SBA Paycheck Protection Program FAQs

This briefing was originally written on April 14 and was updated on June 23.

This document is intended to provide an overview of our understanding of the answers to commonly asked questions regarding the SBA Paycheck Protection Program (“PPP”), which was enacted as part of the stimulus package in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  The CARES Act was negotiated and enacted quickly, leaving many open questions regarding how PPP would be implemented.  The U.S. Small Business Administration (“SBA”) and the Department of the Treasury (“Treasury”) have worked together to implement PPP, releasing regulations and guidance on a regular basis.  We intend to update this document as this area of law continues to evolve and open questions are addressed.  The information herein was prepared for general informational purposes only and is not intended to be an exhaustive list of rules surrounding PPP.  The information presented is not legal advice, is not to be acted on as such, is only current as of the date above, and is subject to change without notice.  Each applicant’s circumstances are unique and eligibility determinations are fact-intensive.  As such, you should not act or refrain from acting on the basis of any content included herein without seeking legal or other professional advice. 

1. Applicable Laws, Regulations and Guidance
2. PPP Loan Eligibility
3. Affiliation
4. PPP Loan Terms
5. Permitted Uses and Forgivable Uses
6. The PPP Loan Application 

A. Applicable Laws, Regulations, and Guidance 

A.1       What laws and regulations apply to PPP loans?

Title I of the CARES Act established PPP under a new Section 7(a)(36) of the Small Business Act of 1953 (the “Small Business Act”).  PPP was subsequently expanded by the Paycheck Protection Program and Health Care Enhancement Act,^[1] which was signed into law on April 24, 2020, and extended by the Paycheck Protection Program Flexibility Act (the “Flexibility Act”),^[2] which was signed into law on June 5, 2020.  Because PPP is a loan program under Section 7(a) of the Small Business Act, it is subject to the regulations applicable to SBA Section 7(a) business loans except where the CARES Act or applicable regulations provide otherwise.  Section 7(a) loan regulations are generally found in 13 C.F.R. part 120.  PPP is also subject to SBA affiliation rules in 13 C.F.R. § 121.301(f). 

A.2       What other official guidance has been issued regarding PPP loans? 

SBA published its first Interim Final Rule on Business Loan Program Temporary Changes; Paycheck Protection Program (the “Interim Final Rule”) on April 2, 2020.  SBA followed that with an Interim Final Rule on Applicable Affiliation Rules, primarily relating to affiliation of faith-based organizations, on April 3, 2020 (“IFR #2”).  Also on April 3, 2020, SBA published a summary of affiliation rules applicable to PPP (the “Affiliation Guidance”), which confirmed that the affiliation rules of 13 C.F.R. § 121.301(f) apply to PPP.  On April 14, 2020, SBA published an Interim Final Rule on Additional Eligibility Criteria and Requirements for Certain Pledges (“IFR #3”), which included information on applicants with self-employment income, such as independent contractors and sole proprietors.  On April 24, 2020, SBA published an Interim Final Rule on Requirements for Promissory Notes, Authorizations, Affiliation, and Eligibility (“IFR #4”), which provided clarification regarding eligibility for private equity fund portfolio companies, and a guide on How to Calculate Maximum Loan Amounts.  On April 27, 2020, Treasury published an Interim Final Rule on Additional Criterion for Seasonal Employers (“IFR #5”). On April 28, 2020, SBA published an Interim Final Rule on Disbursements (“IFR #6”).  On April 30, 2020, SBA published an Interim Final Rule on Corporate Groups and Non-Bank and Non-Insured Depository Institution Lenders (“IFR #7”).  On May 5, 2020, SBA published an Interim Final Rule on Nondiscrimination and Additional Eligibility Criteria (“IFR #8”).  On May 8, 2020, SBA published an Interim Final Rule on Extension of Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request (“IFR #9”).  On May 13, 2020, SBA published an Interim Final Rule on Loan Increases (“IFR #10”), which permits lenders to increase PPP loans to borrowers that are partnerships or seasonal businesses that could have applied for larger loans based on interim final rules published after their PPP loan applications. On May 14, 2020, SBA published an Interim Final Rule on Eligibility of Certain Electric Cooperatives (“IFR #11”). On May 18, 2020, SBA published an Interim Final Rule on Treatment of Entities with Foreign Affiliates (“IFR #12”), which resolved in favor of SBA FAQ Question 44 an apparent conflict with earlier guidance under the Interim Final Rule and FAQ Question 3.  On May 20, 2020, SBA published an Interim Final Rule on Second Extension of Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan and Lender Reporting (“IFR #13”).  On May 22, 2020, SBA published an Interim Final Rule on Loan Forgiveness (“IFR #14”) and an Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (“IFR #15”).  On June 5, 2020, SBA published an Interim Final Rule on Eligibility of Certain Telephone Cooperatives (“IFR #16”).  On June 11, 2020, SBA published an Interim Final Rule on Revisions to First Interim Final Rule (“IFR #17”) to revise the Interim Final Rule to account for changes made by the Flexibility Act.  On June 12, 2020, SBA published an Interim Final Rule on Additional Revisions to First Interim Final Rule (“IFR #18”), which shortened the lookback period during which certain felony convictions would disqualify a business from eligibility for a PPP loan.  On June 17, 2020, SBA published an Interim Final Rule on Revisions to the Third and Sixth Interim Final Rules (“IFR #19”) to revise IFR #3 and IFR #6 to account for changes made by the Flexibility Act.  On June 22, 2020, SBA published an Interim Final Rule on Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule (“IFR #20”) to revise IFR #14 and IFR #15 to account for changes made by the Flexibility Act.  The most current guidance from SBA can be found in a regularly updated FAQ (the “SBA FAQ”) that is posted on the SBA and Treasury websites. 

A.3       [NEW] What forms have been issued regarding forgiveness of PPP loans? 

On May 15, 2020, SBA published its PPP Loan Forgiveness Application Form (the “Original Forgiveness Application”).  On June 16, 2020, SBA published an updated PPP Loan Forgiveness Application Form, Form 3508 (the “Forgiveness Application”), together with instructions (the “Forgiveness Application Instructions”) and a short-form version of the Forgiveness Application, Form 3508EZ (the “EZ Forgiveness Application”) and Form 3508EZ Instructions (the “EZ Forgiveness Application Instructions”).  Lenders may develop and implement their own versions of these forms, as they did for PPP loan applications. 

B. PPP Loan Eligibility 

B.1       What businesses are eligible for a PPP loan? 

A business is eligible for a PPP loan if it meets any one of the following standards: 

• Together with its affiliates, it has 500 or fewer employees, regardless of their principal place of residence. See B.2 below for further information on changes to this standard.^[3]
• Together with its affiliates, it meets the SBA employee-based size standard for the North American Industry Classification System (“NAICS”) code applicable to its primary industry. SBA size standards based on industry codes can be found here.^[4]
• Its primary industry is in NAICS category 72 (accommodations and food service) AND it has, together with its affiliates, no more than 500 employees per physical location.^[5]
• On its own, it meets the size standard (employee-based or receipts-based) established by SBA for the NAICS code applicable to its primary industry, AND together with its affiliates, it meets the size standard (employee-based or receipts-based) established by SBA for the NAICS code applicable to either its primary industry or the primary industry of itself and its affiliates on a combined basis, whichever standard is higher. SBA size standards based on industry codes can be found here.^[6]
• It has, together with its affiliates, $15 million or less of tangible net worth as of March 27, 2020, and $5 million or less of average net income after Federal income taxes (excluding carry-over losses) for the last two full fiscal years before the date of application.^[7] 

Please see Section C below regarding the affiliation rules and the limited exceptions to them. 

B.2       Are non-U.S. employees excluded when counting employees? 

No, all foreign and domestic employees are counted.  Earlier SBA guidance suggested that only employees whose principal place of residence is in the United States would be counted.^[8]  This reading had no express basis in the CARES Act, and SBA clarified through SBA FAQ Question 44, issued on May 5, 2020, and IFR #12, issued on May 18, 2020, that all foreign and domestic employees must be counted and that “an entity must include all employees of its domestic and foreign affiliates, except in those limited circumstances where the affiliation rules expressly do not apply to the entity.”^[9]  However, SBA is granting limited enforcement relief to certain applicants that filed PPP applications in reliance on the earlier guidance: 

[A]s an exercise of enforcement discretion due to reasonable borrower confusion based on SBA guidance (which was later resolved through a clarifying FAQ on May 5, 2020), SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-U.S. employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates [except where the affiliation rules expressly do not apply to the borrower]) had no more than 500 employees whose principal place of residence is in the United States.^[10] 

B.3       Are independent contractors and sole proprietors eligible for PPP loans? 

