CARES Act: Paycheck Protection Program Loans Update

CARES Act: Paycheck Protection Program Loans Update

*NOTE: This Act is currently evolving and has daily changes. This article was written with the most current information as of 05-18-2020. For more articles related to the CARES Act, visit our COVID-19 archive.

Introduction:

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is working to help alleviate the strain many businesses and individuals have under the current circumstances by providing $376 billion in relief for American workers and small businesses. There are many parts to the CARES Act. If you are running a business, particularly with employees, it is highly recommended that you visit the U.S. Small Business Administration (SBA) website www.sba.gov. Also, you may want to speak with your attorney or human relations professional to discuss the requirements. Of the many different funding/loan programs and employee protection guidelines, this article is going to look specifically at one particular loan: Paycheck Protection Program (PPP) Loans and the major updates for the loan that have recently been announced.

Safe Harbor for Certification Concerning Need for PPP Loan:

Effective May 13th 2020 guidance was provided discussing the potential of audits looking into the businesses need for the PPP loan. As you may have heard through the news media many corporations have been questioned as to if they truly meet the requirements of “need.” Based on language provided in the loan document “need” means, “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing obligations.” This is a very broad guideline. On April 24th, 2020 the SBA provided guidance to those who believe they no longer fit that guidance due to misunderstanding or misapplication. For those that continued with the loan there is now a safe harbor for good faith certification. In the guidance provided by the SBA any borrower that, together with its affiliates, received PPP loans with an original amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. For most farmers, ranchers, and small businesses what this means is, while you still could be audited for other reasons, if less than $2 million was borrowed the good faith testament of need for the loan is not reviewable.

Requirements for Loan Increases for Partnerships or Seasonal Employers:

When first signing up for PPP loans, there were unanswered questions on how the loan amount was calculated in certain situations. Effective May 13th 2020 guidance was provided on how an applicate can change the requested loan amount. Prior to submission of the initial SBA Form 1502, which is required to be submitted within 20 calendar days after a PPP loan approval, an interm final rule authorizes the lender to make an additional disbursement of increased loan proceeds. An example of this will probably come into play with some partnerships. If a partnership submitted a loan application that covered employees, but nothing for partner compensation, the lender may electronically submit a request through SBA to increase the PPP loan.

Final notes:

The PPP program is a very helpful tool available to business during this difficult situation. It is important for those that applied to stay on top of rules and guidance that the SBA and Treasury provide. A great source of information in addition to the SBA website is a Frequently Asked Questions page the Treasury provides.