The U.S. Department of the Treasury recently updated their “Paycheck Protection Program Loans FAQ” with guidance extending the time frame to take advantage of the safe harbor to repay PPP loans to May 14, 2020, and clarifying that an applicant must count all of its employees and the employees of its U.S. and foreign affiliates, absent a waiver of or an exception to the affiliation rules.
Extension of Repayment Date Safe Harbor
As discussed in our Client Alert “Increased Funding for Paycheck Protection Program Loans and Updated Guidance,” released on April 28, 2020, an applicant for a PPP loan is required to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The Interim Final Rule originally posted on April 24, 2020, also provided that “[a]ny borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.”
The new guidance extends the repayment date to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. The SBA also noted that it intends to provide additional guidance on how it will review the certification prior to May 14, 2020.
An employer that applied for a PPP loan, received payment, and repays the loan by May 14, 2020 will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit, and therefore will be eligible for the credit if the employer is otherwise an eligible employer for purposes of the credit.
Employee Count includes Foreign Employees of Applicant and Affiliates
There previously was some uncertainty on this point, as the CARES Act required businesses to have fewer than 500 employees, and the standard affiliation rules for the SBA’s business loan programs generally required counting all of the employees of the applicant and its domestic and foreign affiliates, but the Interim Final Rule originally posted on April 2, 2020, indicated that “you are eligible for a PPP loan if you have 500 or fewer employees whose principal place of residence is in the United States.”
The new guidance clarifies that for the purpose of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S. and foreign affiliates, absent a waiver of or an exception to the affiliation rules. Business concerns seeking to qualify as a “small business concern” under Section 3 of the Small Business Act on the basis of the employee-based size standard must do the same.
Any business that has obtained a PPP loan should reconfirm their eligibility for the PPP loan. In particular, consideration should be given to (1) the affiliation rules and the calculation of the number of employees (in particular if the borrower has foreign employees or affiliated entities with foreign employees), (2) whether the borrower is the member of a corporate group that may have exceeded the aggregate $20 million cap for the group (see our Client Alert “SBA Issues Interim Final Rule Capping Aggregate PPP Loan Amounts at $20M for Single Corporate Groups”), (3) whether the business is an ineligible line of business (see our Client Alert “Requirements and Considerations for Paycheck Protection Program Loans”), and (4) whether the borrower could in good faith certify as to the need for the PPP loan.
The safe harbor for repaying a PPP loan specifically refers to the certification as to need, so it is unclear if it would apply to borrowers who repay their loan because they subsequently determined that they violated any of the other requirements of the programs.
If a borrower determines it was not eligible, it should prepay the loan prior to May 14, 2020.
A borrower that is found to have made a false statement in an application may be subject to civil and criminal penalties. In addition, a borrower may also be subject to suits filed under the federal False Claims Act (the FCA), which creates civil liability for any person or entity that knowingly presents a false claim for payment of federal funds. Claims under the FCA can be prosecuted by the federal government or by private citizens under the FCA’s whistleblower or qui tam provisions. The Act provides for civil penalties of up to $22,000 for each false claim and subjects the defendant to the risk of treble damages and an award of attorneys’ fees to the qui tam plaintiff. The record unemployment figures associated with the COVID-19 pandemic may fuel a surge in FCA cases, as many qui tam plaintiffs are former or disgruntled employees. Private citizens are incentivized to be qui tam plaintiffs, as they are entitled to an award of between 15% and 30% of any judgment or settlement.
If you have questions about this guidance or any other matters related to the PPP program, please contact Chadwick Hoyt, Michael Gray, Robert Gerber, David Milligan, Tom Wolford, Rudy Radasevich or your personal Neal Gerber Eisenberg attorney.
The content above is based on information current at the time of its publication and may not reflect the most recent developments or guidance. Neal Gerber Eisenberg LLP provides this content for general informational purposes only. It does not constitute legal advice, and does not create an attorney-client relationship. You should seek advice from professional advisers with respect to your particular circumstances.