Expertise Beyond the Numbers

New Guidance from U.S. Treasury Department on Paycheck Protection Program

Updated 4/23/2020 at 10:46pm ET

This new guidance, distributed by the U.S. Treasury Department on the eve of the Paycheck Protection Program (PPP) loan application date, answers a few open questions and also makes some changes in the loan terms that one will receive if approved.

  • The rate on the loan will be 1%, not 0.5%.
  • The term of the loan will be two years, not up to 10 years.
  • The funds will be disbursed first come, first served. So while there appear to be no special carve-outs or preferences, one might ponder the fate of the self employed businesses who cannot apply until April 10th.
  • Independent contractor spend will not be considered a payroll cost for purposes of computing the loan amount or loan forgiveness.
  • Household employers are not eligible borrowers, nor are businesses in the medical cannabis space since those businesses are illegal under federal law at this time.
  • No payments are due for the first six months, however, interest accrues from the date of loan disbursement. Initially there was discussion around a one year payment deferral.
  • Payroll costs for the 8-week testing period must be at least 75% of the loan forgiveness amount – payroll costs include wages up to an annual rate of $100,000 per person, state unemployment tax costs, employer paid health insurance, and employer paid retirement plan contributions. Per SBA guidance issued on April 8th, the testing period will begin on the date the lender makes the first disbursement of the PPP loan to the borrower. Lenders are required to make that disbursement within 10 days of loan approval. This may drive the restart date for employers who have reduced their workforce who are seeking maximum loan forgiveness.
  • If 25% or less of the loan proceeds are used for interest on existing debt, rent and utility payments, that portion of the PPP loan may also be forgiven.

Affiliation Rules

The CARES Act made 501(c)(3) non-profit organizations, including faith-based organizations, eligible to get PPP Loans, but organizations looking to take advantage of this need to pay careful attention as there are complex affiliation rules, and interested businesses need to determine their headcount. Entities such as nonprofit organizations that are under common control, or venture capital/private equity backed businesses may need to aggregate headcount from other organizations under the affiliation rules.

While oftentimes ownership is a driver of the affiliation rules — management control and so-called “negative control” issues are as well. The U.S. Treasury Department said they are looking to loosen these rules, but so far only faith-based organizations (such as churches) have received a waiver from the rules.

Here are some helpful resources directly from the Treasury:

Full Release from the Treasury Department

PPP--IFRN FINAL (04.02.2020)

If you have any questions on this latest announcement, or anything else surrounding the PPP or the CARES Act, please reach out to the SC&H team today. We are here to help.