Paycheck Protection Program Update: Where do you Stand?

The SBA, in consultation with the Treasury, released a new interim final rule, to simplify loan forgiveness for certain borrowers of Paycheck Protection Program (“PPP”) loans. Specifically, the SBA has issued a rule that provides for a de minimis exemption from the full-time equivalent employee reduction penalty and the employee salary and wage reduction penalty for loans of $50,000 or less. The rules place the responsibility on the PPP borrower to correctly calculate the loan forgiveness amount, and lenders are permitted to rely on the PPP borrower’s representations. PPP borrowers must verify and ensure that its forgiveness application, including the amount sought to be forgiven and all certifications to be made to obtain forgiveness, is complete and accurate.

For applicants with PPP loans of $50,000 or less, the SBA issued a new forgiveness application form (SBA Form 3508S or a lender equivalent form). It requires that the PPP borrower certify, specifically but without limitation, that the amount of the PPP loan being sought to be forgiven is not greater than the principal amount of the PPP loan and that the funds were used for forgiveness-eligible expenses, namely payroll costs, business mortgage interest payments, business rent or lease payments, and business utility payments, at least 60% of the aggregate of which is for payroll costs.

The PPP borrower must still make the certifications acknowledging that the federal government may pursue recovery of loan amounts and/or civil or criminal fraud charges if funds were knowingly used for unauthorized purposes. The new form, and the latest interim final rules, appear only to excuse the reduction in full-time equivalent employees or reductions to employee salaries and/or wages; it is important to note that the authorized uses remain limited to specific categories of expenses. The SBA reserves a right to (i) request additional information to evaluate the PPP’s eligibility for the loan (in the first place) and forgiveness; and (ii) evaluate, and disapprove (or direct a lender to disapprove) a PPP borrower’s loan forgiveness application. Note further that the SBA has the authority to seek from the PPP borrower’s PPP lender tax information, including returns and other tax documents submitted by the PPP borrower to the IRS. It is important for PPP borrowers to review and verify the accuracy of any data submitted to the IRS in connection with their business, and to confirm that the content of their PPP loan application is supported by such filings, etc.

PPP borrowers must maintain all records relating to the PPP loan for a period of 6 years after the date the loan is forgiven or repaid in full. The SBA (and its representatives) reserves a right to access and review these records during that time period.

For additional guidance on the Paycheck Protection Program, please contact firm Counsel Keith A. Krauss via email here, Associate Young-Ji Park via email here, or call 973.535.4441.