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On July 4, 2020, President Trump signed a bill passed by the U.S. Congress extending the application deadline for the Paycheck Protection Program (PPP)[1] from June 30, 2020 to August 8, 2020. The extension of the PPP application deadline follows the latest PPP report from the US Treasury Department (Treasury) and US Small Business Administration (SBA), according to which as of June 30, 2020, approximately $ 131 billion of the allocated $ 670 billion has not been spent. In their report, the SBA and the Treasury Department added that the average PPP loan size as of June 30, 2020 was $ 107,000 and that the PPP has supported about 51 million jobs, or about 84% of all employees in small businesses.
In addition, on July 6, 2020, the SBA and the Treasury Department announced the names of all over 658,000 PPP borrowers who have received more than $ 150,000 in PPP loans since the program was launched through June 30, 2020. The data points published with each PPP borrower name include, but are not limited to, borrower’s address, loan volume (the SBA did not disclose exact dollar amounts of PPP loans granted to borrowers), NAICS code, type of business, demographic information, non-profit status (if Applicable), number of jobs supported, date the PPP loan was approved, and the name of the PPP lender who granted the loan.
Finally, as already highlighted in our articles here and here, the PPP has seen significant changes in terms of loan waiver under the PPP Flexibility Act and the updated loan waiver application published on June 16, 2020. A growing concern among PPP market participants has been the lack of clarity regarding the term “owner-worker” and its use in the context of PPP. The term “owner-employee” was used by the SBA in its fourteenth provisional final regulation from the 1st of 8 weeks’ award period. The most recent application for loan waiver increased the “Owner Employee” cap to a disproportionate amount of $ 20,833 for the 24-week waiver period, and the SBA’s on 26th add that in addition to the increased cap of 20,833 USD (for a 24-week instead of an 8-week award period) (i) each C corporation employee is limited by the amount of their 2019 employee cash compensation and their employer’s pension and health insurance contributions paid on their behalf, and (ii) each employee of an S corporation is limited to the amount of their employee cash compensation for 2019 and the employer’s pension contributions made on their behalf, but in the case of an employee with an S corporation, the health insurance contributions made on the employee’s behalf of the Employer, as these payments are already included in the cash remuneration of the Employee are included. The justification of the SBA for the different treatment of “owner employees” compared to “employees” is that the approach is compatible with the structure of the CARES Act and its “overriding focus on the continued payment of wages for employees” and prevents random effects [for owners] that Congress did not intend. “
Unfortunately, the SBA has not defined the term “owner-employee”, nor has the SBA provided guidance to help participants determine whether to extend the term “owner-employee” to any employee who owns the property any Part – also nominal – in the participations of the PPP borrower.[2] The updated loan waiver application instructions direct the PPP borrower to remove all “owner employees” from the list of employees and “employees” on Worksheet A. This lack of clarity as to which employee should be considered the “owner-employee” is problematic for PPP borrowers seeking maximum forgiveness as the per Non-owner The employee cap for the 24 week award period is $ 46,154, while the cap per owner per employee is over 50% lower.
FOOTNOTES
[1] As provided under the Coronavirus Aid, Relief and Economic Security Act (as amended, supplemented, or otherwise amended from time to time, including, but not limited to, the Paycheck Protection Program and Health Care Enhancement Act, Paycheck Protection Program Flexibility Act, applicable federal law Regulations and interpretative guidelines of the SBA and the Ministry of Finance, which CARES law).
[2] Please note that the PPP application requires applicants to list all owners of 20% or more of the company’s equity and that the first preliminary final rule of the SBA (as amended) allows a company to approve a PPP – Prohibits loans when 20% or more of the equity of that company belongs to a person who has been convicted of a crime in certain circumstances. Please also note that the SBA requires that anyone who owns 20% or more of an applicant for a small business under their traditional 7 (a) loan program provide a personal guarantee. However, there is no written guidance or public announcement to suggest that the SBA would apply a similar minimum participation threshold for determining whether an employee is an “owner-employee”, nor does the SBA distinguish between active and passive ownership, including whether an employee is a member of the company’s board of directors / managers, is a limited partner of the company (as opposed to a general partner) and / or has voting rights. The SBA even considers minority holdings to be significant in certain contexts.
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