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Client Alert: Further Paycheck Protection Program Update

Corporate
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On April 2, 2020, the Treasury Department published several updates to the Paycheck Protection Program (PPP) on its website.

Among those listed are the revised guidance for borrowers, an updated Borrower Application Form, and an Interim Final Rule from the Small Business Administration (SBA).

Noteworthy provisions of the Interim Final Rule include the following:

  • Borrowers have the burden of complying with the PPP criteria, and lenders will be largely held harmless in the process and will be required to do relatively little diligence.
  • The Interim Final Rule sets forth certain examples on calculating payroll costs, intended to facilitate calculations for borrowers.
  • Compensation to independent contractors cannot be included in payroll costs for an applicant, because independent contractors can separately apply for a PPP loan.
  • The interest rate on the PPP loan has been increased from the prior guidance of 0.5% to 1%.
  • Priority for PPP loans is on a “first-come, first-served” basis.
  • Borrowers that received an Economic Injury Disaster Loan (EIDL) as of April 3, 2020 may be eligible to apply for a PPP loan.
    • If the EIDL was used for payroll costs, then the proceeds of the PPP loan must be used to refinance the EIDL.
    • Proceeds from any EIDL advance up to $10,000 will be deducted from the loan forgiveness amount on the PPP loan.
  • The SBA will issue additional guidance on loan forgiveness and its affiliation rules.

Noteworthy changes to the application include:

  • Changes in the certifications required of the borrower/applicant, which now are required only from an authorized representative of the applicant.
  • The application now seeks to know whether the U.S. is the principal place of residence for all employees of the applicant, and if the applicant is a franchise listed in the SBA’s Franchise Directory.

Revised guidance for borrowers from the SBA makes clear that PPP loan proceeds can be used to cover paid sick leave.

Treasury Department documents are downloadable below, current as of April 3, 2020:

PPP Information Sheet for Borrowers
Borrower Application Form
Interim Final Rule

Jeffer Mangels Butler & Mitchell LLP is a full-service law firm committed to providing clients with outstanding results. Our corporate lawyers serve numerous middle-market companies, large publicly traded corporations and emerging entrepreneurial businesses with a full range of financing, transactional and operational counsel, as well as in all aspects of mergers and acquisitions.