Changes to PPP Loan Based on April 2, 2020 SBA Guidance

Patrick C. Closson
Director, Chair of Corporate Department and Chair of Healthcare Group
Published: Union Leader
April 12, 2020
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On April 2, 2020, the United States Small Business Administration and the United States Department of Treasury released interim rule and a revised application for the Paycheck Protection Program (PPP) under the CARES Act.  The interim regulations made a number of changes to prior guidance, which are summarized below.

  • Loans will be made on a first come, first served basis.
  • Interest Rate: 1.0% (previous guidance stated the interest rate at 0.5%).
  • Independent contractors (i.e., individuals who receive 1099s) do not count as employees for PPP loan calculations or loan forgiveness.
  • Federal employment taxes from February 15, 2020 – June 30, 2020 are excluded from “payroll costs”.  This suggests that borrowers do not have to deduct employee income tax withholding and FICA when calculating the loan amount from 2019 payroll costs, except to the extent total payroll costs exceeds $100,000 per employee (including FICA and income tax withholding).
  • At least 75% of the loan proceeds must be used on payroll costs.
  • Not more that 25% of the loan proceeds to be forgiven may be used for non-payroll costs.
  • Although the loans are non-recourse, borrowers who knowingly use the loan proceeds for unauthorized purposes will be subject to additional liability such as charges for fraud. If one of the borrower’s shareholders, members, or partners uses the loan proceeds for unauthorized purposes, the SBA will have recourse against that shareholder, member or partner.
  • The application was revised to remove the question regarding US citizenship. This question was replaced with a question to confirm that all employees included in the payroll calculation are US residents.

These are interim regulations and final regulations are expected later this month. We expect that we will continue to receive updated guidance on the PPP loan as the SBA receives applications from banks for these loans.

The attorneys in the McLane Middleton Corporate Department are available to provide counsel regarding the PPP loans.  Should you wish to discuss resources available to your business, please do not hesitate to contact a member of our Corporate Department.

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