Some surprises in Paycheck Protection Program loan guidelines - Spidell

Some surprises in Paycheck Protection Program loan guidelines


On April 2, 2020, the day before banks (at least some banks) began taking applications for Paycheck Protection Program loans, the Small Business Administration released an interim final rule. Among other things, the interim rule:

  • Specifies that the lookback period for determining average monthly payroll costs is the prior 12 months, which would be April 2019 through March 2020. However, the application still states “for 2019.” This is causing some confusion. We recommend borrowers have information for both periods ready, and be prepared to provide whatever their bank requests;
  • Excludes payments made to independent contractors from “payroll costs” that determine the maximum loan amount a business may borrow. Independent contractors must apply for their own loans;
  • Requires businesses to deduct federal payroll taxes (employer and employee) and federal income tax withholding from total payroll costs for the period February 15, 2020, to June 30, 2020;
  • Clarifies that the $100,000 cap applies to salary/wage/compensation per employee, not total payroll costs, which include the allocable health and retirement benefits paid to the employee. These benefits may be added above and beyond the $100,000 cap for purposes of determining payroll costs;
  • Increases the interest rate applied to these loans from 0.5% to 1% (under the CARES Act, the maximum interest rate on these loans cannot exceed 4%) (15 U.S.C. 626(a)36(L)); and
  • Limits the nonprofit organizations that qualify for the loans to IRC §501(c)(3) charitable organizations or IRC §501(c)(19) veterans organizations.

The Paycheck Protection Program loans were enacted by the CARES Act to provide up to $10 million in loans for businesses with fewer than 500 employees that were impacted by COVID-19.

You can view the the Small Business Administration’s interim rule at:

www.sba.gov/sites/default/files/2020-04/PPP–IFRN%20FINAL_0.pdf

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