Yes.  Individuals who operate under a sole proprietorship or as an independent contractor are eligible for PPP loans.^[11]  Individuals intending to seek PPP loans should consult counsel; this document does not address application of the CARES Act or implementing regulations and guidance to individuals who apply for PPP loans. 

B.4       Are non-profits eligible for PPP loans? 

Non-profits that are 501(c)(3) tax-exempt organizations are eligible.  Non-profits under other sections of the Internal Revenue Code are not eligible unless specifically made eligible by statute or by SBA.^[12]  SBA has determined that certain nonprofit hospitals exempt from taxation under Section 115 of the Internal Revenue Code,^[13] certain electric cooperatives that are exempt from federal income tax under Section 501(c)(12) of the Internal Revenue Code,^[14] and certain telephone cooperatives that are exempt from federal income tax under Section 501(c)(12) of the Internal Revenue Code are eligible if they meet the applicable size standards.^[15] 

B.5       How are employees counted for purposes of determining PPP eligibility? 

PPP applicants may use (a) their average number of employees over the previous 12 months, (b) their average number of employees for calendar year 2019, or (c) their average number of employees for each pay period during the last 12 calendar months completed prior to the loan application.  If the business has been operational for less than 12 months, it may use the average number of employees for each of the pay periods that it has been operational.^[16]

The employee test for determining PPP loan eligibility is a head-count test, including full-time, part-time, temporary, leased, and furloughed employees.^[17]  Independent contractors and K-1 partners are not included, but note that independent contractors are separately eligible for PPP loans. 

B.6       Are any businesses that meet the size tests ineligible for PPP loans? 

Yes.  The following are ineligible for PPP loans, even if they meet the size standards described in B-1 above:^[18] 

• A financial business primarily engaged in the business of lending, e.g., banks, life insurance companies (independent agents may be eligible), finance companies, factoring companies, investment companies and other businesses whose stock in trade is money and which are engaged in financing.
  • A pawn shop where more than 50% of its revenue for the previous year was from interest on loans.
  • A mortgage service company where any loans funded are not sold within 14 days of loan closing.
• A passive business owned by developers or landlords that does not actively use or occupy the assets acquired or improved with the loan proceeds that is not an Eligible Passive Company (discussed below).
  • A motel, recreational vehicle park, campground, marina, or similar type of business that derives more than 50% of its gross annual revenue from transients who stay for periods of time exceeding 30 days.
  • A business primarily engaged in sub-dividing real property into lots and developing it for resale on its own account or in owning or purchasing real estate and leasing it for any purpose.
• A business located in a foreign country or owned by undocumented (illegal) aliens.
• A pyramid sale distribution plan.
• A business involved in any illegal activity.
• A business principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs, whether in a religious or secular setting.
• A consumer or marketing co-operative.
• A business that earns 1/3 or more of its gross annual revenue from packaging SBA loans.
• A business that derives directly or indirectly more than 5% of its gross revenue through the sale of products or services, or the presentation of any depiction or displays, of a prurient sexual nature or that presents any live performances of a prurient nature.
• A business primarily engaged in political or lobbying activities.
• A speculative business (such as mining, and research & development).
• A business that derives more than 1/3 of its gross annual revenue from legal gambling, or is a racetrack or casino, or otherwise has gambling as its primary reason for being.
• A private club or business that limits the number of memberships for reasons other than capacity.
• A Government-owned entity (except for a business owned or controlled by a Native American tribe, but that is a separate legal entity from the tribe). 

For a more comprehensive list of ineligible businesses, see Subpart B, Chapter 2 of SBA Standard Operating Procedure 50 10 5(K) for Lender and Development Company Loan Programs. 

An applicant is also specifically made ineligible by the Interim Final Rule if:^[19]

• It is a household employer (i.e., individuals who employ household employees such as nannies or housekeepers).
• A 20% or greater owner of the equity is incarcerated, on probation, on parole, or subject to formal criminal charges, or has been convicted of a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year.^[20]
• The applicant or any business owned or controlled by the applicant or any of its owners has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the Government. 

B.7       Are private equity funds and management companies eligible for PPP loans? 

SBA has taken the position that “[h]edge funds and private equity firms are primarily engaged in investment or speculation, and such businesses are therefore ineligible to receive a PPP loan.”^[21]  It is not entirely clear whether this is intended to apply to management companies, but we believe it is logical to assume that SBA will apply this reasoning to management companies because private equity fund employees tend to be employed by management companies that do not operate other businesses.  SBA’s Standard Operating Procedure (“SOP”) for Section 7(a) loans provides that “[a] business engaged in providing the services of a financial advisor on a fee basis is eligible provided they do not use loan proceeds [of an SBA-backed loan] to invest in their own portfolio of investments.”^[22]  While SBA has not expressly addressed this SOP provision, SBA appears to be taking the position that private equity fund management companies do not fall within this provision, at least with respect to PPP loans. 

B.8       Are private equity fund portfolio companies eligible for PPP loans? 

Generally, yes, assuming that they meet the size standards (see B.1 above) and are not in an ineligible business (see B.6 above) or otherwise disqualified.  Note, however, that SBA’s affiliation rules apply and may cause other portfolio companies of the private equity fund to be aggregated for purposes of the size test (see C below).  In addition, SBA notes that “all borrowers should carefully review the required certification on the Paycheck Protection Program Borrower Application Form (SBA Form 2483) stating that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’”^[23]  SBA guidance further provides that “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”^[24]  SBA has not provided further guidance on how private equity fund portfolio companies should apply this standard. 

On April 30, 2020, SBA instituted a $20 million cap on PPP loans to businesses that are majority owned, directly or indirectly, by a common parent.^[25]  This presumably applies to portfolio companies that are majority owned by private equity funds.  See D.1 below for further detail. 

B.9       Must an applicant show that it does not have credit available elsewhere in order to get a PPP loan? 

Generally, no, but SBA guidance issued on April 23, 2020, colors this analysis.  The CARES Act waives the typical SBA requirement that a borrower show it is unable to obtain credit elsewhere.^[26]  However, SBA FAQ Question 31 suggests that availability of alternate liquidity sources is relevant to whether an applicant can certify in good faith that a PPP loan is necessary, as required by the PPP loan application.  While SBA FAQ Question 31 may only apply to borrowers that are “large companies,” SBA FAQ Question 37 appears to extend SBA FAQ Question 31 to all businesses owned by private companies with adequate sources of liquidity,^[27] but it is unclear what would constitute “adequate sources of liquidity” or whether this would apply to any owner without regard to the size of its investment.  SBA FAQ 31 states: 

Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must 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.”  Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.  For example, 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, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.^[28]

 See B.11 and F.10 below for further information on the certification of need and potentially applicable safe harbors. 

B.10     If an applicant has received an SBA economic impact disaster loan (“EIDL”), can it still get a PPP loan? 

Yes.  An applicant may obtain both an EIDL and a PPP loan if they are used for different purposes.  If an applicant received an EIDL between January 31, 2020, and April 3, 2020, it can keep that loan and get a PPP loan if the EIDL was not used for payroll costs.  If the EIDL was used for payroll costs, it must be refinanced by the PPP loan.^[29] 

B.11     What do I do if I applied for and received a PPP loan but now believe, based on recent SBA guidance, that I cannot certify in good faith that current economic uncertainty makes my PPP loan necessary to support ongoing operations? 

SBA provided a safe harbor that permitted borrowers to repay PPP loans in full by May 18, 2020.  Borrowers that repaid their PPP loans in full by May 18, 2020, will be deemed to have made the required certification of need in good faith.^[30]  In addition, SBA has stated that: “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” Affiliation for this purpose is determined based on the rules that apply for determining eligibility for a PPP loan.^[31]

B.12     Are businesses in bankruptcy eligible for PPP loans? 

An applicant is not eligible for a PPP loan if either the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding when it submits a PPP loan application or at any time before the PPP loan is disbursed.^[32]  If a PPP loan applicant or its owner becomes the debtor in a bankruptcy proceeding after applying for a PPP loan but before receiving the PPP loan, it must notify the PPP lender and cancel its application.^[33] 

C. Affiliation 

C.1       How does SBA define “affiliation” for purposes of the PPP size tests?

