Treasury Adds Important FAQs and Responses for Paycheck Protection Program
Client Alerts | May 7, 2020 | Hedge Funds | Private Equity Funds | Securities and Corporate Finance
On May 3 and May 5, 2020, the Department of Treasury (“Treasury”) updated its frequently asked questions (“FAQs”) related to the paycheck protection loan program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). You can find our previous client alerts on the program here and the full text of the FAQs here. The material updates to the FAQs include:
- Loan Forgiveness Amount and Employees Refusing Rehire. The principal and interest of a PPP loan may generally be forgiven if a business retains employees and does not reduce employee wages. Businesses that have already terminated or furloughed employees will not have their loan forgiveness reduced if they rehire such employees on or before June 30, 2020. FAQ 40 states that, if a business makes a good faith, written offer to rehire a previously terminated employee and has documented the rejection of such offer by the employee, the fact that such employee is not rehired will not negatively impact the business’s eligibility for PPP loan forgiveness. It should be noted that the FAQs are not legally binding and this provision has not been given legal force or effect at this time. However, we expect that a rule will be promulgated in the near future giving force and effect to this provision.
- Repayment Safe Harbor To Be Extended from May 7, 2020 to May 14, 2020. FAQ 43 states that Treasury will extend the date by which ineligible businesses (including hedge funds and private equity firms) that received a PPP loan on or before April 24, 2020, may repay such PPP loan in order to be deemed to have received the funds in good faith and because of a misunderstanding or misapplication of the CARES Act and existing guidance. It should be noted that the FAQs are not legally binding and this provision has not been given legal force or effect at this time. However, we expect that a rule will be promulgated in the near future giving force and effect to this provision. For further details, see our last client alert on this topic here.
- Requirement to Count Employees of Both U.S. and Non-U.S. Affiliates. FAQ 44 states that, unless a business fits into an exemption from SBA affiliation rules, both U.S. affiliates and non‑U.S. affiliates must be counted for the purpose of determining a business’s eligibility for a PPP loan, which determination will be based on either revenue or number of employees depending on the industry in which the business operates.
Treasury regularly provides revised or additional guidance on the administration and interpretation of the material terms of the PPP. Given the speed at which the program has been implemented and the ongoing release of rules and guidance, there remains substantial uncertainty surrounding the program.