As the PPP was launched, several unanswered questions remained about key elements of the program. The SBA has since released new FAQs, found here, that provide further guidance on some of these questions, which may lead businesses to update their applications. In particular, we note the following:
$100,000 Limit Applies to Cash Compensation Only.
Question 7 addresses a longstanding question as to how to apply the $100,000 per employee limitation for purposes of calculating payroll costs. The answer clarifies that the $100,000 limitation only applies to cash compensation, not to non-cash benefits.
Applicant Chooses Payroll Calculation Period.
Question 14 allows the applicant to choose between the twelve months prior to the loan application and calendar 2019 for purposes of determining average monthly payroll costs that form the basis of the loan amount requested. There has been conflicting guidance on this point, including in the form PPP application distributed by the SBA.
“Small Business Concerns” Independently Eligible.
Question 2 makes clear that a “small business concern,” as defined in Section 3 of the Small Business Act, is eligible for a PPP loan even if it has more than 500 employees. Question 3, on the other hand, confirms that other businesses with less than 500 employees may also apply, even if they do not qualify as “small business concerns” under the Small Business Act.
Treatment of Federal Taxes Clarified.
Question 16 provides additional clarity on the treatment of certain federal taxes, such as payroll taxes, in calculating payroll costs under the PPP.
Pending Applications Can be Revised.
Question 17 notes that applicants whose applications have not yet been processed may still revise their applications to reflect the clarifications in the FAQs.
The SBA Focus Group of the COVID-19 Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the PPP loan program is implemented.
Author Matthew McDonald is a partner in the Corporate & Securities Department at Klehr Harrison.