The SBA has issued a procedural notice[1] that clarified that borrowers who received loans in excess of the amounts that were allowed under PPP are going to be held responsible for repaying the excess amount of the loan.

A number of borrowers have reported being approved for PPP loans in excess of the amounts that were allowed under SBA guidance in the original program. The problem was especially prevalent for loans early in the PPP program due to both:

• Lender confusion regarding how the program provided for under the law worked, resulting in different lenders taking conflicting positions on the maximum loans for which borrowers could qualify and

• Borrowers, also having trouble interpreting the provisions, came to differing conclusions about what made up “payroll costs” for purposes of applying for the loans.

The SBA has released the Form 3508S[1] to go along with its new simplified PPP loan forgiveness application process for loans of $50,000 or less, as well as the related instructions.[2]

The SBA has resumed the issuance of FAQs on the Paycheck Protection Program, issuing a new FAQ on PPP Loan Forgiveness.[1] Presumably the SBA believed they should publish this document as they are approaching the date the agency announced they may be accepting applications for forgiveness that have been processed by lenders.

The FAQ is divided into four major categories:

• General Forgiveness FAQs

• Loan Forgiveness Payroll Costs FAQs

• Loan Forgiveness Nonpayroll Costs FAQs

• Loan Forgiveness Reductions FAQs.

Corporate shareholder-employees will find some good news in the FAQs, but those who were looking to attempt to pre-pay retirement or health benefits will not be happy with the guidance in the FAQs.

Congress has now passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA),[1] with the Act passing the Senate by unanimous consent in the early evening hours of June 3, 2020. The Act changes a number of provisions in the original PPP loan program enacted as part of the CARES Act. The President is expected to sign the bill into law.

Update: The President signed the bill into law on June 5, 2020, which now becomes the date of enactment for items where that date is referenced in the law.

The SBA issued a new interim final regulation that is focused on the qualification of certain electric cooperatives under the PPP loan program.[1]

The preamble explains the entities that this IFR applies to:

Existing SBA regulations define a “business concern” as “a business entity organized for profit,” subject to certain limitations. 13 CFR 121.105(a)(1). Generally, electric cooperatives are organizations that are owned and controlled by members who receive services from the cooperative. Electric cooperatives periodically return any excess of net operating revenues over their cost of operations – generally referred to as “savings” – to their member-owners. In addition, electric cooperatives meeting the description of section 501(c)(12) of the Code may be exempt from federal income taxation under section 501(a) of the Code. To qualify for the exemption, an electric cooperative must receive at least 85 percent of its income each year from its members. The 85 percent member income test is computed annually. An electric cooperative may be exempt in one year, lose exemption in another year if it does not derive at least 85 percent of its income from members, and become exempt in a third year. Because of their potential tax exemption under section 501(c)(12) of the Code, electric cooperatives have faced uncertainty about their eligibility to receive PPP loans.

The Small Business Administration (SBA) has issued a set of interim final regulations on the PPP loan program entitled “Business Loan Program Temporary Changes; Paycheck Protection Program – Loan Increases.”[1]

In an FAQ[1] updated on May 13, 2020, the SBA appears to have mostly backed off the threat to review PPP loans of less than $2 million for improperly certifying their loan was necessary.

On April 29, 2020, Treasury Secretary Mnunchin and SBA Administrator Jovita Carranza issued a Joint Statement that read, in part:

To further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Regulatory guidance implementing this procedure will be forthcoming.[2]

The statement specifically was issued discussing the review of loans and repayment before the then May 7 deadline to avoid having questions raised regarding the correctness of a borrower’s certification that a loan was necessary.

The SBA published guidance[1] in its PPP loan FAQ that duplicates that provided by the IRS earlier, but confirms that a borrower who pays back their PPP loan by May 14 (the extended due date announced by the SBA) will qualify for claiming the Employee Retention Credit. The original IRS guidance providing the relief only mentioned the original May 7 due date for repaying the loan.

A few hours after adding question 40, the Small Business Administration added another two questions and answers to the frequently asked questions (FAQ) for the payroll protection program loans late on a Sunday evening.[1] These two questions deal with issues that arise for seasonal businesses and the certifications on the SBA Borrower Application Forms as well as whether hospitals exempt from tax under IRC §115 qualify to enter this program.

Turns out the SBA is now giving seasonal businesses a significant choice in how their maximum loan amount will be computed.

Seasonal businesses received additional guidance from the Small Business Administration on applying their special rules for payroll protection program loans in a new set of interim final rules on the program, the fifth such set of rules.[1] A key addition is a new provision that allows the use of any 12-week period between May 1, 2019 and September 15, 2019 to calculate the maximum loan amount for a seasonal business.