The SBA continues to add questions to its Payroll Protection Program FAQ first published on April 3, 2020. On April 23, 2020, the SBA added FAQ 31 referring to large companies who may have adequate sources of liquidity to support the business’s ongoing operations and whether or not they qualify for a PPP loan. Although the SBA may have added FAQ 31 in response to prominent public and private companies, some making headlines like Shake Shack, who obtained PPP loans during the initial phase, FAQ 31 provides some additional qualification criteria that applies to all borrowers. Specifically, borrowers must make their “economic uncertainty” certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. Additionally, FAQ 31 states that any borrower that obtained a PPP loan prior to the issuance of the revised guidance and repays the loan in full by May 7, 2020 will be deemed by the SBA to have made the required certification in good faith. See SBA PPP FAQ for the complete FAQ.
Companies who have obtained PPP loans or are applying for such loans should review the additional clarification in FAQ 31. Management and boards of directors should re-consider whether their circumstances fall within the spirit and intent of this economic relief program. Companies who do receive and keep PPP funding should maintain documentation to support the considerations around eligibility, the specific use of these funds, as well as qualifications for forgiveness under the terms of the program. Such documentation will be crucial were your eligibility under the PPP program questioned or investigated in the future. On April 28, 2020, Treasury Secretary Steven Mnuchin announced that all PPP loans above $2,000,000 will be scrutinized. As the guidance and clarity around the program continue to evolve, so will the need for documentation around compliance. Consult with your legal counsel if you have questions regarding eligibility.
Additionally, on April 24, 2020, the SBA issued a Payroll Protection Program FAQ specifically to address how to calculate maximum loan amounts-by business type. These questions and answers are directed toward:
- Self-employed individuals with no employees.
- Self-employed individuals with employees.
- Self-employed individuals who report income on IRS Form 1040, Schedule F, Profit or Loss From Farming.
- S corporations and C corporations.
- Eligible not-for-profit organizations.
- Eligible not-for-profit religious institutions, veterans’ organizations, and tribal businesses.
- LLC owners (whose instructions vary, depending on whether they file as a sole proprietor, partnership, or corporation).
We expect additional guidance and updates to continue and we will endeavor to keep you updated accordingly. If you have questions or wish to discuss these matters, please contact us.