Attached for you and members of the Coptic Chamber is guidance from the SBA in the form of an FAQ concerning the Paycheck Protection Program (“PPP”), as published on the Treasury Department website here.  The document expressly provides that PPP borrowers and lenders may rely on it as SBA’s interpretation of the CARES Act and the Paycheck Protection Program Interim Final Rule promulgated by SBA last week. 

 

Material developments include the following:

 

·Confirmation that the 500-employee size test set forth in the CARES Act only counts U.S. employees [Question 3]

·Confirmation that PPP applicants may qualify under the alternative size standards applicable to regular 7(a) loans [Question 2]

·Taken together, this means that an applicant must, together with its affiliates (unless a waiver of affiliation applies), satisfy one of the following size tests:

o   500 or fewer employees whose principal place of residence is in the U.S.

o   NAICS Code 72 and no more than 500 employees per physical location (employee location is not addressed in the new guidance)

o   Meet the applicable receipts-based or employee-based size test contained in SBA regulations found here based on the NAICS code applicable to the applicant’s primary industry

o   Both (a) tangible net worth as of 3/27/2020 no greater than $15 million AND (b) average net income after Federal income taxes (excluding any carry-over losses) no greater than $5 million for the two full fiscal years before the date of application  

·The applicable period for determining average monthly payroll costs is either TTM or calendar 2019. [Question 3]

·In applying the size tests, the employee count may be an average over the same period used for average monthly payroll costs (i.e., TTM or calendar 2019) or the last 12 completed calendar months. [Question 14]

 

·Payroll costs are now calculated on a gross basis without reduction for taxes imposed on employees or required to be withheld, but payroll costs do not include the employer share of payroll tax.  This is a major change to the calculation that could significantly increase the maximum loan amount and is being picked up by ADP and similar providers.  [Question 16]

·Payroll costs are now calculated as follows:

o   Gross pay (salary, wage, commission, or similar compensation, and cash tips or equivalent); plus

o   Employer state and local payroll tax; plus

o   Employer social security and Medicare taxes; plus

o   Benefits (leave, severance, group health care including insurance premiums, retirement benefits).

o   Exclude cash compensation over $100k/year annualized. $100k/year cap does not apply to non-cash benefits. [Question 7] 

o   Exclude employees whose principal residence is outside the U.S.

 

·Confirmation that if a minority shareholder irrevocably waives or relinquishes rights that trigger affiliation, then it will no longer be an affiliate unless some other relationship triggers affiliation. [Question 6]

 

·Confirmation that leased employees are included in payroll costs, and payroll documentation from the PEO is acceptable. [Question 10]

 

·Applicants and lenders that previously submitted loan applications to SBA may rely on the guidance available at the time.  Applicants whose applications have not been processed should revise their loan applications to comply with the new guidance. 

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Thank you and please stay safe. Until next time.

 

And, remember, K.I.C. (Keep It Coptic).