program was quickly exhausted, Congress appropriated an additional $320 billion, of which more than $100 billion still remains unallocated as of this writing.

The Small Business Administration has issued a series of rules, FAQs, and forms addressing various PPP issues. The SBA has clarified that compensation payable to partners in partnerships may be included in calculating the loan and forgiveness amounts, up to $100,000 per person per year (or $15,385 for an eight-week period). Companies that already submitted their loan applications prior to this announcement may submit a supplemental application including their partner draws, but because of pending deadlines, should do so immediately.

Borrowers under the PPP must certify that “current economic uncertainty makes this loan request necessary to support the ongoing applications of the Applicant.” Responding to questions about this vague standard, the SBA announced a safe harbor under which borrowers receiving less than $2 million in PPP loan proceeds will be deemed to have made this certification in good faith. Borrowers receiving more than $2 million will be audited and their loan forgiveness may be denied if the SBA determines that they did not have an economic need for the loan. There are also reports that the SBA and Congress are considering other changes, such as relaxing the SBA’s requirement that at least 75% of the amount to be forgiven must be used for payroll, and extending the eight-week period within which the proceeds must be expended in order to be eligible for forgiveness.