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PPP Loan Updates

As noted in prior newsflashes, the Small Business Administration (“SBA”) has provided financial assistance to small businesses in order to make payroll and to cover other business expenses through the Paycheck Protection Program (“PPP”). Some of the terms of these PPP loans are not completely clear, but fortunately, the Department of Treasury has recently provided some clarity to business owners who have taken part in this program.

The Treasury Department has produced a list of frequently asked questions (“FAQ”) to help clarify certain PPP loan terms. Notably, this update explains how the SBA will review the good-faith certification required of business owners regarding the necessity of the loan they requested. The guidance states if the original principal amount a business received was less than $2 million, the borrower will be deemed to have made the required certification concerning the necessity of the loan request in good faith. According to the Department of Treasury, this safe harbor will “promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees.” Businesses that received over $2 million in funds, however, will be subject to a review by the SBA. After a review, the SBA may determine that there was no basis for the loan. Upon that determination, the “SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.”

This update should give many business owners relief as the safe harbor will prevent smaller loans from becoming unforgivable due to the good-faith certification. Nevertheless, business owners must still meet other requirements for loan forgiveness. In order to have the loan forgiven, businesses must use 75% of the funds for payroll and must make a good-faith effort to rehire any laid-off employees. The guidance clarifies a reduction of employment would not reduce loan forgiveness if a business offered employment back to a laid-off employee but that employee declined the offer. Additionally, when calculating the total employees for loan forgiveness purposes, the SBA will review “full-time equivalent employees,” which does not include part-time employees.

As always, the Business Group at Stock and Leader can help business owners navigate loan forgiveness and other PPP terms. Contact a member of Stock and Leader’s Business Law team today:

Neil A. Slenker, Esq.

Ronald L. Hershner, Esq.

Steven J. Koehler, Esq.

Kate E. Hynes, Esq.

Joseph D. Baublitz, Esq.

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