Borrowers and lenders should closely review and consider this guidance – along with interim final and pre-existing SBA regulations – in determining eligibility for the PPP, calculating maximum loan amounts, and other issues. While the FAQs state that borrowers and lenders “may rely on the guidance provided in this document,” a footnote cautions readers: “This document does not carry the force and effect of law independent of the statute and regulations on which it is based.” The seemingly shifting guidance on PPP loans underscores the need for loan applicants to maintain detailed records documenting their determination of eligibility (including assessment of affiliates) and maximum loan amounts based on guidance and regulations in effect when such determinations are made. A compilation of interim final regulations, the FAQs, and other guidance is available on the Treasury’s website, here.

Highlights of the FAQs:

• A “small business concern” with more than 500 employees can be eligible for a PPP loan, as long as it satisfies another standard for “small business concerns”:
  • The SBA employee-based standard for its primary industry, based on its NAICS code. In many industries, the number of employees is higher than 500. For instance, both crude petroleum extraction and natural gas extraction have size standards of 1,250 employees.
  • The SBA revenue-based size standard for its primary industry, based on its NAICS code. The SBA uses a standard based on average annual receipts for many industries, including agricultural and construction businesses and several businesses supporting the energy industry. Businesses in these industries qualify as small business concerns irrespective of the number of employees.
  • The SBA’s “alternative size standard” – maximum tangible net worth not more than $15 million and average net income not more than $5 million.
• As previously noted, a business that is not a “small business concern” is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States, or the business meets the SBA employee-based size standard for the industry in which it operates (if applicable).
• Borrowers are required to apply SBA’s affiliation rules under 13 C.F.R. 121.301(f), including considering “the power to control.” The FAQs make clear that if a minority shareholder irrevocably gives up its negative control rights, it would no longer be considered an affiliate of the business.
• The FAQs include clarifications of the term “payroll costs” – important in determining maximum loan amount, allowable uses of PPP loan funds, and loan forgiveness:
  • Payroll costs exclude employee compensation in excess of an annual salary of $100,000. This exclusion applies only to “cash compensation” – not to non-cash benefits like retirement and healthcare insurance premiums which may be included.
  • Payments to an independent contractor or sole proprietor should not be included in an eligible borrower’s payroll costs. Independent contractors and sole proprietors are themselves eligible for PPP loans.
  • PPP loans can be used to cover payroll costs, including costs for employee vacation and parental, family, medical, and sick leave. However, qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act are excluded.
  • Payroll costs are not reduced by FICA taxes imposed on employees or federal income taxes withheld from employees. However, payroll costs do not include the employer’s share of payroll taxes.
  • Borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard.