May 25, 2020

Latest Information On U.S. Paycheck Protection Program

The U.S. Department of the Treasury and the U.S. Small Business Administration (SBA) continue to release guidance and information regarding the Paycheck Protection Program (PPP), which provides forgivable loans to U.S. businesses with fewer than 500 employees and who pledge to use 75 percent of the loans to keep their employees on payroll.

As Connecting the Dots reported last week, the SBA released the loan forgiveness application for the program. In a press release accompanying the application, the SBA had noted it would “soon issue regulations and guidance to further assist borrowers as they complete” the application. Those regulations came last week, and are available here.

Last week the SBA also announced a new draft regulation that explains treatment of companies with foreign affiliates. This rule says applicants must count all U.S.- and foreign-based employees, including those of their domestic and foreign affiliates, to determine if they meet the PPP’s size tests. Fortunately, the SBA will not apply the new standard to applicants that applied before May 5, 2020 provided that the business and its affiliates have no more than 500 employees whose principal place of residence is in the United States.

As a reminder, the U.S. Chamber of Commerce has released a step-by-step guide to calculate the loan forgiveness amount, navigate record-keeping requirements, and determine repayment terms on amounts not forgiven. The American Institute of Certified Public Accountants (AICPA) also has useful information and tools on their website, including PPP loan calculators for different types of businesses with PPP loans.

While businesses work to understand this new information, the U.S. House could vote this week on H.R. 6886, legislation that would provide needed flexibility regarding forgiveness of PPP loans.

The legislation, co-sponsored by Chip Roy (R-Texas) and Dean Phillips (D-Minn.), would extend the time during which a loan must be spent to 24 weeks (from eight weeks) and would prohibit the SBA from requiring that employers spend 75 percent of their loan on payroll. The bill would also:

  • Extend the loan period to December 31, 2020;
  • Extend the loan maturity to a minimum of five years; and
  • Provide flexibility in employee head count to an employer who attempted to rehire workers or hire new workers, or who can “demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.”

Similar legislation has been introduced in the U.S. Senate. A bill offered by Sens. Marco Rubio (R-Fla.), Susan Collins (R-Maine), Ben Cardin (D-Md.), and Jeanne Shaheen (D-N.H.) would extend from eight weeks to 16 weeks the period during which a PPP loan must be spent. Senators hope to consider the legislation in early June.

Last week, the Metals Service Center Institute and several other trade associations sent a letter to House and Senate leaders, the SBA, and the Treasury Department requesting emergency legislative and administrative actions to do three things:

  • Repeal the PPP’s rule that 75 percent of the loan be spent on payroll;
  • Extend the eight-week period for purposes of calculating loan forgiveness; and
  • Extend the June 30 safe harbor date for rehiring and restoration of pay.

Importantly, Treasury Secretary Mnuchin said in an interview with The Hill last week that Congress will have to make changes to the PPP, including extending the amount of time that small businesses have to use funds.

Unfortunately, the secretary also pushed back on making changes that would allow more of the loans to go toward overhead. Mnuchin said, “It’s called the paycheck protection program, it’s not called the overhead protection program.”