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SBA Issues New FAQs and IFR to Provide More Clarity on PPP Loan Program

Joseph Most, J.D.

5.15.20 | Client Alert – COVID-19 Update

SBA Provides Safe Harbor to Determine Good-faith Certification Validity in new FAQ

In the latest addition to the SBA’s frequently asked questions (FAQs), a safe harbor has been created to allay concerns relating to the PPP loan application certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The safe harbor provides that any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2,000,000 will be deemed to have made the above-mentioned certification in good faith.  The SBA reasoned that borrowers with loans below this threshold are generally less likely to have sources of additional liquidity at this time, when compared to companies who have obtained larger loans. Additionally, the SBA indicated that this will allow the SBA  to focus its finite audit resources to review larger loans.

Borrower’s with loans greater than $2 million may still meet the good faith requirements and, importantly, should the SBA determine that a borrower is ineligible for a PPP loan, that borrower will not be subject to administrative enforcement or referral if the loan is then repaid.  Note, this FAQ relates solely to eligibility of a PPP borrower and not loan forgiveness, for which the borrower will be required to apply and provide supporting documentation under a process that has yet to be defined by the SBA. In order to allow borrowers to review and consider this new FAQ, SBA is now extending its safe harbor date for returning PPP funds from May 14, 2020 to May 18, 2020 [1].

SBA Allows Loan Amounts to be Increased to Include Partner Compensations in new IFR

In its latest Interim Final Ruling (IFR), the SBA is allowing for a partnership to increase its PPP loan amount to include partner compensation. The IFR acknowledges that many loan applications were submitted before the SBA posted its IFR on April 14, 2020, which clarified that partnerships must file for PPP loans on behalf of the self-employment income of its partners. The IFR therefore provides that a PPP loan can be increased even if the loan has already been fully disbursed so long as the Lender’s first SBA Form 1502 [2] report to the SBA has not been submitted. Borrowers must provide the Lender with documentation to support the calculation of the increase. The support should include, but is not limited to, 2019 K-1s (even if in draft form). Borrowers who are interested in increasing their PPP loan for this purpose should immediately contact their Lender.

SBA Clarification on Employees of Foreign Affiliates

In an FAQ, the SBA has clarified that PPP applicants must count all of its employees, including the employees of its US and foreign affiliates, in applying the 500 or fewer employee size standard.

For more information on this topic or any other matter related to the COVID-19 pandemic, please contact your Berdon advisor and visit Berdon’s COVID-19 Information Center.

Berdon LLP New York Accountants

[1] Client Alert 5.6.20 | SBA Provides Safe Harbor for Returning PPP Funds
[2] SBA Form 1502 is required to be submitted by the Lender to the SBA within 20 calendar days after a PPP loan is approved or, for loans approved before availability of the updated SBA Form 1502 reporting process, by May 22, 2020. The form is completed monthly by Lenders in order to collect payment and loan information.