To address borrower and lender questions concerning the implementation of the Paycheck Protection Program (PPP), the SBA and Department of the Treasury has issued this additional guidance in the form of FAQs. Of particular interest:
Question #7: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?
Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:
- Employer contributions to defined-benefit or defined-contribution retirement plans;
- Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
- Payment of state and local taxes assessed on compensation of employees.
Note that in our last update of this material, we noted that the interim guidance also took this position, even though it seems to conflict with the language in the Act. However, the Act states that lenders will not be held liable if they follow the SBA guidelines, so these are the guidelines that should be used (especially since they are beneficial to taxpayers.)
Question 14: What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?
Answer: In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020.
Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).
It is nice that businesses can use either 2019 or April 1, 2019 – March 31, 2020. Use the one that results in the highest loan! However, we have seen several loan applications and we have not seen any that gave a choice. A discussion with the lender will likely be needed here.
Note that there is no definition of a seasonal employer provided.
Question 16 – BIG CHANGE FROM INTERIM GUIDANCE! – How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?
Answer: Payroll costs are NOT reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs.
This is a big change from the interim guidance that was issued last week and is another change that will increase the loan amount!
Question 17: I already filed or approved a loan application based on the version of the PPP Interim Final Rule published on April 2, 2020. Do I need to take any action based on the updated guidance in theseFAQs?
Answer: No. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs.
If you are like me, you have already made these calculations for your clients, and changed them several times, and now they require yet another change. The good news is that these changes will increase the loan amount. I intend to tell my clients to contact me before they sign the final paperwork on these loans, so we can be certain the calculation is done in accordance with the latest guidance.
The entire set of FAQs can be read at:
https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf
The other very common question we get is, “Where can we actually apply for a loan?”
- It has been reported that Bank of America and Chase are taking applications, but only from those with an existing banking relationship.
- Wells Fargo continues to send e-mails suggesting that you try another bank.
- US Bank and others are taking names of those interested.
- We have heard that Navy Federal Credit Union took an application as did BB&T.
- I was able to complete an application at Ready Capital, on online SBA lender with whom I had not prior relationship, but I have not had a personal contact from them yet. Two other on-line lenders you might try include https://gulfcoastsba.com/sba-7a-paycheck-protection-program-application/or https://partners.newtekone.com/caresact/business-lending/
- This website has a list of banks that are supposedly accepting applications, but I don’t know how accurate it is. https://esellercafe.com/list-banks-accepting-sba-paycheck-protection-program-loans/
We hope you and those close to you are well!