Pub. 2 2020 Issue 2

9 nebraska society of cpas W W W . N E S C P A . O R G In addition to all previously approved SBA 7(a) lenders, the Rules provide that any federally insured depository institution, any federally insured credit union, or any Farm Credit System institution that applies the requirements under the Bank Secrecy Act as a federally regulated financial institution, upon delivery of SBA Form 3506, shall be automatically qualified to make loans under the Paycheck Protection Program. A copy of SBA Form 3506 is available on the Treasury Department’s website. The Rules also provide that certain non-depository financing providers may be eligible to apply to make loans under the program. When is the Paycheck Protection Program available? The loans must be made by June 30, 2020. The Rules state that the loans are available on a “first-come, first-served” basis. Although policymakers have indicated that additional funding will be made available if the $349 billion of funds currently appropriated for the Paycheck Protection Program are exhausted, many industry experts believe these funds will be exhausted before the June 30, 2020, deadline. We encourage eligible borrowers to contact their lenders and apply as soon as possible. Who is eligible to receive a loan under the Paycheck Protection Program? In addition to businesses that already qualify as small businesses under the SBA regulations, the program is available to any business, nonprofit organization, veterans’ organization, or tribal business that has fewer employees (full-time, part-time, or employed on any other basis) than the greater of: • 500; or • the size standard for employees set by the SBA for the organization’s applicable industry (revenue restrictions will not apply). In other words, if the applicable SBA size standards for a business in a particular industry already permit greater than 500 employees the larger number will apply. The employee counts for businesses with NAICS code 72 designations (accommodations and food services) are also to be made on a per-location basis. The Affiliation Rules confirm that the employee count will include employees of any affiliates of the borrower. Under the Affiliation Rules, which are somewhat complex, businesses under common control with the borrower are affiliates (factors include, but are not limited to, common ownership, common management, identity of interest and stock options, convertible securities, and agreements to merge). For this reason, the Affiliation Rules may exclude many companies owned by private equity funds, venture capital funds, and family offices from eligibility under the Paycheck Protection Program. The Affiliation Rules, however, create an exemption for faith-based organizations and the affiliation regulations do not apply between two organizations if the relationship is based on religious teachings or belief or otherwise constitutes a part of the exercise of religion. However, the affiliation requirements have been waived for the following: • BusinesseswithNAICS code 72designations (accommodations and food services) • Franchise businesses with SBA franchisor identifier codes • Any business that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act (SBICs) The loans are also available to sole proprietors, independent contractors, and eligible self-employed individuals. How does a business apply for a loan under the Paycheck Protection Program? A borrower with an existing SBA loan or with a non-SBA loan from an existing SBA-preferred lender may want first to contact their existing lenders to inquire about applying for loans under the Paycheck Protection Program. Lenders began taking applications for loans under the Paycheck Protection Program on April 3, 2020. In addition to the Rules, we expect the SBA to continue to issue additional regulations and guidance on the Paycheck Protection Program. What is the maximum principal amount for a loan under the Paycheck Protection Program? The maximum principal amount is limited to the lesser of (a) 2.5 times the average total monthly payroll costs incurred by the borrower for the trailing 12-month period from the date of the loan plus any outstanding loans made under the SBA’s Disaster Loan Program made after Jan. 31, 2020, or (b) $10 million. This means that existing disaster loans can be refinanced under this program. To the extent the disaster loans were made for purposes other than the permitted loan uses under this program (see below), additional funds under the Paycheck Protection Program would be available to existing disaster loan borrowers. A borrower is not The loans are also available to sole proprietors, independent contractors, and eligible self-employed individuals.