Alerts and Updates

SBA Extends Safe Harbor Date for Repayment of Paycheck Protection Program Loans and Clarifies Rules for Counting Employees of Foreign and U.S. Affiliates

May 6, 2020

The SBA intends to provide additional guidance on how it will review the economic uncertainty certification before May 14, 2020.

On May 5, 2020, the Treasury Department released an updated FAQ sheet that extends the safe harbor date to May 14, 2020, for any Paycheck Protection Program (PPP) loan borrower that determines it does not meet the need certification and repays the loan in full. Additionally, Question 44 of the FAQ sheet provides additional guidance with respect to the affiliation rules at 13 C.F.R. 121.301(f), which apply when borrowers are determining the number of employees in their foreign and U.S. affiliates.

Previously, the Treasury Department and Small Business Administration (SBA) provided that, in light of heightened scrutiny of PPP loans, borrowers should carefully review the certification on the PPP application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers had the option of repaying the loan in full by May 7, 2020, in order to satisfy the certification.

Per Question 43 of the FAQ, the SBA extended the repayment date for the safe harbor in connection with the economic uncertainty certification to May 14, 2020. The SBA also indicated that Question 43 will be implemented by way of a revision to the SBA’s interim final rule on this topic.

In addition, the SBA intends to provide additional guidance on how it will review the economic uncertainty certification before May 14, 2020, so borrowers that are still unsure about whether to return the funds may wish to await this additional guidance before doing so.

In Question 44, the SBA provided that for purposes of determining the 500 or fewer employee size standard, applicants must include all of (i) their own employees and (ii) all employees of their U.S. and foreign affiliates, absent a waiver of or an exception to the affiliation rules. Separately, businesses seeking to qualify as “small business concerns” under section 3 of the Small Business Act on the basis of the applicable employee-based size standard must likewise do the same. 

Accordingly, in determining if the applicant meets the 500 or fewer employees eligibility test set forth in the CARES Act, the applicant must include all of its employees whose principal place of residence is in the U.S., as well as the employees of its domestic and foreign affiliates, without regard to the primary place of residence of these employees. 

SBA Issues Interim Final Rule for Work-Study Programs and Nondiscrimination Laws

The SBA issued a new interim final rule on May 5, 2020, addressing (i) the determination of employee headcount in PPP loan applications and (ii) the applicability of certain nondiscrimination laws to PPP loan recipients.

Student Workers and PPP Loan Eligibility

Under section 1102(a) of the CARES Act, which pertains to determining employee headcount, employers are to include “individuals employed on a full-time, part-time, or other basis.” In this new interim final rule, the SBA has announced that it is interpreting section 1102(a) to mean that in determining PPP loan amounts, institutions of higher education must exclude work-study students when determining the number of employees, and correspondingly must also exclude payroll costs for work-study students. The rule provides that student workers generally count as employees unless (i) the applicant is an institution of higher education, as defined in 34 C.F.R. 675.2, and (ii) the student worker’s services are performed as part of a federal work-study program or a substantially similar program run by a state or political subdivision of a state.

Further, the SBA provided that educational institutions that applied for PPP loans prior to the issuance of this rule are not bound by this interpretation but may rely on it. Finally, lenders may continue to rely on borrower certifications as part of their good faith review process.

Nondiscrimination and the PPP

With respect to PPP loans and loan forgiveness, the SBA confirmed that the nondiscrimination provisions in the applicable SBA regulations incorporate the limitations and exemptions provided in federal statutory or regulatory nondiscrimination provisions for sex-specific admissions practices at (i) educational institutions (including preschools, nonvocational elementary or secondary schools and private undergraduate higher education institutions); (ii) sex-specific emergency shelters and coreligionist housing; and (iii) adoption or foster care practices giving child placement preferences to Native American tribes.

Additionally, under the PPP, the SBA confirmed that SBA regulations do not prevent a religious nonprofit entity from making decisions with respect to the membership or employment of individuals of a particular religion to perform work related to the carrying on of the nonprofit’s activities.

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