SBA Releases Updated PPP FAQs Amid Loan Origination and Reopening of Forgiveness
March 4, 2021
On March 3, 2021, the U.S. Small Business Administration (SBA) released new FAQs related to the Paycheck Protection Program (PPP). The FAQs incorporate the updates to the PPP resulting from the Consolidated Appropriations Act, 2021 (the Act), and apply to all PPP loans, regardless of their funding date. This release comes less than 48 hours before the SBA portal is expected to open for new loan forgiveness applications.
We have highlighted three key changes that will impact borrowers:
1. Loan necessity
Perhaps one of our most anticipated questions related to the PPP was, “Will the SBA continue its presumption that borrowers obtaining loans less than $2 million ‘need’ the PPP loan?” Now we know the answer: YES!
FAQ 46 continues to state that “…Any borrower that, together with its affiliates, received First Draw PPP Loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the First Draw PPP Loan request in good faith.”
But what about Second Draw PPP Loans? The answer rests with the eligibility criteria, which includes a requirement that the borrower has had a reduction in gross receipts of at least 25% for any calendar quarter in 2020 compared to the same quarter in 2019. The revised FAQ 46 says, “Because Second Draw PPP Loan borrowers must demonstrate that they have had a 25% reduction in gross revenues, all Second Draw PPP Loan borrowers will be deemed to have made the required certification concerning the necessity of the loan in good faith.”
From our conversations with the small business community, this FAQ will alleviate significant concerns surrounding necessity and allow business owners to keep their focus on running their operations and maintaining their workforce, as the PPP was designed to do.
2. The Employee Retention Credit (ERC)
FAQ 65 incorporates a significant change to the PPP stemming from the Act, which allows a PPP loan recipient to also claim the ERC, a payroll tax credit worth up to $19,000 per employee.
This is one of the many benefits of the expansion of the ERC program. The FAQ notes that the payroll costs that are qualified wages for the ERC are not eligible for loan forgiveness if the employer elects to claim the credit for those amounts. As we’ve previously discussed, this places further emphasis on having the right strategy to maximize the benefits of these programs that includes, but extends well beyond, having the proper documentation for loan forgiveness.
Fortunately, borrowers who already obtained loan forgiveness can also consider taking advantage of this lucrative opportunity as indicated in a note released from the IRS on March 1, which we’ve summarized.
3. The SBA’s review of PPP loans
Since April 2020, we’ve known that the SBA will review all loans in excess of $2 million, in addition to other loans as appropriate. The outcome of the SBA’s review of loan files will not affect its guarantee of any loan for which the lender complied with the lender obligations.
The FAQs do not speak to the impact on Second Draw PPP Loans, which individually cannot exceed $2 million. Affiliated groups can obtain Second Draw PPP Loans that aggregate up to $4 million, which appear to be the only loans that would knowingly be subject to review at this time.
Further, we know that borrowers who obtained First and Second Draw PPP Loans will apply for loan forgiveness individually, indicating that the SBA would not be aggregating these amounts when conducting their review.
4. Number of employees
For the purposes of determining eligibility for a First or Second Draw PPP Loan, a business must consider the number of employees it has. But for what period and at what point in time?
Historically, this figure was generally interpreted to be the number of employees at the date of the application. FAQ 14 now clarifies that borrowers may use their average employment over the time period used to calculate their loan amount — generally 2019 or 2020 — to determine their number of employees for the purposes of applying an employee-based size standard. There’s also a permissible, where a borrower can use the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application.
As noted in FAQ 36, for the purposes of loan eligibility, a borrower must calculate the total number of employees, including part-time employees, when determining their employee headcount.
The bottom line
As we’ve seen over the past year, the PPP is ever-evolving, which continues to present challenges to borrowers in making sound decisions. Fortunately, borrowers and lenders may rely on the laws, rules and guidance that are available at the time of their relevant application. However, borrowers who previously submitted loan applications that have not yet been processed may revise their applications based on clarifications reflected in these FAQs.
Aprio has established a dedicated PPP team that is continuously monitoring new guidance from the SBA, as well as the U.S. Department of the Treasury, Congress and the IRS, to ensure we have the latest information when advising our clients.
To discuss your eligibility for additional funding or how to interpret these pending changes, contact Aprio for a consultation.
Disclaimer for services provided relative to SBA programs and the CARES Act
Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.
The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.
Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.
You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.
In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.
Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.
About the Author
Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.