BCLP Banking Blog

Bank Bryan Cave

PPP Forgiveness FAQ

Main Content

PPP: Does a Borrower need its Lender’s Consent to a Change in Control Transaction?

Nothing in the CARES Act, Interim Final Rules, or Frequently Asked Questions currently requires Lender’s Consent in connection with a change in control transaction. However, the specific terms of the PPP Note signed by the borrower may require the Lender’s consent in a variety of situation.

(Note: This is one post in a series of posts regarding questions about the Paycheck Protection Program and Loan Forgiveness. A list of questions addressed so far is also available on our PPP Resources page. These questions and our answers are based on discussions with colleagues and clients, both lenders and borrowers. Our intention is to cover issues that, while potentially frequently asked, are not explicitly addressed in official FAQs or directly in Interim Final Rules. Our answers may ultimately be subject to change as additional guidance is provided, but reflect our view of the regulations at the time of posting.)

Consistent with SBA PPP FAQ #19, no specific form of PPP note was required to be used by lenders. Each lender was authorized to use their own promissory note or an SBA form of promissory note. Many, but by no means all, PPP lenders ultimately used the SBA Standard Loan Note on Form 147 as the base of their PPP promissory notes.

Read More

PPP: Who is subject to Owner-Employee Compensation Forgiveness Limitations?

Self-employed Schedule C (and Schedule F) filers, general partners, and other PPP borrowers that utilized 2019 IRS Form 1040 Schedule C line 31 net profit amount in calculating the amount of their PPP loan are clearly subject to these limitations. However, the SBA guidance also indicates that owner-employees of C-Corporations, S-Corporations and LLCs are subject to the owner-employee compensation limits, and the SBA guidance is silent on limited partners.

Update (8/24/20): The Treasury and SBA published a new Interim Final Rule that confirms the initial guidance did not include any exception based on the owner-employee’s percentage of ownership. However, the new rule also provides that “an owner-employee in a C- or S-Corporation who has less than a 5 percent ownership stake will not be subject to the owner-employee compensation rule.” While limited partners are not addressed in the new rule, we note the original Interim Final Rule which limited owner-employees only referenced general partners; accordingly presumably no formal exception for limited partners is necessary. This would also be consistent with the reasoning for less than 5% shareholders, as limited partners would generally “have no meaningful ability to influence decisions over how loan proceeds are allocated.”

(Note: This is the third in what we anticipate to be a series of posts regarding questions about the Paycheck Protection Program and Loan Forgiveness. A list of questions addressed so far is also available on our PPP Resources page. These questions and our answers are based on discussions with colleagues and clients, both lenders and borrowers. Our intention is to cover issues that, while potentially frequently asked, are not explicitly addressed in official FAQs or directly in Interim Final Rules. Our answers may ultimately be subject to change as additional guidance is provided, but reflect our view of the regulations at the time of posting.)

The current Paycheck Protection Program Forgiveness Application asks all borrowers to certify as follows:

  • if a 24-week Covered Period applies, the forgiveness amount requested  does not exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $20,833 per individual; and
  • if the Borrower has elected an 8-week Covered Period, the forgiveness amount requested does not exceed 8 weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.

While the concept of owner-employee compensation was initially used by the SBA to calculate the amount that a small business with no employees was eligible for, with the expansion of the eligible covered period, the Treasury and SBA have also added restrictions on the use of compensation to “owner-employees” in calculation of the amount of payroll costs eligible for forgiveness. See, for example, the “Interim Final Rule on Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule” and the Frequently Asked Questions about Loan Forgiveness.

Unfortunately, to date, neither the Treasury nor the SBA has meaningfully defined what constitutes an “owner-employee” or provided any guidance as to whether borrowers need to limit W-2 compensation paid to an employee that happens to have an ownership interest (however small) in the borrower. The Frequently Asked Questions “defines” an owner-employee as “an owner who is also an employee.”

Read More

PPP: Does the Size of the Loan Affect Eligibility for Form 3508EZ?

No. PPP borrowers of any size may use Form 3508EZ, assuming they otherwise meet the eligibility requirements of that form.

(Note: This is the second in what we anticipate to be a series of posts regarding questions about the Paycheck Protection Program and Loan Forgiveness. A list of questions addressed so far is also available on our PPP Resources page. These questions and our answers are based on discussions with colleagues and clients, both lenders and borrowers. Our intention is to cover issues that, while potentially frequently asked, are not explicitly addressed in official FAQs or directly in Interim Final Rules. Our answers may ultimately be subject to change as additional guidance is provided, but reflect our view of the regulations at the time of posting.)

The U.S. Treasury Department and Small Business Administration have provided two forms for applying for forgiveness from Paycheck Protection Loans, and lenders have the further ability to develop their own comparable forms. Both the standard form, Form 3508, and the “simplified” form, Form 3508EZ, are available on the Treasury’s website, along with instructions.

Note: At this time, there appears to be bipartisan support in Congress for additional forgiveness relief for borrowers of $150,000 or less, potentially indicating a pathway for seeking forgiveness without completing Form 3508 or Form 3508EZ. While action on such relief appears tied up in the debate on other issues, there is no current urgency to seek forgiveness, as all payments under the PPP loan are deferred until the earlier of the SBA reimbursing the lender the amount of loan forgiveness or 10 months after the end of the relevant covered period if no forgiveness application is filed. Accordingly, smaller PPP borrowers may desire to delay filing any forgiveness application at this time.

Form 3508 and From 3508EZ are very similar, but are different in two ways: eligibility and the support information required. Notably, one area in which they are different is that both forms require a borrower to indicate if they, along with any affiliates, received PPP loans in excess of $2 million. This question would appear to flag the loan for further SBA review, consistent with FAQ 39, which indicated that the SBA would review all such loans independently. Accordingly, filing using Form 3508EZ will not avoid such review, and is presumably permitted for borrowers with loans in excess of $2 million. However, in connection with such a review, the borrower may be required to submit additional information.

Read More

PPP: Can Forgivable Payroll Costs Exceed Loan Amount?

Yes, in completing a Paycheck Protection Program loan forgiveness application, we believe a borrower can appropriately report actual payroll costs during the applicable covered period in excess of the original PPP loan amount. While actual forgiveness is ultimately limited to the amount of the PPP loan, the calculations provided for in the loan forgiveness application allow payroll costs to exceed the amount of the PPP loan, thereby permitting borrowers to potentially obtain full forgiveness even if the borrower is subject to FTE and/or salary/hourly wage reductions.

(Note: This is a first in what we anticipate to be a series of posts regarding questions about the Paycheck Protection Program and Loan Forgiveness. A list of questions addressed so far is also available on our PPP Resources page. These questions and our answers are based on discussions with colleagues and clients, both lenders and borrowers. Our intention is to cover issues that, while potentially frequently asked, are not explicitly addressed in official FAQs or directly in Interim Final Rules. Our answers may ultimately be subject to change as additional guidance is provided, but reflect our view of the regulations at the time of posting.)

In light of the 24-week covered period and the PPP loan amount being based on effectively 10 weeks of payroll costs, we believe most PPP borrowers will ultimately have payroll costs that significantly exceed the amount of their PPP loan principal. This should not only facilitate full loan forgiveness, but also may ease the calculations under the forgiveness application and reduce the need to be aggressive with regard to questionable forgivable expenses, FTE calculations, or safe harbor certifications. (As reflected in the Forgiveness API FAQ, so long as lenders agree with the final total forgiveness amount, such applications can be submitted as being approved in full, even if there is disagreement on certain line items.)

Read More
The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.