Treasury Issues Frequently Asked Questions and Answers for the Paycheck Protection Program Loans

On April 7, 2020, the Treasury released Frequently Asked Questions for the Paycheck Protection Program (“PPP”) loans. This addresses several open questions on the CARES Act as well as the Interim Final Rule. Below is a summary of some of the clarifying points:

  1. In addition to the existing employee thresholds (i.e. 500 employees or other size standard corresponding to its primary industry (see for industry specifics), a business can qualify for the PPP Loan as a small business concern if it met both tests in SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.
  2. If a minority shareholder in a business irrevocably waives or relinquishes any existing rights to prevent a quorum or otherwise block action by the board of directors or shareholders, the minority shareholder would no longer be an affiliate of the business (assuming no other relationship triggers the affiliation rules).
  3. The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000, this exclusion applies only to cash compensation, not to non-cash benefits including:
    • Employer contributions to defined-benefit or defined-contribution retirement plans;
    • Payment for the provisions of employee benefits consisting of group health care coverage, including insurance premiums; and
    • Payment of state and local taxes assessed on compensation of employees.
  4. To measure employee count and payroll costs, borrowers may use their average employment and/or payroll costs, as applicable, using dates from the previous 12 months or from calendar year 2019. Alternatively, borrowers may elect to use the average number of employees, per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational if it has not been operational for 12 months).
  5. The only federal taxes that are excluded from payroll costs are the company’s employer-side payroll taxes. That is, the amount withheld on behalf of the employee is included in payroll costs.
  6. Borrowers and lenders may rely on the laws, rules and guidance available at the time of the relevant application and may but are not required to update applications based on clarifications reflected in the FAQs.

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