Editor’s note: The repayment deadline is now May 14, extended from the originally published May 7 deadline.
Several important updates have been announced to the new Paycheck Protection Program (PPP) authorized in response to the COVID-19 pandemic. These include notices addressing income tax requirements and conditions for accepting the loans.
PPP authorizes the U.S. Small Business Administration (SBA) to issue 100% guaranteed loans to small businesses that have been impacted by COVID-19 and need the funds to retain workers and maintain payroll and other debt obligations. The program has been very popular with small businesses and reportedly has already apportioned the $600 billion funding provided by Congress.
Certifying eligibility for PPP loans
Among recent updates to PPP guidance, the U.S. Department of Treasury has released additional information regarding the certifications that borrowers must provide to participate in the program.
An FAQ document issued Sunday by the department reminds applicants that they should be able to assert in good faith that their PPP loan was needed after considering the borrower’s current business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that isn’t significantly detrimental to the business.
If an applicant has concerns about the certifications that were made and their eligibility to obtain a PPP loan, they should contact their attorney, who can help evaluate options.
Any borrower who applied for a PPP loan before this Treasury guidance was issued, and who repays the loan in full by Thursday, May 14, will be deemed to have made the required certification in good faith.
The Treasury Department FAQ also clarified (in question 40) the impact on loan forgiveness when the “borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer.” According to the document, “The SBA and Treasury intend to issue a final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act loan forgiveness reduction calculation.”
Information on tax deductions
On Friday, May 1, the Internal Revenue Service (IRS) released a notice that borrowers cannot claim tax deductions that are normally fully deductible, such as covered rent obligations, covered utility payments, and payroll costs consisting of wages and benefits paid to employees. This is an unwelcomed development and would appear to cut against Congress’ intent in passing the COVID-19 relief package known as the CARES Act, which created the PPP program. The AVMA is looking to see what can be done, along with many in the small business community.
For additional information and updates on the PPP, see the small business loans page of AVMA’s COVID-19 website.