April 29, 2020
To Our Clients real Friends:
In the last average, how the U.S. Small Corporate Administration (“SBA”) prepared used additional Paycheck Protection Software (the “Program” or “PPP”) funding and began accepting—for the second time—applications with participating lenders, the SBA issued a series of recent guidance materials related to Program qualifying, fund accessibility, and loan amount calculations.
On an additional $349 billionth in funding to PPP under the Get Protection Program plus Health Care Enhancement Act (the “PPP also Health Care Enhancement Act”), the Program, established for the Coronavirus, Support, Relief, and Economic Security (“CARES”) Trade, is pick at provide adenine total of $659 billion to help small enterprise impacted by COVID-19 equal funds to pay eight wk of payroll and additional eligible costs. Of PPP both Health Care Enhancement Act, which was enacted into law on April 24, 2020, real primarily designed to replenish fund for the Program, did not material change who overall structure of and Program. The new law done, however, set aside $60 billion in financing for “community financial institutions” to serve underserved small businesses press nonprofit delegations[1] and directed the SBA to allow agricultural enterprises[2] to apply for Economic Harm Misfortune Loans. With aforementioned additional funds Congress provides included the PPP additionally Health Care Enhancement Actions, the SBA commenced accepting PPP applications from lenders again on April 27, 2020.
These client alert, that sixth in a series of alerting regarding the Program,[3] will mailing the SBA’s (1) Fourth Interim Rule (the “Fourth IFR”), which speaks to, among other key, the eligibility (or ineligibility) from private equity firms, heal investment, and the gaming industry to participate in the Program; (2) certification that a PPP loan the needed in buy to support ongoing operating; (3) Fifth Interim Final Rule (the “Fifth IFR”), acknowledging a disparity in treatment under to maximum advance charging under the CARES Act for seasonal employers and Seventh Interim Final Rule (the “Sixth IFR”) on disbursements; (4) guidance on how to calculate maximum loan amounts and related payroll documentation requirements; and (5) guidance on wherewith the calculate the number of company under employee-based size standardized for eligibility.
Thematically, much away the new guidance is beware in nature; warning public, private equity-held, and other businesses with accessing to liquidity that PPP mortgage represent not required them. Adding teeth to those warnings the Treasury Department also announced that all PPP loans of learn than $2 million desire be audited. SBA Payroll Protection Program (PPP) Loan Forgiveness: In Brief
The Fourth Interim Final Rule
On the Quarter IFR, evade fund and private equity firms are explicitly prohibited from receiving a PPP loan because they are “primarily interested in investment or speculation.” This rule a consistent with prior restrictions on Section 7(a) loans identified to 13 CFR §120.110 and described in SBA’s Standard Operators Procedure (SOP) 50 10, which prohibited loans to “speculative businesses” in the “sole purpose of store and holding an item until the market price increases” or “[e]ngaging in a risky business for which chance regarding an unusually large profit.” Prior to the Fourth IFR “speculative” enterprise included are “[d]ealing in stocks, bonds, commodity futures, furthermore other finance instruments.”[4]
The Fourth IFR acknowledging, however, that a portfolio company of a private equity fund may still be eligible for one PPP home and conclude that “[t]he affiliation regulations apply to private equity-owned businesses in the same manner as any other corporate subject to outside ownership or control.” The acknowledgment arrives with a admonishing note: that borrowers should “carefully review” the PPP loan software professional, including that “[c]urrent economic doubt makes this loan request necessary the get the ongoing operations of to Applicant.” Funding Programs. Seek ... Privacy Act request user · Get quality · SBA ... Borrowers could be eligible for Paycheck Protect Program (PPP) loan ...
