Important Update on the Paycheck Protection Program under the CARES Act

This article was updated on May 7, 2020.  Updates to this article will be made as new information becomes available. 

Since late March, the U.S. Small Business Administration (“SBA”) has published Frequently Asked Questions in regards to the implementation of Section 1102 – Paycheck Protection Program (“PPP”) and Section 1106 – Loan Forgiveness under the CARES Act.  The following summarizes the key questions addressed since Schneider Downs the last article on the PPP FAQs (

Q: Do businesses owned by large companies (including private companies) with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP?

All borrowers must assess their economic need for a PPP loan and certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

This certification should consider current business activity and the ability to access other sources of liquidity in order to support ongoing operations in a way that is not significantly detrimental.  The FAQ states that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith.  Any borrower that applied for and received a loan and repays it in full by May 14th will be considered to have made the certification in good faith.

Q: Will the SBA review individual PPP loan files?

The SBA will review all loans over $2 million, in addition to other loans as appropriate.  Additional guidance regarding this is forthcoming.

Q: Is an employer that repays its PPP loan by the safe harbor deadline (May 14, 2020) eligible for the Employee Retention Credit?

Yes.  The employer will be eligible for the credit if the employer is otherwise an eligible employer for purposes of the credit.

Q: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

No.  An IFR will be issued that states that, as long as the borrower made a good faith, written offer to rehire the employee for the same salary/wages and hours and the employee’s rejection of that is documented, that employee will be excluded from any calculation of loan forgiveness.  However, an employee who rejects an employment offer may forfeit eligibility for continued unemployment compensation.

Q: How do SBA’s affiliation rules at 13 C.F.R. 121.301(f) apply with regard to counting the employees of foreign and U.S. affiliates?

An applicant must include all of its employees and the employees of its U.S. and foreign affiliates.

Q: Can a seasonal employer that elects to use a 12-week period between May 1, 2019 and September 15, 2019 to calculate its maximum PPP loan amount under the interim final rule issued by Treasury on April 27, 2020, make all the required certifications on the Borrower Application Form?


Q: Do nonprofit hospitals exempt from taxation under section 115 of the Internal Revenue Code qualify as “nonprofit organizations” under Section 1102 of the CARES Act?

Yes, if the hospital, in a written record maintained by the hospital, reasonably determines that it is also an organization described in section 501(c)(3) of the Internal Revenue Code and is therefore within a category of an organization that is exempt from taxation under section 501(a).

Q: To determine borrower eligibility under the 500-employee or other applicable threshold established by the CARES Act, must a borrower count all employees or only full-time equivalent employees?

For loan eligibility, it should include all individual employees (full-time, part-time, or other).  For loan forgiveness, the CARES Act uses the standard of full-time employee equivalents.

Q: Does the cost of a housing stipend or allowance provided to an employee as part of compensation count toward payroll costs?


Q: Is there existing guidance to help PPP applicants and lenders determine whether an individual employee’s principal place of residence is in the U.S.?

Yes, see IRS regulations (26 CFR Section 1.121-1(b)(2)).

If you need more information, please reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal ( directly.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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