Updated PPP Forgiveness Guidance

A. Document the need for and use of your PPP Loan or return the money

There has been a public backlash over perceived abuses in the PPP loan process. With reports of publicly traded companies such as Ruth’s Chris getting loans, the federal government has changed the tenor of its guidance. On April 28, 2020, U.S. Secretary of Treasury Steven Mnuchin announced that all Paycheck Protection Program (PPP) loans over $2 million are subject to audits. The SBA has issued new guidance on the PPP loan process, and the information related to loan forgiveness is of particular importance.

The questions and answers below highlight the need for employers to work with their accountants and payroll specialists to set aside documentation showing the need for the PPP funds for which they apply.

If an employer decides to return PPP money that it does not need or cannot use, it should return the money during the safe harbor period described below on or before May 7, 2020.

Members may also refer to the document Paycheck Protection Program
Loans FAQ

Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this 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. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

B. Good faith written offer of re-hire sufficient for forgiveness
Late last week, the SBA promised an interim final rule that will provide additional clarity on loan forgiveness. As a preview, the SBA issued Question and Answer 40 below, which indicates that good faith efforts to re-hire employees will be count toward the forgiveness calculation for PPP loans at the June 30, 2020 deadline:

Question: Will a borrower’s PPP loan forgiveness amount (pursuant
to section 1106 of the CARES Act and SBA’s implementing rules and
guidance) be reduced if the borrower laid off an employee, offered to
rehire the same employee, but the employee declined the offer?

No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

NECA will continue to monitor guidance and update its material as necessary.

This material is for informational purposes only. The material is general and is not intended to be legal advice. It should not be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, applicable CBAs, prime contracts, subcontracts, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship.

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