On May 5, the Small Business Administration (SBA), in consultation with the Department of the Treasury, updated its Paycheck Protection Program Frequently Asked Questions (FAQs) by adding FAQ #43, which states that borrowers who repay their loans in full by May 14, 2020 will be protected by its recent safe harbor rule. The safe harbor date was previously May 7, 2020.
In April, the SBA revised the PPP rules by adding FAQ #31, which appears to have retroactively modified earlier rules related to PPP eligibility. The SBA indicated that applicants needed to, “review carefully the required certification that [c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
The SBA added that, “[b]orrowers must make this certification taking into account 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.”
The vagueness of this FAQ has only added to the confusion about an already confusing program. Add to that the threat of civil and criminal penalties, and it is easy to understand why many companies have simply chosen to repay the loans and cut payroll, which is exactly what the PPP was designed to prevent.
The good news is that the new FAQ (FAQ #43) indicates that the SBA expects to promptly issue much-needed additional guidance to help borrowers apply FAQ #31 in order to determine whether they need to repay their loans by May 14, 2020.
SBA Issues Additional Guidance Related to Rehiring Workers
Another SBA FAQ issued earlier this week provides additional guidance around a topic that has been the source of much concern – how loan forgiveness will be impacted by an attempt to rehire employees who have been laid off and who may now refuse to return to work.
Due to the weekly $600 supplemental Federal unemployment compensation which runs through July 31, 2020, many laid off workers are now earning more money than they did in their previous employment, making it a very real possibility that they may decline to return when offered their jobs back.
On May 3, the SBA issued FAQ #40 which provides some clarity. The FAQ states that laid off employees who the borrower offers to rehire (for the same salary/wages and the same number of hours) will be excluded from the CARES Act’s loan forgiveness reduction calculation.
Given the language in the FAQ, it is assumed that such employees will not be counted when calculating the reduction in the forgiveness amount for the reduction in FTEs and the 75 percent of the last quarter payroll test for the employees.
A laid off employee will be excluded from the calculation if:
- The borrower made a good faith, written offer of rehire (for the same salary/wages and same number of hours), and
- The employee’s rejection of that offer is documented by the borrower.
The FAQ further states that employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
Note that while FAQ #40 provides some indication of how the SBA will treat a rehire who refuses to return to work, it also calls for the issuance of additional guidance in the form of an interim final rule. So we expect more information about this matter to be forthcoming.
We will continue to monitor the situation and keep you appraised of any developments. If you have any questions about these or any other matters in the meantime, please contact your Kreischer Miller relationship professional or any member of our team. We also continue to update our COVID-19 Resource Center, which you can access here.
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