SBA defines “affiliation” as one business controlling or having the power to control another or when a third party (or parties) controls or has the power to control both businesses.  SBA has an expansive view of what constitutes “control,” and it does not matter whether control is exercised, so long as the power to control exists.  SBA applies four specific affiliation rules for purposes of the PPP size tests:^[34]

• Affiliation based on ownership. A concern is an affiliate of an individual, concern, or entity that owns or has the power to control more than 50% of the concern’s voting equity.  If no individual, concern, or entity is found to control, SBA will deem the board of directors or president or chief executive officer (or other officers, managing members, or partners who control the management of the concern) to be in control of the concern.  SBA will deem a minority shareholder to be in control if that individual or entity has the ability, under the concern’s charter, bylaws, or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders. 
• Affiliation arising under stock options, convertible securities, and agreements to merge. For purposes of determining control and affiliation, options, convertible securities, and agreements to merge (including agreements in principle) are considered effective as if exercised or consummated, as the case may be, unless subject to conditions precedent which are incapable of fulfillment, speculative, conjectural, or unenforceable under state or Federal law, or where the probability of the transaction (or exercise of the rights) occurring is shown to be extremely remote.  Significantly, a person or entity that controls one or more other entities cannot use options, convertible securities, or agreements to appear to eliminate control before actually doing so.  SBA will not give present effect to a person’s or entity’s ability to divest all or part of its ownership interest in order to avoid a finding of affiliation.
• Affiliation based on management. Where the chief executive officer or president of an entity (or other officers, managing members, or partners who control the management of the entity) also controls the management of another entity, the two entities will be deemed affiliates under common control.  Where a single person or entity that controls the board of directors or management of one entity also controls the board of directors or management of another entity, the two entities will be deemed affiliates under common control.  Where a person or entity controls the management of another entity through a management agreement, the entities are deemed affiliated.   
• Affiliation based on identity of interest. Where there is an identity of interest between close relatives with identical or substantially identical business or economic interests (e.g., in the same or similar industry in the same geographic area), such interests are presumed to be affiliated.  This presumption may be rebutted with evidence showing that the interests are separate.

Note that most online resources reflect an outdated version of the PPP affiliation rule at 13 C.F.R. § 121.301(f).  A revised 13 C.F.R. § 121.301(f) promulgated by SBA took effect on March 11, 2020, but was revoked by the CARES Act,^[35] which restored the previous version of 13 C.F.R. § 121.301(f).  Please click here to see the text of 13 C.F.R. § 121.301(f) as currently in effect.

C.2       Why does affiliation matter for private equity and venture funds? 

If a private equity or venture fund is deemed to be an affiliate of a PPP applicant, all other affiliates of the fund (e.g., all other portfolio companies controlled by the fund) will be deemed affiliates of that PPP applicant.  And if the fund is part of a family or series of funds under common control, the affiliates of those funds would also be deemed affiliates of the PPP applicant.  In many cases, such extended affiliation would make it impossible for the applicant to meet the size standards for PPP eligibility.  In addition, private equity management companies are likely deemed affiliates of the funds they manage by virtue of common management or common control, which would make them affiliates of controlled portfolio companies and exclude them from PPP eligibility.  In any of these situations, it is critical to properly identify affiliates and account for them in size determinations. 

C.3       Can a company be deemed affiliated with a minority investor? 

Yes.  SBA will deem a minority shareholder to be in control if that individual or entity has the ability, under the concern’s charter, bylaws, or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.  Decisions of SBA’s Office of Hearings and Appeals interpret a nearly identical provision of other SBA affiliation rules to mean that a minority investor has control and is an affiliate of a company if the minority investor has the right to block “ordinary actions essential to the operations of the company,”^[36] but not if the minority investor only has the right to block “extraordinary actions” to “protect the investment of the minority investors.”^[37]   

SBA has held that minority investors with the right to block the following actions have control and are thus affiliates of the underlying company: 

• Control over the budget, the power to hire and fire officers, and the power to set employee compensation.^[38]
• Control over borrowing money.^[39]
• Control over purchasing equipment, making changes to a budget, and incurring expenses over $5,000.^[40]
• The creation of debt and the payment of dividends.^[41]
• Amending or terminating leases and encumbering assets.^[42] 

SBA has held that minority investors with the right to block the following actions do not have control and are not affiliates of the underlying company on account of those blocking rights: 

• Adding new members and dissolving the company.^[43]
• Amending bylaws, issuing additional capital stock, and entering into any substantially different business.^[44]
• The requirement for a minority shareholder’s consent to: sell all or substantially all of a firm’s assets; mortgage or encumber all or substantially all of a concern’s assets; commit any act that could result in a change in the amount or character of the concern’s contribution to capital; cause a change in the character or business of the concern; commit any act that would make it impossible to carry on ordinary business; or commit any act in contravention of the operating agreement.^[45]
• A minority member’s power to approve the addition of any new members or the withdrawal of any old members, to increase or decrease the size of the Board, to increase or decrease the number of authorized interests, or to reclassify interests.^[46]
• Also, selling or otherwise disposing of all of the firm’s assets, admitting new members, amending the operating agreement in any manner that materially alters the rights of existing members, or filing for bankruptcy.^[47]
• Amendment to Articles of Incorporation or Operating Agreement, disposal of goodwill, submission of a claim to arbitration, or confession of a judgment.^[48] 

C.4       Can a minority investor cut off affiliation by waiving or relinquishing “control” rights? 

Yes.  If a minority investor irrevocably waives or relinquishes blocking rights that would cause affiliation, it would no longer be deemed an affiliate of the business because of those blocking rights.^[49]  A conditional or temporary waiver is unlikely to be sufficient to cut off affiliation based on minority investor blocking rights.  Any irrevocable waiver or amendment to remove blocking rights should be completed and in effect before a PPP application is filed because the application requires an unqualified certification under penalty of perjury that the applicant qualifies for PPP financing. 

C.5       Are there any circumstances in which the affiliation rules do not apply? 

Yes.  The CARES Act waives the affiliation rules with respect to eligibility of a PPP applicant that is one of the following:^[50] 

• A business within NAICS category 72 that has no more than 500 employees.
• A franchise with a franchise identifier code assigned by SBA in the SBA Franchise Directory.
• A business that receives financial assistance from a small business investment company licensed by SBA (“SBIC”). 

Note that a business within NAICS category 72 with more than 500 employees may be eligible for PPP loans by virtue of having no more than 500 employees per physical location, but that business would not qualify for a waiver of affiliation based on being in NAICS category 72 because it has more than 500 employees.  That business could still qualify for an affiliation waiver if it is a qualifying franchise or has SBIC investment.

C.6       When and how much must an SBIC have invested in a PPP applicant for the applicant to qualify for an affiliation waiver? 

The CARES Act waives the affiliation rules for a business that “receives” SBIC financing,^[51] so absent other guidance from SBA, we believe that the SBIC investment must be in place when the PPP application is filed.  There is currently no minimum investment requirement and no requirement that an SBIC have invested for some period in advance of a PPP application, but SBICs considering investments in advance of a PPP application should be sure that such investments fit within their SBA-approved investment plans and are generally consistent with their prior investments.  SBA recently clarified that any type of SBIC financing listed in 13 C.F.R. § 107.50, including loans, debt with equity features, equity, and guarantees, would qualify a PPP applicant for a waiver of affiliation and that affiliation would be waived even if the applicant has non-SBIC investors.^[52] 

C.7       If a medical practice has a management agreement with a management services organization backed by a private equity fund, is the practice deemed affiliated with the management services organization and/or the fund? 

Maybe.  The PPP affiliation rules state that two entities are deemed affiliated where one entity controls the management of another entity through a management agreement.^[53]  SBA has not provided guidance on how to interpret this rule, and earlier decisions of SBA’s Office of Hearings and Appeals may not apply because they are based on different facts and law.  The ultimate decision may depend on the level of control over the practice granted to the management services organization in the applicable management agreement.  

C.8       Can a portfolio company controlled by a private equity fund qualify for a PPP loan using the tangible net worth and net income test? 

Potentially yes, assuming the portfolio company and its affiliates, which would include the fund’s other controlled portfolio companies, meet the tangible net worth and net income tests on a combined basis.  SBA has not issued guidance on this point, and absent further guidance, we believe it is reasonable to exclude the fund from the tangible net worth and net income tests to avoid double-counting of the tangible net worth and net income of portfolio companies and because the fund is not an operating business. 

C.9       How do the $10 million PPP loan cap and affiliation rules apply to franchises? 

