Borrowers and lenders (and their advisers) may be feeling overwhelmed these days by the dizzying plethora of paycheck protection program (PPP) loan guidance issued by the Small Business Administration (SBA) and others. That’s not surprising given the well over a dozen Interim Final Rules (IFRs), 48 FAQs from the SBA, 94 FAQs from the IRS, SBA Fact Sheets, Notices and Form Instructions. Graft onto all that information, some confusion added via tweets by Treasury Secretary Mnuchin and Senator Rubio, as well as interpretations by members of Congress — interpretations that are sometimes at odds with both the statute and the administrative guidance.1
The good news is that the Treasury Department, SBA and IRS guidance generally is favorable to borrowers, even if sometimes contradictory and sometimes not clearly supported by the CARES Act itself.2 Also good news is that plaintiffs have prevailed in the two court cases so far that are challenging the application of SBA’s pre-CARES Act restrictive lending rules to PPP loans.3
Amid all that swirl of guidance, one point to keep in mind is that the rules applicable to your PPP loan are highly dependent upon the date of your application. In other words, your PPP loan may be subject to different rules than your neighbor’s PPP; and it’s all a matter of timing.
Early on, FAQ 17, issued by the SBA on April 6 and discussed here, explained that the rules in effect on the date of your PPP application will govern your compliance:
17. Question: I filed or approved a loan application based on the version of the PPP Interim Final Rule published on April 2, 2020. Do I need to take any action based on the updated guidance in these FAQs?
Answer: No. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs. [Emphasis supplied.]
More recently, in its May 22 IFR, discussed here, the SBA reiterated this rule in a slightly different way:
The Administrator has determined that to be an eligible recipient that is entitled to forgiveness under section 1106(b), the borrower must be an "eligible recipient" under 15 U.S.C. § 636(a)(36)(A)(iv) and rules and guidance available at the time of the borrower’s loan application. [Emphasis supplied.]
Thus, for example, an applicant who counted 500 employees based on the rules (or lack thereof) in effect before those rules became effective4 or were changed (as described here), should not have their eligibility undermined by subsequently-issued guidance.
That said, we have a few additional thoughts worth sharing about these rules.
The SBA rendered the testing date for eligibility more interesting following the extensive “clarifications” surrounding the necessity certification, described here. The SBA offered borrowers an opportunity to return their loans by May 18 (as extended the second time) if they felt they could no longer make the certification as that certification was ultimately “clarified” and illuminated in FAQs 31 and 37, described here. Presumably the SBA did not believe their FAQ 17, quoted above, applied for purposes of the certification because subsequent FAQs 31 and 37 were somehow clarifications of existing rules – even though nobody but Treasury Secretary Mnuchin and Senator Rubio seemed to share the same insight into the Congressional intent of the certification language.
1 For example, this Fact Sheet from Senator Rubio’s office still contains many inaccuracies even though it has been recently updated to remove other inaccuracies.
2 Examples of contradictory guidance and guidance not supported by the underlying statute are discussed here, here and here.
3 DV Diamond Club of Flint LLC et al vs. U.S. Small Business Association, (E.D. Michigan, May 13), appeal filed to 6th Cir.; Camelot Banquet Rooms, Inc. v. U.S. Small Business Administration, (E.D. WI, May 1).
4 Compare eligibility under IFR issued on April 2 (“If you have 500 or fewer employees…”) with that issued on April 6 in FAQ 14 (number of employees may be calculated based on the average number of employees over a 12-month period, citing “SBA’s usual calculation” that antedates the CARES Act.
5 This position is particularly worrisome because May 5 was the date the SBA released FAQ 44. As discussed in this article, that FAQ did not provide clear guidance for the position ultimately taken by the SBA.
6 As the SBA’s FAQs note in footnote 1: This document does not carry the force and effect of law independent of the statute and regulations on which it is based. At the same time, the FAQs provide that “Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules.” In other words, borrowers conforming to the FAQs are protected and borrowers disagreeing with the FAQs may be safe.
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