Additional Information on SBA Loan Programs

The US Treasury and the Small Business Administration (SBA) have recently added several key topics in their Frequently Asked Questions, which has been the main guidance document for the Paycheck Protection Program (PPP). 


Deadline to Return PPP Loans Extended to May 14, 2020 


Question #31, added on April 23, 2020, reminded borrowers to carefully review their good faith certification that they truly needed the loan taking in to account the ability to access other sources of liquidity sufficient to support their ongoing operations. This suggested that businesses owned by large companies with adequate resources should carefully reconsider their eligibility. It further gave an option to borrowers, who applied for PPP loans prior to April 24, 2020, to repay the loan by May 7, 2020. A borrower who repaid the loan in full by this date would be deemed to have made the required certification in good faith. 


Question #43, added on May 5, 2020, extended this repayment deadline to May 14, 2020. It also added that the SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020. 


Affiliation Rule and Whether to Count Employees of Foreign Related Parties 


Question #3 stated that “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.” This led to an interpretation that when counting employees to determine eligibility, borrowers would first apply the affiliation rule by aggregating the number of group-wide employees, but then only count US-resident employees among them. This created great confusion among borrowers, since the SBA ordinarily requires borrowers to include employees of all foreign group members when determining employee count. 


On May 5, 2020 the SBA added Question #44 to its FAQs that “For purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S and foreign affiliates…” This came to surprise to many borrowers since the phrase “whose principal place of residence is in the United States” was not included in the text, while the Answer to #3 was not rephrased or dropped. 


Given this new development, many advisors are now suggesting borrowers to carefully examine the new guidance the SBA intends to issue, re-evaluate their eligibility including the economic need and affiliation rules, if necessary, and consider whether to return the loan by the May 14th deadline. Please make sure to consult this matter with your legal counsel or a lawyer. 


Disclaimer: Please note that the circumstances surrounding the PPP loans are still in development and information contained in this email is HLS’s understanding of the program as of May 8, 2020.

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