If a franchise brand is listed on the SBA Franchise Directory, each of its franchisees qualifies for a waiver of the affiliation rules and can apply for its own PPP loan if it meets one of the applicable size standards. The franchisor does not apply for PPP loans on behalf of its franchisees.  SBA has confirmed that the $10 million cap on PPP loans is a limit per franchise entity. ^[54] 

C.10     If my franchise brand is not listed in the SBA Franchise Directory, can I still qualify for a PPP loan? 

Franchises not listed in the SBA Franchise Directory may still qualify for a PPP loan based on meeting, together with their affiliates, one of the applicable size standards.  This may be difficult because SBA regularly deems franchisors and franchisees to be affiliates of each other unless SBA reviews the terms of the applicable franchise agreement and confirms that affiliation does not exist.  SBA guidance suggests that franchise brands that have been denied a listing in the SBA Franchise Directory because of affiliation between the franchisor and franchisee may request listing for purposes of receiving PPP loans.  SBA reports that it “will not apply affiliation rules to a franchise brand requesting listing on the Directory to participate in the PPP, but SBA will confirm that the brand is otherwise eligible for listing on the Directory.”^[55] 

C.11     If two sister entities each apply for PPP loans, can each apply for up to $10 million, or are they capped at $10 million in the aggregate? 

The $10 million maximum PPP loan amount applies to each eligible business entity.  If sister entities otherwise qualify for PPP loans, then each of them may apply for a PPP loan of up to $10 million.^[56] 

C.12     If a portfolio company is eligible for a waiver of affiliation, are its employees counted when an affiliated portfolio company, which is not eligible for a waiver of affiliation, applies for a PPP loan? 

Yes, the waiver of affiliation only applies for the purposes of determining whether the company that is eligible for the waiver qualifies for a PPP loan.  For example, if Company X owns Company Y and Company Z, Companies X, Y, and Z are affiliates of each other.  If Company Y is a restaurant with 400 employees, it would qualify for a waiver of affiliation because it is within NAICS category 72 and has fewer than 500 employees.  If Company Z is a construction business with 400 employees and does not otherwise qualify for a waiver of affiliation (e.g., no SBIC financing), then Company Z would count its own employees plus Company Y’s 400 employees for purposes of applying the size tests.^[57]  

D. PPP Loan Terms

D.1       How much can an applicant borrow on a PPP loan?

An applicant may borrow up to 2.5x its average monthly payroll costs, plus any EIDL to be refinanced with the PPP loan, subject to an overall cap of $10 million.  For information on how to calculate an applicant’s maximum loan amount, please see SBA’s guidance on How to Calculate Maximum Loan Amounts. 

On April 30, 2020, SBA published IFR #7, which imposes for the first time a cap of $20 million on PPP loans to a single corporate group.  For this purpose, “single corporate group” refers to businesses that are majority owned, directly or indirectly, by a common parent.  This guidance is effective with respect to any PPP loan that has not been fully disbursed as of April 30, 2020.  IFR #7 makes the PPP applicant responsible for notifying its lender and withdrawing its PPP application to the extent receipt of the PPP loan would cause the corporate group to exceed $20 million in aggregate PPP loans.  Further, SBA will regard any failure to withdraw such an application as a use of PPP loan proceeds for unauthorized purposes.^[58]  See E.4 below for information on use of PPP loan proceeds for unauthorized purposes.  This limit presumably applies to portfolio companies that are majority owned by private equity funds.  It is unclear whether this limitation applies across multiple private equity funds under common control, but there is a risk that SBA could apply the cap across multiple funds. 

D.2       How do I calculate payroll costs?

See E.1 below. 

D.3       What is the interest rate on a PPP loan?

1.0% per annum.^[59] 

D.4       What is the maturity of a PPP loan?

PPP loans funded after the enactment of the Flexibility Act on June 5, 2020, mature five years after the date of funding.^[60]  PPP loans funded before the enactment of the Flexibility Act mature two years from the date of funding^[61] unless modified by the lender and borrower.^[62] 

D.5       [UPDATED] When are payments due on a PPP loan?

No payments are due on a PPP loan until SBA has paid the lender the amount of the PPP loan to be forgiven or notified the lender that no forgiveness will be allowed, but interest will accrue during that period.^[63]  Thereafter, most banks will charge monthly or quarterly payments of principal and interest until maturity.  However, any borrower that does not apply for forgiveness within ten months after the end of its eight-week or 24-week covered period must begin making payments of principal and interest on or after the expiration of that ten-month period.^[64]  Lenders must notify borrowers when SBA pays the forgiveness amount or determines that no forgiveness is allowed.^[65]  See E.16 below for a discussion of the covered period and E.28 below for a description of the forgiveness process. 

D.6       Are there any prepayment penalties on a PPP loan?

There are no prepayment penalties on PPP loans.^[66] 

D.7       Are there any fees on a PPP loan?

All fees payable by borrowers are waived.^[67] 

D.8       What collateral is required for a PPP loan?

No collateral or personal guaranty is required.  PPP loans are unsecured.^[68] 

D.9       Should PPP loan proceeds be deposited into a separate bank account?

Yes.  The CARES Act and SBA guidance do not require that PPP loan proceeds be deposited into a separate bank account, but we recommend doing so for ease of documenting that PPP loan proceeds were used for permitted and forgivable purposes.  In addition, any bank account containing PPP loan proceeds should not be subject to a deposit account control agreement or other agreement that could cause PPP loan proceeds to be swept for other purposes, such as principal payments on other debt.  Many lenders are requiring their borrowers to deposit PPP loan proceeds into separate accounts as a condition to making or permitting PPP loans. 

D.10     When are PPP loan proceeds disbursed?

PPP loan proceeds are disbursed in a single draw that must occur within 10 calendar days after the loan is assigned an Etran number by SBA.  If the tenth calendar day is a Saturday, Sunday or holiday, the 10-day period is extended to the next business day.  If PPP loan funds have not been disbursed within 20 days after assignment of an Etran number, the lender must cancel the loan.  Notwithstanding the foregoing, for loans that received Etran numbers before April 28, 2020, the 10-day period began on April 28, 2020.^[69]

On May 13, 2020, SBA issued IFR #10, which permits certain PPP borrowers to increase their PPP loans and take a second draw.  IFR #3 states that “the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of [a] partnership.”^[70]  If a partnership received a PPP loan that did not include any amount based on compensation to partners permitted by IFR #3, the PPP loan amount may be increased to include appropriate partner compensation.^[71]  IFR #5 provides an alternative method for calculating the maximum PPP loan amount for seasonal employers: average total monthly payments for payroll during any consecutive 12-week period between May 1, 2019, and September 15, 2019.^[72]  If a seasonal employer received a PPP loan before IFR #5 and could have obtained a larger PPP loan using the criteria set forth in IFR #5, that borrower’s PPP loan may be increased based on the calculation permitted by IFR #5.^[73]  

 D.9       [UPDATED] What is the deadline for applying for a PPP loan?

PPP loans will be available until June 30, 2020, or until the available funds are exhausted, whichever occurs first.^[74]  The Flexibility Act extended the definition of “covered period” in Section 7(a)(36) of the CARES Act through December 31, 2020, but SBA has apparently determined that loans will only be available through June 30, 2020. 

 

E. Permitted Uses and Forgivable Uses

E.1       [UPDATED] How may PPP loan proceeds be used?

PPP loan proceeds may be used for the following expenses:^[75] 

• Payroll costs (see E.5 below).
• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums.
• Mortgage interest (but not principal payments or prepayments).
• Interest on debt incurred before February 15, 2020.
• Refinancing an EIDL made between January 31, 2020, and April 3, 2020. 

However, prior to the enactment of the Flexibility Act on June 5, 2020, SBA required that at least 75% of PPP loan proceeds be used for payroll costs.^[76]  The Flexibility Act revised the CARES Act to provide that a borrower must use at least 60% of PPP loan proceeds for payroll costs in order to be eligible for forgiveness of its PPP loan,^[77] and IFR #17 revised the Interim Final Rule to require that at least 60% of PPP loan proceeds be used for payroll costs.^[78]   

Note also that not all permitted uses of PPP loan proceeds qualify for forgiveness.  Please see E.14 below for information on which uses of proceeds qualify for forgiveness. 

E.2       Can I use PPP loan proceeds for any other purpose?

Technically, PPP loan proceeds may be used for other allowable purposes under Section 7(a) of the Small Business Act.  But the PPP loan application requires the applicant to disclose the purpose of the loan and includes a certification that the proceeds of the loan will be used “to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments….”  Borrowers should not use PPP loan proceeds for purposes that were not disclosed in the loan application or would not fall within the certification on the loan application form.  See also E.1 above and E.15 below regarding SBA requirements on minimum use of PPP loan proceeds for payroll costs.^[79] 

E.3       How can a borrower show that it used PPP loan proceeds for permitted purposes?

Borrowers will be required to maintain and provide evidence of their use of PPP loan proceeds, potentially including, for example, IRS payroll tax filings; state income, payroll, and unemployment insurance filings; and cancelled checks.^[80]  We recommend that PPP borrowers establish a separate bank account for PPP loan proceeds. 

E.4       What happens if PPP loan proceeds are used for unauthorized purposes?

If a borrower uses PPP loan proceeds for unauthorized purposes, SBA will require those proceeds to be repaid.  It is unclear when repayment would be required.  If a borrower knowingly uses PPP loan proceeds for unauthorized purposes, it will be subject to additional liability, such as fraud charges.  If a borrower’s shareholder, member, or partner uses PPP loan proceeds for unauthorized purposes, SBA will have recourse against that shareholder, member, or partner.^[81] 

E.5       How do I calculate payroll costs?

Payroll costs consist of the following:^[82] 

• Salaries, wages, commissions, and similar compensation, and cash tips or equivalents (based on employer records of past tips or, absent such records, a reasonable, good faith employer estimate of such tips), up to a maximum of $100,000 per year on an annualized basis.
• Payments for vacation, parental, family, medical, or sick leave.
• Allowance for dismissal or separation.
• Payment required for the provision of group health care benefits, including insurance premiums.
• Payment of any retirement benefits.
• Payment of state or local tax assessed on the compensation of employees. 

There is no reduction for federal taxes imposed on the employee or withheld from employee wages. 

E.6       [UPDATED] Are independent contractors or K-1 partners included in calculating payroll costs?

Payments to independent contractors are not included in payroll costs because independent contractors are eligible for their own PPP loans.^[83]  SBA’s guidance to individuals with self-employment income indicates that “the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of” a tax partnership.^[84]  It is unclear whether this applies to all LLCs and other tax partnerships, but we believe it may be reasonable to treat K-1 partners the same as employees on the basis of this SBA guidance.  Note, however, that SBA has limited the amount of and types of compensation to owner-employees and self-employed individuals that is eligible for forgiveness.^[85]    

E.7       Are foreign employees included in calculating payroll costs?

Payments to an employee whose principal place of residence is outside the United States are not included in payroll costs.^[86] 

E.8       Are leased employees included in calculating payroll costs?

Yes.  PPP applicants should use payroll documentation provided by the relevant payroll provider to show the payroll costs applicable to leased employees.^[87] 

E.9       Are bonuses included in calculating payroll costs?

SBA has not issued definitive guidance on this point, but bonuses could be included if they qualify as “commissions or similar compensation.”  Like all other cash compensation, if included, bonuses would be capped at an annualized $100,000 per year. 

E.10     Are federal taxes included in calculating payroll costs?

No.  Payroll costs are calculated on a gross basis without additions or subtractions based on federal taxes imposed or withheld, such as FICA or withholding of income taxes.^[88] 

E.11     Are housing stipends and housing allowances included in calculating payroll costs?

Yes.  SBA guidance specifically includes these as part of cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.^[89]

E.12     Are workers’ compensation insurance costs included in calculating payroll costs?

SBA has not issued clear guidance on this, but we believe workers’ compensation insurance costs are not included. 

E.13     What period is used for determining average monthly payroll costs?

Most PPP applicants can use either the previous 12 months or the 2019 calendar year.  Seasonal businesses may use the period between February 15 or March 1, 2019, through June 30, 2019, or any consecutive 12-week period between May 1, 2019, and September 15, 2019.^[90]  Businesses that were not in business from February 15, 2019, to June 30, 2019, may use January 1, 2020, through February 29, 2020.^[91]

E.14     [UPDATED] Are equipment lease payments permitted uses of PPP loan proceeds?

The Forgiveness Application Instructions and EZ Forgiveness Application Instructions state that “business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020” are eligible for forgiveness if paid during the eight-week or 24-week period following the funding of the PPP loan or incurred during that period and paid on or before the next regular billing date, even if the billing date is after the eight-week or 24-week period.^[92] 

E.15     [UPDATED] Can PPP loans be forgiven?

Yes.  Subject to limitations described below, the outstanding principal amount of a PPP loan can be forgiven to the extent that PPP loan proceeds were used to pay the following:^[93] 

• Payroll costs (see E.5 above).
• Mortgage interest (but not principal payments or prepayments) on mortgage obligations on real or personal property incurred before February 15, 2020.
• Rent under leases for real or personal property in force before February 15, 2020.
• Utilities where service began before February 15, 2020. 

However, the Flexibility Act amended the CARES Act to provide that a borrower must use at least 60% of PPP loan proceeds for payroll costs in order to be eligible for forgiveness of its PPP loan,^[94] and IFR #17 revised the Interim Final Rule to require that at least 60% of PPP loan proceeds be used for payroll costs.^[95]  

E.16     When must PPP loan proceeds be spent in order to be eligible for forgiveness?

The CARES Act and initial SBA forgiveness guidance tie forgiveness of PPP loan proceeds to use during an eight-week period beginning when the PPP loan is funded or, with respect to payroll costs of certain borrowers, beginning with the start of the first pay period after the PPP loan is funded.  The Flexibility Act revised the CARES Act to permit (but not require) borrowers to use PPP loan proceeds over 24 weeks instead of eight weeks, provided that the 24-week period may not extend beyond December 31, 2020.^[96]  The “covered period” will be 24 weeks unless a borrower elects to use the original eight-week period.

Payroll costs are eligible for forgiveness if paid or incurred during the eight-week or 24-week period beginning on the day the PPP loan is funded or, alternatively, the eight-week or 24-week period beginning on the first day of the first pay period after the PPP loan is funded (see E.17 below).  SBA deems payroll costs to have been incurred on the day the pay is earned and to have been paid on the day that paychecks are distributed or an ACH credit transaction is initiated.  For employees that are not working but are still on payroll, payroll costs are deemed incurred on the schedule established by the borrower, which SBA generally expects to match the days on which the employee would have worked.  Payroll costs incurred but not paid during the last pay period in the applicable eight-week or 24-week period are eligible for forgiveness if paid on or before the next regular payroll date.^[97]

Nonpayroll costs are eligible for forgiveness if paid during the eight-week or 24-week period beginning on the day the PPP loan is funded or if incurred during that eight-week or 24-week period and paid on or before the next regular billing date, even if the billing date is after the eight-week or 24-week period.  Bills for nonpayroll costs that are cover service both during and after the eight-week or 24-week period must be allocated, and only the portion allocable to the eight-week or 24-week period is eligible for forgiveness.^[98]

E.17     [NEW] What if I spend less than 60% of my PPP loan proceeds on payroll costs during the eight-week or 24-week covered period?

If you spend less than 60% of your PPP loan proceeds on payroll costs during your eight-week or 24-week covered period, your maximum forgiveness will be reduced.  The language of the Flexibility Act suggests that borrowers that spend less than 60% of their PPP loan proceeds on payroll costs are ineligible for forgiveness, but SBA announced in IFR #17 that it interprets the Flexibility Act to provide for proportional reduction in forgiveness for borrowers that spend less than 60% of their PPP loan proceeds on payroll costs.  No more than 40% of a PPP borrower’s forgiveness amount may be attributable to nonpayroll costs.  So, to use the example provided in IFR # 17, if a borrower receives a $100,000 PPP loan and spends $54,000 (54%) on payroll costs during its forgiveness covered period, then because the borrower used less than 60% of its PPP loan amount on payroll costs, its maximum forgiveness amount will be $90,000, with $54,000 attributable to payroll costs, and $36,000 (40% of the total forgiveness amount) attributable to nonpayroll costs.^[99]  

E.18     [UPDATED] What if my PPP loan is funded in the middle of a payroll period?

SBA permits borrowers with a biweekly (or more frequent) payroll schedule to calculate payroll costs eligible for forgiveness, but not other forgiveness amounts, based on an eight-week or 24-week period, as applicable, that starts on the first day of the first pay period after the PPP loan is funded.^[100]  PPP borrowers that adopt this approach must be mindful that different eight-week or 24-week periods apply for different purposes in completing their forgiveness applications. 

E.19     What transportation payments are forgivable uses of PPP loan proceeds?

The CARES Act provides forgiveness for “covered utility payments,” which includes transportation.^[101]  The only SBA guidance we have on this point comes from SBA’s guidance to self-employed individuals, which states that gas used driving a business vehicle is a forgivable use of PPP loans as long as the individual is entitled to claim a deduction for those expenses on his or her 2019 Form 1040 Schedule C.^[102]  This suggests that at least gas expenses may be a permitted use of PPP loan proceeds, but SBA has not issued definitive guidance. 

E.20     [UPDATED] Are payments to furloughed employees forgivable uses of PPP loan proceeds?

Yes.  Payments of salary, wages, and commissions during the applicable eight-week or 24-week period are eligible for forgiveness up to the $100,000 annualized cap.  SBA has determined that the statutory purpose is served by permitting borrowers to continue paying employees, even if those employees are not able to work due to lack of economic demand or public health considerations.^[103] SBA calculated the cap at $15,385 for eight weeks of cash compensation and $46,154 for 24 weeks of cash compensation.^[104]  

E.21     [UPDATED] Are hazard pay and bonuses for the eight-week or 24-week period forgivable uses of PPP loan proceeds?

Yes, if the recipient’s total compensation does not exceed $100,000 on an annualized basis.  SBA has determined that such compensation constitutes a supplement to salary and wages and is thus within the intent of the CARES Act.^[105]  SBA has calculated the cash compensation cap at $15,385 for an eight-week covered period and $46,154 for a 24-week covered period.^[106]

E.22     Would it be a forgivable use of PPP loan proceeds if I pay a utility bill for service that was provided before the eight-week or 24-week period?

Yes, at least with respect to the bill for the most recent billing period before the eight-week or 24-week PPP period.  IFR #14 includes an example under which a borrower whose eight-week covered period begins June 1 is permitted to pay its May electricity bill as a forgivable use of PPP loan proceeds.^[107]

E.23     Is prepayment of mortgage interest a forgivable use of PPP loan proceeds?

No.  The CARES Act prohibition on mortgage prepayments applies to mortgage interest because payments of mortgage principal are prohibited under all circumstances.^[108]

E.24     [UPDATED] If I have PPP loan proceeds left over, once uses of those proceeds are no longer eligible for forgiveness, what happens?

PPP loan proceeds that are not forgiven or are not spent during the period in which uses of those proceeds are eligible for forgiveness remain outstanding, not subject to forgiveness, until the maturity of the loan (see D.4 above on maturity of PPP loans).^[109]  At least 60% of PPP loan proceeds must be used for payroll costs, and this requirement does not expire.^[110]  Note, however, that SBA may accelerate repayment to the extent it determines that PPP loan proceeds have been used for unauthorized purposes.  

E.25     Can I accelerate payments that would otherwise be due later and pay them within the eight-week or 24-week period after the loan is funded in order to qualify for forgiveness?

SBA has not issued definitive guidance on this question, and the CARES Act can be read to permit accelerating payments to be made within the applicable eight-week or 24-week period.  SBA guidance states that payroll costs and nonpayroll costs are eligible for forgiveness if paid or incurred during the eight-week or 24-week period, but each example in the guidance of a cost paid but not incurred during the eight-week period relates to costs incurred before the eight-week or 24-week period, not acceleration of future costs.^[111]  Further, the policy objective of the program is to return payroll to pre-crisis levels of employment and compensation, which would imply that PPP loan proceeds should be used for normalized payroll and other expenses and not accelerated payroll or other expenses.  Borrowers considering accelerating future payments should also note that using PPP loan proceeds to accelerate future payments may undermine the borrower’s certification, made in the PPP loan application, that current economic uncertainty makes the PPP loan necessary to support the ongoing operations of the applicant.

E.26     [UPDATED] What are the limitations on PPP loan forgiveness?

The PPP loan forgiveness amount is reduced to the extent a borrower’s employment level or employee compensation level during an eight-week or 24-week period after the PPP loan is made is lower than applicable pre-crisis periods.  See E.16 above for further information on how the eight-week or 24-week covered period is determined. 

• Reduction based on reduction in number of employees. If the borrower’s average full-time equivalent (“FTE”) employee count during the eight-week or 24-week period selected by the borrower for determining payroll costs eligible for forgiveness (see E.17 above) is less than its average FTE employee count for either February 15, 2019, through June 30, 2019, or January 1, 2020, through February 29, 2020, as selected by the borrower, then the PPP loan forgiveness amount is reduced by the same percentage as the percentage reduction in FTE employees.  For example, if average FTE employee count for the covered eight-week or 24-week period is 20% lower than in the borrower’s chosen pre-crisis period, its PPP loan forgiveness will be reduced by 20%.^[112]
• Reduction based on reduction in salary and wages. A borrower’s PPP loan forgiveness amount will be reduced by the amount of any reduction in average annual salary or hourly wages for any employee during the eight-week or 24-week period selected by the borrower for determining payroll costs eligible for forgiveness (see E.17 above) that is more than 25% of the average annual salary or hourly wages for that employee during the most recent calendar quarter before the eight-week or 24-week period.  This reduction is calculated on an employee-by-employee basis and only applies to employees that did not receive, during any single 2019 pay period, wages or salary at an annualized rate of over $100,000 per year, and employees hired during 2020.^[113] 

PPP borrowers may avoid these reductions by restoring FTE employment and compensation levels by December 31, 2020, for any changes made between February 15, 2020, and April 26, 2020.^[114]  In order to benefit from this safe harbor on account of a restoration of FTE employment level, all reductions of FTE employment levels must be eliminated by December 31, 2020; there is no partial credit.^[115]  

In addition, for purposes of the forgiveness reduction based on number of FTE employees, PPP borrowers may exclude any reduction in FTE employee headcount that is attributable to an individual employee: 

• who was fired for cause, voluntarily resigned or voluntarily requested and received a reduction of hours during the applicable eight-week or 24-week period; or
• if each of the following is true:
  • the borrower made a good faith, written offer to restore the reduced hours of such employee;
  • the offer was for the same salary or wages and same number of hours that applied in the last pay period prior to the reduction in hours;
  • the offer was rejected by the employee; and
  • the borrower has maintained records documenting the offer and rejection.^[116] 

Finally, under the Flexibility Act, loan forgiveness is determined without regard to a proportional reduction in FTE employees if the borrower, in good faith, is able to document: 

• FTE Reduction Safe Harbor 1: an inability to return to its level of business activity before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 (“COVID Requirements or Guidance”).^[117]
• FTE Reduction Safe Harbor 2: an inability to rehire individuals who were its employees on February 15, 2020 and an inability to rehire similarly qualified employees for unfilled positions on or before December 31, 2020; or 

Where a PPP borrower intends to rely on FTE Reduction Safe Harbor 1 and show inability to return to pre-crisis business level due to health and safety restrictions, SBA requires the borrower to document that the reduction in business activity during its covered period stems directly or indirectly from compliance with COVID Requirements or Guidance.  Such documentation includes copies of applicable COVID Requirements or Guidance for each business location and relevant financial records.  The Flexibility Act provision that created the safe harbor for inability to restore business levels due to compliance with COVID Requirements or Guidance only extends to compliance with requirements and guidance issued by HHS, CDC and OSHA, even though shutdown orders have been issued by state and local governments.  SBA acknowledges that “a significant amount of the reduction in business activity stemming from COVID Requirements or Guidance is the result of state and local government shutdown orders that are based in part on guidance from the three federal agencies.”^[118]  As a result, SBA has interpreted the statutory language to require that the reduction stem “directly or indirectly” from compliance with COVID Requirements or Guidance.  This allows a PPP borrower to claim the safe harbor where it can document that it is unable to return to its pre-crisis business level due to a state or local shutdown order, but apparently only if the shutdown order is based in part on COVID Requirements or Guidance issued by HHS, CDC or OSHA—most likely COVID-19 guidance issued by CDC in March 2020.  Such a borrower should retain copies of the shutdown order and the applicable COVID Requirements or Guidance.  In addition, IFR #20 suggests, but does not explicitly require, that the shutdown order must reference a COVID Requirement or Guidance.^[119] 

Where a PPP borrower intends to rely on FTE Reduction Safe Harbor 2 and show an inability to rehire or replace employees, it must inform the applicable state unemployment insurance office of an employee’s rejected rehire offer within 30 days after such rejection.  In addition, the borrower must maintain written documentation of the written offer to rehire an employee, the employee’s rejection of the offer, and efforts to hire a similarly qualified individual.^[120]  

E.27     How do I calculate my number of FTE employees?

SBA provides two alternative methods for calculating the number of FTE employees.  One method is to compute each employee’s average hours paid per week during the relevant period, divide by 40, and round to the nearest tenth.  Under this method, no employee may exceed 1.0 FTE.  Alternatively, employers may use 1.0 for each employee that is paid for 40 or more hours per week and 0.5 for employees that is paid for fewer than 40 hours per week.  A borrower must choose one of these methods and apply it for all of its employees.^[121]  Note also the potential addbacks to FTE described in E.25 above. 

E.28     Does PPP impose any restrictions on a PPP recipient’s ability to reduce its workforce or employee compensation?

No.  PPP incentivizes employee retention and rehiring at pre-crisis compensation levels through the reduction of loan forgiveness described in E.25 above. 

E.29     [UPDATED] What is the process for getting forgiveness of a PPP loan?

Borrowers must submit to their PPP lenders a Loan Forgiveness Application plus documentation showing the permitted use of PPP loan proceeds and employment and payroll records for the relevant periods, together with certifications of accuracy.  See E.36 below for which forgiveness application to file, E.37 below for when to file, and E.29 below for the documentation that must be submitted.  The lender must perform a good faith review of the borrower’s calculations and supporting documents and work with the borrower to remedy any errors the lender identifies.  The lender is not required to independently verify the borrower’s reported information.^[122] 

The lender has 60 days after it has received a complete forgiveness application to make a determination of the forgiveness amount, if any, and submit its determination and supporting documentation to SBA.  Subject to any SBA review of the loan or loan application, SBA will pay the forgiveness amount, plus interest accrued through the date of payment, to the lender within 90 days after the lender submits its determination to SBA.^[123]  

E.30     [UPDATED] What documentation must be submitted with a PPP Loan Forgiveness Application?

Borrowers should carefully review the instructions to the applicable Forgiveness Application or EZ Forgiveness Application form to confirm documents that must be submitted and documents that must be retained but not submitted.  Generally, borrowers must submit the following with a PPP Loan Forgiveness Application on the Form 3508 Forgiveness Application:^[124] 

• PPP Loan Forgiveness Calculation Form
• PPP Schedule A
• Documentation of payroll costs for the eight-week period selected by the borrower for determining payroll costs eligible for forgiveness (see E.17 above), consisting of the following:
  • Bank statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees
  • Tax forms or equivalent third-party payroll service provider reports, including (a) payroll tax filings (typically Form 941) and (b) state quarterly business and individual employee wage reporting and unemployment insurance tax filings
  • Payment receipts, cancelled checks, or account statements documenting any employer contributions to employee health insurance and retirement plans included in the forgiveness amount
• Documentation of FTE employees for relevant periods, which documentation may include payroll tax filings (typically Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings
• Documentation verifying existence of nonpayroll obligations and services (i.e., mortgages, leases, utilities) prior to February 15, 2020, and payments eligible for forgiveness
  • For mortgage interest forgiveness, a lender amortization schedule and receipts or cancelled checks or lender account statements
  • For rent or lease payment forgiveness, the lease agreement and receipts or cancelled checks or lessor account statements
  • For utility payment forgiveness, copies of invoices and receipts, cancelled checks, or account statements 

Generally, borrowers must submit the following with a PPP Loan Forgiveness Application on the EZ Forgiveness Application:^[125] 

• Form 3508EZ PPP Loan Forgiveness Calculation Form
• Documentation of payroll costs for the eight-week period selected by the borrower for determining payroll costs eligible for forgiveness (see E.17 above), consisting of the following:
  • Bank statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees
  • Tax forms or equivalent third-party payroll service provider reports, including (a) payroll tax filings (typically Form 941) and (b) state quarterly business and individual employee wage reporting and unemployment insurance tax filings
  • Payment receipts, cancelled checks, or account statements documenting any employer contributions to employee health insurance and retirement plans included in the forgiveness amount
• Documentation verifying existence of nonpayroll obligations and services (i.e., mortgages, leases, utilities) prior to February 15, 2020, and payments eligible for forgiveness
  • For mortgage interest forgiveness, a lender amortization schedule and receipts or cancelled checks or lender account statements
  • For rent or lease payment forgiveness, the lease agreement and receipts or cancelled checks or lessor account statements
  • For utility payment forgiveness, copies of invoices and receipts, cancelled checks, or account statements 

PPP borrowers should consult the documentation checklist on page 7 of the Forgiveness Application Instructions or p. 4 of the EZ Forgiveness Application Instructions, as applicable, to confirm they have all necessary materials. 

E.31     Will SBA review my forgiveness application?

SBA has expressly stated that it will review all loans in excess of $2 million following the lender’s submission of the borrower’s forgiveness application.^[126]  SBA has also retained the right to review any PPP loan of any size at any time, in SBA’s discretion.  If SBA undertakes such a review, it will notify the lender in writing, and the lender must notify the borrower in writing within five business days.^[127]

E.32     What happens if my forgiveness application is denied?

The lender may deny a forgiveness application on its own or deny the application without prejudice if directed to do so by SBA, subject to an SBA review.  In either event, the lender must notify the borrower.  If the lender denies the application on its own, the borrower may request SBA review within 30 days of notice of denial from the lender.  If the lender denies the application on direction of SBA, the borrower may request reconsideration by the lender unless SBA has determined that the borrower is ineligible for a PPP loan.^[128]  In any SBA review, the borrower will have the opportunity to respond to SBA’s questions. SBA intends to issue further guidance regarding the process for appealing adverse determinations.^[129]

E.33     [UPDATED] Do I have to retain PPP documentation after my loan is forgiven?

PPP borrowers must retain PPP documentation in their files until six years after the PPP loan is forgiven or repaid in full.  PPP borrowers must also permit authorized representatives of SBA, including representatives of SBA’s Office of Inspector General, to access such files upon request.^[130]  Borrowers should carefully review the Forgiveness Application Instructions or EZ Forgiveness Applications, as applicable, to confirm which documents they must retain.

E.34     If a PPP loan is forgiven, does the borrower recognize taxable income due to cancellation of indebtedness?

The CARES Act specifically provides that the PPP loan forgiveness amount will not be taxed as cancellation of debt income at the Federal level.^[131]

E.35     If a PPP loan is forgiven, are the expenses funded with the proceeds of the loan deductible for federal income tax purposes?

No.  The IRS, in Notice 20-32, applied general principles of existing tax law in finding that expenses funded with the proceeds of a PPP loan are not deductible by the taxpayer up to the amount of the PPP loan that is forgiven.  Section 265 of the Internal Revenue Code disallows an otherwise allowable deduction that is allocable to tax-exempt income.  The IRS reasoned that PPP loan forgiveness constitutes a category of tax-exempt income because of the application of Section 1106(i) of the CARES Act and thus expenses funded by PPP loan proceeds are not deductible to the extent of loan forgiveness.  A contrary result would have resulted in a double tax benefit that Code Section 265 prevents.

E.36     How does a PPP loan relate to my existing senior indebtedness?

PPP loans are unsecured, so they are subordinate to an applicant’s secured debt.  Applicants with existing senior debt should carefully review their loan documents to determine whether the senior lender’s consent is required for incurrence of the PPP loan.  In particular, applicants should consider the effect of any mandatory prepayment requirements and restrictions on incurrence and repayment of unsecured debt in their existing loan documents, as well as any potential effects of PPP loans on financial covenants.  Many senior lenders are developing form consent and amendment documents that incorporate additional covenants in connection with PPP loans.

E.37     [NEW] Which forgiveness application form should I use?

By default, PPP borrowers should use its lender’s version of the Forgiveness Application on SBA Form 3508.  However, PPP borrowers may file the EZ Forgiveness Application on SBA Form 3508EZ and avoid having to prepare the cumbersome Schedule A and the related Worksheet if they fit within one of three sets of criteria: 

• The borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483); OR
• Both of the following are true:
  • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND
  • The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused.); OR
• Both of the following are true:
  • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND
  • The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.^[132]

The three categories of borrowers eligible to file the EZ Forgiveness Application can be summarized as follows:  (1) borrowers with no employees; (2) borrowers whose forgiveness is not subject to reduction (a) due to reduction in compensation because there was no reduction and (b) due to reduction in FTE employees because there was no reduction during 2020 (effectively selecting the January 1-February 29, 2020 reference period); and (3) borrowers whose forgiveness is not subject to reduction (a) due to reduction in compensation because there was no reduction and (b) due to reduction in FTE employees because of the safe harbor for compliance with COVID Requirements or Guidance.

