SBA provides more guidance on PPP loans

Congress replenished the fund responsible for doling out loans to small businesses under the paycheck protection program last week. That was after we learned big banks muscled to the front of the line to secure financing for some well-known public companies, including at least one professional basketball team. In response, the Small Business Administration has updated its FAQs to address who qualifies for PPP loans.

We’ve also learned this second pot of money may run out as quickly as the first one did. Which means Congress may want or need to go back to the well a third time.

In light of the snafus accompanying the first round of PPP loans, the SBA has released more detailed guidelines on how to calculate the maximum loan amount.

FAQs

Giant corporations with substantial market values that have access to capital can’t qualify for PPP loans. The SBA notes all borrowers must certify in good faith that they need the money, taking into account their current business activities and other sources of liquidity (read: hedge funds).

PPP loans are limited to employers with fewer than 500 employees. The FAQs note the following:

  • For purposes of loan eligibility, the Coronavirus Aid, Relief, and Economic Security Act defines the term “employee” to include individuals employed on a full-time, part-time or other basis.
  • For purposes of loan forgiveness, the CARES Act uses the standard of full-time equivalent employees to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions. Caution: There’s no definition of full-time equivalent employee for this purpose.

So count carefully.

The FAQs also clarify that the cost of a housing stipend or allowance provided to an employee must be counted toward the $100,000 annual limit on compensation.

Calculating the maximum loan amount

The SBA’s first set of instructions on calculating the maximum amount were quite basic: aggregate your payroll costs from the last 12 months, subtract salaries or fees paid to employees exceeding $100,000, divide that amount by 12 and then multiply the average monthly payroll costs by 2.5.

For S corps and C corps, the updated instructions now provide a lot more detail about how you’re supposed to determine salaries and benefits that comprise your payroll costs:

  • Gross wages are determined by aggregating the amounts you reported on all four 2019 941 forms on Line 5c, column 1 (taxable Medicare wages and tips), plus pretax employee contributions for health insurance or other fringe benefits excluded from the Line 5c, column 1 amount. Subtract amounts paid to employees exceeding $100,000
  • Determine the 2019 employer health insurance contributions from Form 1120, Line 24 or Form 1120-S, Line 18 that’s attributable to health insurance
  • Determine 2019 employer retirement contributions from Form 1120, Line 23 or Form 1120-S, Line 17
  • Determine your 2019 state and local payroll taxes from all four state unemployment wages and tax reports.

In keeping with the heightened substantiation requirement in the FAQs, you’re going to need to present your 2019 941s, all four state quarterly unemployment wage and tax reports (or equivalent payroll processor records or W-2s), your 2019 1120 or 112-S forms, along with documentation of retirement or health insurance contributions.

Nonprofit employers substitute Form 990, Part IX, Line 9 attributable to health insurance for Form 1120, Line 24 or Form 1120-S, Line 18. and Form 990, Part IX Line 8 attributable to employer retirement contributions for Form 1120, Line 23 or Form 1120-S, Line 17.