SBA Issues New FAQs Extending Repayment Deadline and Clarifying Treatment of Foreign Employees
On May 5, 2020, the U.S. Small Business Administration (SBA) updated its Frequently Asked Questions regarding the Paycheck Protection Program (PPP), adding two new questions regarding its previously announced repayment safe harbor and the treatment of foreign employees under the SBA’s affiliation rules.
The full text of the FAQs can be found here.
- Repayment Deadline Extended to May 14; More Guidance Promised.
As the PPP was launched, the application form provided by the SBA and participating lenders required the applicant to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations” of the applicant. No guidance was given at the time as to what factors should be considered in making this certification, particularly for applicants that had other potential sources of liquidity, whether from affiliated entities or other sources of credit. On April 23, 2020, the SBA issued FAQ #31, which indicated that borrowers must make the required certification in good faith, taking into account their current business activity and “their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” In conjunction with the issuance of FAQ #31, the SBA announced that any borrower who returned PPP funds prior to May 7, 2020 would be presumed to have made the required certification in good faith. In new FAQ #43, the SBA has extended this safe harbor to May 14, 2020 and has indicated that new guidance regarding the required certification will be issued before that date. Our prior alert on FAQ #31 can be found here.
- Foreign Employees Are Counted for Affiliation Purposes.
The SBA has also issued new FAQ #44, which clarifies how employees of foreign affiliates should be treated for purposes of determining PPP loan eligibility. Previous guidance from the SBA had referred to eligible borrowers having 500 or fewer employees resident in the U.S., which led to speculation that potential borrowers with foreign affiliates would not need to count the employees of those foreign affiliates for purposes of determining eligibility under the SBA’s affiliation rules. FAQ #44 states that a PPP applicant must count all of the employees of its U.S. and foreign affiliates for purposes of determining eligibility for a PPP loan, absent an otherwise applicable exemption to the affiliation rules, such as those included in the CARES Act for those in the restaurant and hotel industries.
The SBA Focus Group of the COVID-19 Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the PPP loan program is implemented.
Author Matthew McDonald is a partner in the Corporate & Securities Department at Klehr Harrison.