[1/n] BREAKING: @USTreasury & @SBAgov just issued additional guidance in the form of an "FAQ" document.

In this thread I will quickly summarize what it says as I read through it.

The 6 page document is linked in Sen. Rubio's tweet below, if you want to read it yourself. https://twitter.com/marcorubio/status/1247351995092140033

[2/n] FAQ document will updated regularly in the future.

Borrowers & lenders may rely on this doc as SBA's interp of CARES Act + PPP Interim Final Rule. US Govt will not challenge lender PPP actions that conform to this doc, to PPP IFR, and any future rules.

[3/n] Q1: PPP IFR 3.b.iii says lenders "must confirm $ amt of avg mo payroll costs for preceding cal yr by reviewing doc submitted with borrower's app." Does that require lender to replicate each borrower's calculations?

[4/n] A1: No. Accurate calc = borrower responsblty & must attest. Lenders shld perform good faith review, in reasonable time, of brwr's calcs & docs. Level of diligence shld be informed by quality of borrower's docs. E.g., minimal review of known 3rd-party payroll report=ok.

[5/n] Q2: Are small biz cncrns (as def by Small Business Act, section 3, 15 U.S.C. 632) req to have <500 empl to be eligible borrower?

[6/n] A2: No. Small biz concerns = elig even if >500 empl, if satisfy existing def in sec 3 of Small Biz Act 15 U.S.C. 632.

Biz can qualify if meets SBA empl-based or rev-based size std for its primary industry. See http://www.sba.gov/size  for details.

(A2 continues...)

[7/n] A2 continued:

Biz also PPP elig as small biz cncrn if met 2 tests in SBA "alt size" std as of 3/27/2020:
1. Max tang net worth <= $15M; and
2. Avg net inc after fed inc tax (excl carry over losses) is <=$5M for two prior full yrs before applic date.

(A2 continues...)

[8/n] A2 continued:

If biz qual as small biz cncrn, it may truthfully attest to eligibility for PPP loans, unless otherwise ineligble.

[9/n] Q3: Does biz have to qual as small biz cncrn (per above, sec 3 of Small Biz Act 15 U.S.C. 632) in order to participate in PPP?

[10/n] A3: No.

In addn small biz cncrns, a biz is elig for PPP if:
* has <500 empl whose principal residence is in USA,
OR
* if biz meets SBA empl-size stds for industry in which it operates (if applicable).

(A3 continues...)

[11/n] (A3 continued)

PPP loans also avail for:
* tax-exempt 501(c)3 non-profits
* tax-exempt veterans orgs per sec 501(c)(19)
* tribal biz concerns per sec 31(b)(2)(C) of Small Biz Act

Above must have <500 empl w/USA res OR meet SBA empl-based size stds for their industry

[12/n] Q4: Are lenders req'd to make independent determination regarding applicability of affiliation rules under 13 C.F.R. 121.301(f) to borrowers?

[13/n] A4: No. It is borrower's responsibility to determine which entities (if any) are its affiliates, and to determine empl headcount of borrower + its affiliates.

Lenders are permitted to rely on borrower's certifications.

[14/n] Q5: Are borrowers required to apply SBA affiliation rules under 13 C.F.R. 121.301(f)?

[15/n] A5: YES - AFFILIATION RULES STILL APPLY. [My emphasis added to highlight this].

Borrowers must apply affil rules set forth in SBA IFR on Affiliation. Borrower must certify that it is elig for PPP. That certification means that...

[A5 continued]

[16/n][A5 cont]

Borrower must certify, after applying affiliation, is:

1. Small biz cncrn per sec 3 of 15 U.S.C. 632, OR

2. Meets SBA empl-based or rev-based size std, OR

3. Meets 2 tests in SBA alt size std

Existing affil exclusions apply to PPP, incl. 13 CFR 121.103(b)(2)

[17/n] Q6: Affiliation rule based on ownership (13 CFR 121.301(f)(1)) says minority shrhldr = control the biz if has right to prevent quorum or otherwise block action by BoD or shrhldrs. If minority shrhldr irrevocably gives up such rights, is it still an affiliate?

[18/n] A6: ***NO.**** [emphasis added by me]

If minority shrhldr irrevocably waives/relinquishes any existing rights specificed in 13 CFR 121.301(f)(1), it will no longer be an affiliate (assuming no other relationship that triggers the affiliation rules).

[19/n] Q7: CARES Act excludes from payroll costs any empl comp / annual salary > $100k. Does that exclusion apply to all empl benefits of monetary value?

[20/n] A7: No. Exclusion of annual comp > $100k applies only to cash comp, NOT to non-cash benefits, including:
* emplyr contributions to def-bnft or def-contrib retirement plan;
* pmt for empl group health care coverage, incl ins prems;
* pmt of state/local tax on emlp comp.

[21/n] Q8: Do PPP loans cover paid sick leave?

[22/n] A8: Yes. PPP loans cover payroll costs, incl costs for empl vacation, parental, medical & sick leave.

HOWEVER [emphasis mine],

CARES Act excludes qual sick & family lv wages for which tax credit is allowed under FFCRA.

[23/n] Q9: My SMB = seasonal; activity increases April-June. Considering activity from that period = more accurate for my biz. However, my SMB was not fully ramped up on Feb 15, 2020. Is my SMB eligible for PPP?

[24/n] A9: In evaluating borrower eligibility, a lender may consider whether a seasonal borrower was in operation on Feb 15, 2020 *or* for an 8-week period between Feb 15, 2019 and June 30, 2019.

[25/n] Q10: What if otherwise elig borrower contracts with a third-party payer, e.g. payroll provider or professional employee organization (PEO) to process payroll & report payroll taxes?

[26/n] A10: SBA recognizes that elig borrowrs that use PEOs or similar payroll providers are req'd under some state reg laws to report wage & other data on the EIN of the PEO or payroll provider.

[A10 continues]

[27/n] [A10 continued]

Payroll docs provided by PEO/payroll provider that indicates amt of wages & payroll taxes reported to IRS for the borrower's empls will be acceptable for PPP.

[Provides fine print guidance on which specific forms to use, etc]

[A10 continued]

[28/n] [A10 continued]

In addition, employees of the eligible borrower will not be considered employees of that eligible borrower's PEO/payroll provider.

[29/n] Q11: May lenders accept sigs from a single individual who is authorized to sign on behalf of borrower?

[30/n] A11: Yes.

HOWEVER, only auth rep of biz applicant may sign on behalf of biz. A sig as "Authorized Rep"= rep to lender + US govt that signer is authorized to certify, incl w/respect to applicant PLUS each owner of >=20% equity. Lenders may rely on/accept on that basis.

[31/n] Q12: I need PPP loan to support my SMB ops in light of current econ uncertainty. However, I pleaded guilty to felony a very long time ago. Am I still elig for PPP?

[32/n] A12: Yes.

Biz only inelig if owner of >= 20% equity is:
1. *presently* incarcerated, on probation, on parole; subject to indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction,

OR

[A12 continues]

[33/n] [A12 continued]

OR

2. Within last 5 yrs, 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 (incl probation before judgement).

[34/n] Q13: Can lenders use own online portals & elec forms to collect same info & certs as in SBA Borrower App form?

[35/n] A13: Yes. Lenders can use own online systems + form they establish that asks for same info (using same language) as SBA Borrower App. Lenders still req'd to send data to SBA using SBA's interface.

[36/n] Q14: What time period should borrowers use to determine their # of employees and payroll costs to calculate max loan amounts?

[37/n] A14:

Borrowers can calc payroll using data from:
1. Previous 12 months, OR
2. Calendar year 2019.

IF borrower was not in biz 2/15/19-6/30/19, can use avg mo payroll 1/1/20-2/29/20.

Seasonal biz may use avg mo payroll 2/15/19-6/30/19 OR 3/1/19-6/30/19.

[A14 continues]

[38/n] [A14 continued]

Can use avg # empl over same periods above for empl-based size stds,

OR

Can use avg # of empl per pay period in 12 completed cal months prior to date of loan app

OR

If not operational for >=12 mos, use avg # of empl for ech pay period in operation.

[39/n] Q15: Should pmts to independent contractors or sole proprietors be incl in calcs of elig borrower's payroll costs?

[40/n] A15: No.

Any amt paid to IC or sole prop should be *excluded* from payroll costs.

However, such IC/sole props will be eligible themselves to apply for PPP loan, if they satisfy other requirements.

[41/n] Q16: How to account for federal taxes when determining payroll costs for purpose of max loan amt, allowable uses of PPP loan $, and amt of eligible loan forgiveness?

[42/n] A16:

Payroll costs = calc on gross basis without regard to (i.e. not incl subtractions/additions based on) fed taxes imposed or withheld,

e.g. empl & emplyr share of FICA & inc taxes withheld from empls.

[A16 continues]

[43/n] [A16 continued]

Result = payroll costs are not reduced by taxes imposed on empl & req'd to be withheld by emplyr,

BUT

Payroll costs do NOT include employer's share of payroll tax.

[A16 continues]

[44/n] [A16 continued]

Example:
Empl earned $4k/mo gross. $500 fed tax withheld. Payroll costs for PPP= still $4k. Empl receives $3.5k; $500 paid to fed govt. However, add'l employer-side fed payroll taxes imposed on the $4k wages are excluded from payroll costs for PPP.

[45/n] Q17: I already filed a PPP loan application based on the version of PPP IFR published April 2, 2020. Do I need to take any action based on this updated guidance in these FAQ's?

[46/n] A17: No. Borrowers & lenders may rely on laws/rules/guidance available at time of application.

However, if desire, borrowers who previously submitted PPP loan apps that have not yet been processed may revise their applications based on these FAQ's.

[47/n] Q18: Are PPP loans for existing customers considered new accounts for lender's FinCEN Rule CDD purposes? Are lenders req'd to collect, certify, or verify beneficial ownership info in accordance with rules for existing customers?

[48/n] A18: If PPP loan is being made to existing customer and necessary information was previously verified, lender does NOT need to re-verify the information.

[A18 continues]

[49/n] [A18 continued]

Further, if FDIC banks/fed ins credit unions elig to do PPP have NOT yet collected beneficial ownership info on exist cust, they do NOT need to now collect & verify for exist cust applying for new PPP loans, unless for lender's own risk-based compliance.

[50/50] This concludes summary of @SBAGov & @USTreasury FAQ guidance released April 6, 2020.

You can access full document at (link to PDF file):
https://bit.ly/2JMSDJw 

Please consult legal counsel & financial/tax advisor(s) before proceeding to apply for PPP loans.

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