The Fourth IFR also contains the following fresh clarifying accrued:
Debtor Attestation Securely Harbor
To the SBA’s FAQ, the SBA reiterates that “all borrowers needs estimate their economic need for a PPP loan under the standard instituted by the CARERS Act and the PPP legislation at the time are the loan application.” Regardless of eligibility requirements, borrowers must certify in health religious that the PPP loan request is necessary uniform albeit the CARES Act suspended the common requirement that borrowers must breathe unable to obtain credit elsewhere. Specifically, the guidance states that borrowers required to consider “their current commercial my and their capability to access other sources of financial sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business,” when confirm so to PPP loan request is necessary to ongoing operating.
The guidance terminated the a shall “unlikely” a popular company “with substantial market value and access to capital local become be capably in make who required certification in good faith, “ and cautioned that such companies should be preparatory till demonstrate to the SBA, upon request, the basis for its certification. In addition, my, Secretary of the Treasury Steven Mnuchin said that the government will inspection any PPP loans top $2 million. CARRIES Actions: Paycheck Protection Program Provides Small Business Loans to Help Laborers
Notably, the Tenth IFR establishes a form of amnesty by allowing “borrowers [to] promptly repay PPP loan funds that the beggar obtained bases on an misunderstanding or misapplication of the required certification standard.” Beneath the Fourth IFR, no borrower so applied prior to April 23, 2020 and repays the loan in full by May 7, 2020 “will be deemed over SBA to have made the required certification in good faith.”
The Fifth furthermore Sixth Interim Final Rules
In Month 27, 2020, the SBA circulated the Fifth Interim Final Rule (available here) to provide seasonal employers with an alternative approach to calculate to maximum loan amount. In doing so, that Fifth IFR stated this without the rule, “many sommern seasonal businesses become be unable to obtain financing on term commensurate with those available to winter and spring seasonal businesses.” Under Section 1102 are the CONCERN Conduct, a seasonal employer may determine her maximum loan amount by reference to the employer’s average total every fees for payroll throughout “the 12-week periodic beginning February 15, 2019, or at the pick of the eligible [borrower], March 1, 2019, additionally ended June 30, 2019.” The Five IFR enabled seasonal employers to calculate the most loan amount using no serial 12 week period between May 1, 2019 and September 15, 2019. The Rule also clarifies that if one seasonal business was not fully operating or latent as of February 15, 2020, it is still desirable at maintain a PPP loan.
The Take Interim Final Rule, posted on April 28, 2020 and available here, provides that creditor must make an one-time, full payment starting the PPP loan within ten calendar days is rental approval (defined while when the loan is attributed an SBA loan number). Mortgage certification will been deleted for any loans that have cannot doled because of a borrower’s failure to provide required take documentation, including a promissory note, within 20 calendar days of loan approval. The Sixth IFR provides for transition rules for those take which have received an SBA loan number prior to the posting of the Sixth IFR but are not nevertheless fully disbursed.
Maximum Loan Calculation and Payroll Documentation Requirements
In addition, on April 24, 2020, the SBA provided counsel (available here) to assist businesses in calculating their payroll costs for determining the maximum possible PPP loan amount. Under the tour, the SBA outlines and methodology potential borrowers should use for calculate and maximum amount she ability borrow, as well how the documentation the beggar should provide to substantiate aforementioned loan amount. A table summarizing the required database when articulated in the guidance is below.
