As discussed in prior updates, on March 27, 2020, the CARES Act was officially enacted into law as part of the legislative response to the COVID-19 crisis.

One of the most talked-about aspects of the CARES Act is the new Paycheck Protection Program (“PPP”) and loans available thereunder.  In short, PPP loans are a brand new emergency loan program primarily designed to assist small businesses in paying their employees in the wake of the COVID-19 pandemic.  The PPP loans are made by approved SBA lenders (certain banks and other financial institutions) and guaranteed by the Small Business Administration (“SBA”).  No regulations were provided with guidance or interpretation of the CARES Act to accompany the statute itself, but such guidance is expected by late April 2020.  The SBA previously announced that lenders would begin accepting applications for PPP loans on Friday, April 3, 2020.

At approximately 10:00 PM Eastern time on April 2, 2020, the SBA issued additional guidance concerning PPP loans.  The new guidance directly relates to some of the most commonly asked questions we have been receiving, and therefore we wished to provide a summary of some of the most significant aspects of the same.

  1. First and foremost, the SBA has promulgated a new form application Most of the substantive information requested in the application is the same as the prior version.  At present, it is unclear whether SBA lenders will accept the prior version of the form in light of the issuance of the new form.  Some lenders have advised us that they MAY accept the old form, while others have indicated they will ONLY accept the new form.  We suggest applicants use the new form unless their lender has specifically advised to the contrary.
  2. The new form application contains additional “certifications” and “authorizations” not included in the original application form that applicants must certify that they have read, understood, and will abide by.
  3. The new information seems to confirm that “payroll costs” of employees earning $100,000.00 or more is subject to a hard cap of $8,333.00 per month, inclusive of the “entire payroll burden” (salary/wages and so-called fringe benefits provided for under the CARES Act).  This appears to resolve questions of whether employees earning more than $100,000 can be included in “payroll costs” at all (they can), and whether the $100,000.00 cap is limited to salary/wages, such that there is no cap for “fringe benefits” (the entire “payroll burden” appears to be subject to the $100,000 cap).
  4. The new guidance pertains to independent contractors in two significant ways. First, independent contractors are not to be included in a business’s number of employees for purposes of determining eligibility for PPP loans in the first instance.  Second, the SBA has taken the position that amounts paid by an applicant to independent contractors cannot be included in an applicant’s computation of average monthly “payroll costs,” which will result in a reduced loan amount for businesses who made payments to independent contractors.  It appears that the reason for these changes are that independent contractors can individually apply for a PPP loan.  As such, including independent contractors in the business’s employee count and calculation of payroll expenses would likely result in the same “employees” and dollars being including in multiple PPP loans.
  5. Despite widespread announcements that PPP loan applications would be accepted by lenders starting today (April 3, 2020), multiple SBA lenders have advised us that they are not yet accepting PPP loan applications at this time.  Some lenders have advised that they may not start accepting applications until April 6, 2020.

This post was written by Roger Poorman

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