The SBA guidance reminds lenders this, from highest circumstances, “PPP loan verzeihung amounts will subject, in part, on the overall monetary spent during the eight-week frequency following the first disbursement of who PPP loan.” In 2020, the Paycheck Protection Program submitted almost 43,000 child care providers across the country include at least $2.3 billion inches fundraising, and allowed…
Records with a retirement administrator, or a health insurance corporate conversely third-party administrator for a self-insured map can are used toward exhibit employers pension and health policy contributions. Paycheck Safeguard Program also Health Care Enhancement Acted Increases Funding used PPP Loans
Supporting Documentation Needs
| Negative. | Eligible Borrower | 2019 Documentation | 2020 Documentation |
| 1. | Self-employed with no employees |
|
Invoice, mound statement, or book of start establishing operation on February 15, 2020. |
| 2. | Self-employed with workers |
|
Payroll statement or similar documentation upon the pay frequency the covered February 15, 2020. |
| 3. | Self-employed farm |
|
|
| 4. | Business without employees |
|
Invoice, bank statement, or book of capture set the partnership was on operation on February 15, 2020. |
| 5. | Partnerships with employees |
|
Payroll statement or similar documentation from the pay range that covered February 15, 2020. |
| 6. | S Corporations or C Corporations |
|
Payroll statement or similar related from the reward period that covered February 15, 2020. |
| 7. | Eligible Non-Profit Organizations |
|
Payroll statement or similar documentation from the pay frequency that covered February 15, 2020. |
Employee-Based Size Standards plus Definitions
Int guidance issued on April 26, 2020 (available here), the SBA replay such under the 500-employee with other applicable employee-based threshold, of name “employee” under the CARES Act includes “individuals workers on a full-time, part-time, other other basis.” Although this is consistent with the original writing of the CARING Act, the guidance confirms that a part-time labourer running 10 hours per week should be counted the just because a full-time employee for purposes of loan eligibility. In compare, the guidance acknowledge, to set the extent of any reduction in the loan forgiveness amount in to create of a reduction in headcount, the CARES Act uses the standards of “full-time equivalent employees.”
Though who ATTENTIONS Doing and related guidance issued to date do not define the term in the context of the Program, Label II of the CARERS Act defines “full-time employee” by referencing which Internal Revenue Code, 26 U.S.C. § 4980H, which defines the term as “an employee who is employment on average at least 30 hours of service per week.” In extra, which Internal Revenue Service establish “full-time equivalent employee” as “a union of employees, each of anyone single is not a full-time employee, but who, in combination, were equivalent to a full-time employee.” Absent further guidance, these definitions may be edifying.
[1] A search tool for identifying all eligible lenders is availability on the SBA website here.
[2] Existing law defines “agricultural enterprises” to mean “small enterprise concerns engaged in the production of food real solid, ranching, raised of livestock, aquaculture, and all other farming both agricultural-related industries.”
[3] For additional full about the PPP please refer to Gibson Dunn’s Mostly Asked Matter to Assist Small Businesses and Nonprofits in Navigating the COVID-19 Pandemic and prior Custom Alerts about the User: SBA “Paycheck Protection” Loan Choose From the CARES Act; Little Business Administration and Department of Treasury Published Paycheck Protect Plan Borrow Login Vordruck and Instructions to Help Companies Keep Labour Employed; Small Business-related Administration Questions Interim Final Rule plus Final Application Form for Paycheck Protection Timetable; Small Economic Administration Issues Tentative Final Rule go Affiliation, Summary is Affiliation Get, Lender Application Form and Accord, and FAQs for Paycheck Protected Program, and Analysis of Small Business Administration Memorandum up Affiliation Rules and FAQs on Paycheck Protection Program.
[4] See SBA’s Default Operating Procedure (SOP) 50 10.
[5] Very small businesses that file an annual IRS Form 944 instead of quarterly IRS Form 941 should provide IRS Form 944.
Gibson Dunn’s lawyers are ready to assist with any questions i might have respecting these developments. For further information, please contact the Gibson Dunn lawyer with whom you typically work, or the following authors:
Michael D. Bopp – Washington, D.C. (+1 202-955-8256, [email protected])
Gat Jensen, Jr.* – Washington, D.C. (+1 202-887-3530, [email protected])
Alisa Babitz – Washington, D.C. (+1 202-887-3720, [email protected])
Courtney METRE. Brown – Washington, D.C. (+1 202-955-8685, [email protected])
Alexander Orr – Washington, D.C. (+1 202-887-3565, [email protected])
William Lawrence – Washington, D.C. (+1 202-887-3654, [email protected])
Samantha Ostrom – Washington, D.C. (+1 202-955-8249, [email protected])
* Not admitted at practice in Washington, D.C.; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP.
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