E.38     [NEW] When can I file my forgiveness application?

A PPP borrower may submit its forgiveness application any time on or before the maturity date of the loan if the borrower has used all of the PPP loan proceeds for which it is requesting forgiveness.  A borrower may even apply before the end of its chosen eight-week or 24-week covered period, but if it does so and has reduced any employee’s salary or hourly wage by more than 25%, it must account for the excess reduction for the full eight-week or 24-week covered period, as applicable.  If a borrower does not file its forgiveness application within ten months after the end of its eight-week or 24-week covered period, it must begin paying principal and interest on the PPP loan.^[133]

F. The PPP Loan Application 

F.1       Who should be the applicant? 

The applicant should be an/the entity that has employees and will spend the PPP loan proceeds for permitted purposes.  If an applicant is relying on SBIC financing for a waiver of affiliation (see C.5 above), the applicant should be a direct recipient of SBIC financing.  SBA has not provided guidance on whether holding companies may apply for PPP loans and distribute PPP loan proceeds to their subsidiaries.  Some borrowers and lenders prefer to have a holding company as the applicant.  If the applicant is a holding company, it should disclose that fact and disclose the subsidiaries that will use the proceeds on Addendum A.  We also recommend that applicants considering a holding company applicant discuss that fact with the lender before applying for a PPP loan. 

F.2       How is average monthly payroll calculated? 

See D.2 through D.6 above. 

F.3       What does “x 2.5 + EIDL, Net of Advance (if Applicable)” mean? 

To determine an applicant’s maximum loan amount, multiply its average monthly payroll by 2.5.  Then, if the applicant has an outstanding SBA EIDL that is being refinanced with the PPP loan, add the amount of the EIDL.  For this item, SBA assumes the applicant will request the maximum available loan because borrowers are currently permitted to receive only one PPP loan.

F.4       How should an applicant measure “Number of Employees” on the application form?

See B.5 above for how to count employees.  SBA has not provided guidance on whether this number includes only the employees covered by the average monthly payroll or includes foreign employees or employees of the applicant’s affiliates.  We recommend listing the total number of employees of the applicant and its affiliates.

F.5       Who are the “owners” that must be disclosed on page 1 of the application form?

SBA has not provided guidance on whether indirect owners must be listed on page 1 of the PPP loan application.  We believe it is reasonable to list only direct owners (and not indirect owners) of 20% or more of the equity of the applicant on page 1 of the PPP loan application.

F.6       Who are the “owners” covered by Questions 1 through 3 on the application form?

The instructions to the PPP loan application state that the following are “owners”: 

• For a sole proprietorship, the sole proprietor.
• For a partnership, all general partners, and all limited partners owning 20% or more of the equity of the partnership.
• For a corporation, all owners of 20% or more of the corporation.
• For limited liability companies, all members owning 20% or more of the company.
• If the applicant is a trust, any trustor. 

We interpret these instructions to apply only to direct owners, not indirect owners, of the applicant. 

F.7       What should the applicant disclose on Addendum A? 

Question 3 requires the applicant to disclose on Addendum A any other business that is owned by, or under common management with, the applicant or any owner of the applicant (see E.6 above).  SBA has not defined “common management,” so we recommend disclosing all affiliates of the applicant (see C.1 and C.3 above) and their relationships to the applicant.  In addition, the applicant should disclose all other businesses owned by any direct owner of 20% or more of the applicant that is not an affiliate.  We recommend consulting with counsel on any questions regarding whether a person or entity constitutes an affiliate and whether to disclose that applicant’s relationship with any person or entity.  When in doubt, we recommend erring on the side of disclosure.  

If the applicant is relying on a size test other than the 500-employee test (see B.1 above), it should disclose on Addendum A which test it is relying on, that it has made a reasonable and good faith determination that it is eligible under that test, and the facts that support its eligibility under that test. 

If the applicant is relying on a waiver of the SBA affiliation rules to disregard its affiliates in applying the size test for PPP loan qualification, it should disclose on Addendum A that it is relying on that waiver, that it has made a reasonable and good faith determination that it is entitled to rely on that waiver, and the facts that support its reliance. 

F.8       The loan application requires a certification that the applicant employs no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by SBA for the applicant’s industry.  What if the applicant is relying on a different size test to qualify for a PPP loan? 

Unfortunately, the form cannot be changed.  If the applicant is relying on a size test that is not based on employees (see B.1 above), it should disclose on Addendum A which test it is relying on and the facts that support its eligibility under that test. 

F.9       The loan application requires the applicant to certify that, to the extent feasible, it will purchase only American-made equipment and products.  What does that require the applicant to do? 

There is no SBA guidance on what this certification requires.  We recommend that the applicant at least consider in good faith purchasing American products when available and document that it has done so.  Where the applicant purchases foreign products, it should document that it considered purchasing American products and the reasons it was not feasible to purchase American products. 

F.10     The loan application requires the applicant to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  What does that require the applicant to do? 

SBA has provided limited guidance on what this certification requires.  At least for large companies, SBA has indicated that applicants must take into account “their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”^[134]  It is unclear whether SBA intends this requirement to apply to all applicants, and SBA affirms that the CARES Act suspends the ordinary requirement for 7(a) loans that borrowers be unable obtain credit elsewhere.^[135]  We recommend that the applicant carefully review and document (a) any actual and projected decrease in its business due to COVID-19, including any metrics that indicate a decline in revenue or inability to operate the business at full capacity; (b) any actual or projected furloughs or layoffs, including those that could or would occur if the PPP loan is not obtained; and (c) what other liquidity sources may be available, on what terms, and for what purposes.  We also recommend that the applicant document any projections for further declines or inability to operate at full capacity.  

Applicants should consider their need for PPP funding in light of SBA FAQ Question 31, which states the following: 

Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must 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.”  Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.  For example, 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, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.^[136] 

SBA permitted any borrower that received a PPP loan and believed upon reconsideration that it could not make the required certification in light of SBA’s guidance to repay the PPP loan in full by May 18, 2020.  SBA will deem any borrower that repaid by May 18, 2020,  to have made the required certification of need in good faith.^[137] 

On May 13, 2020, SBA posted FAQ Question and Answer 46 (“FAQ 46”), which provides a new safe harbor based on the principal amount of PPP loans received by a borrower and its affiliates: “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” Affiliation for this purpose is determined based on the rules that apply for determining eligibility for a PPP loan, as announced in IFR #2. SBA announced that it determined this safe harbor is appropriate because those borrowing less than $2 million are less likely to have had access to adequate sources of liquidity, to promote economic certainty, and to enable the SBA to conserve its audit resources and focus on its reviews on larger loans.^[138] 

FAQ 46 also gives PPP borrowers that do not fall within the new safe harbor a means to limit their exposure to sanctions from SBA. If SBA determines that such a borrower did not have an adequate basis for the certification of need, SBA will notify the borrower and seek repayment in full of the PPP loan, and tell the lender that the borrower is not eligible for loan forgiveness. FAQ 46 provides that SBA will not pursue further administrative enforcement or refer the borrower to other governmental agencies based on its determination regarding the certification of need if the borrower repays the loan in full after receiving notification from SBA.^[139] 

However, repaying the loan pursuant to FAQ 46 does not shield the borrower from all potential liability. FAQ 46 merely states that SBA will not pursue additional action based on a determination that the borrower lacked an adequate basis for the certification of need. SBA could still pursue remedies if there are other violations of the PPP statute or implementing regulations. Other government agencies and whistleblowers could also seek enforcement within their respective jurisdictions. For example, FAQ 46 would not prevent the government or a whistleblower who believes that the borrower intentionally made a false statement in connection with its PPP loan application, knowing that it was false, from bringing or investigating a complaint under the False Claims Act. 

F.11     Who should sign the loan application? 

The application requires an authorized officer of the applicant to sign.  We recommend that an executive-level officer of the applicant sign the PPP loan application.  We further recommend that applicants adopt board resolutions approving the PPP loan application and authorizing the signatory to sign. 

F.12     What materials must be submitted with the loan application? 

The precise materials required vary from lender to lender, but lenders generally require the following: 

• Documentary support for the applicant’s calculation of average monthly payroll, including payroll processor records and/or payroll tax filings.
• Documentation demonstrating that the applicant had employees for whom the applicant paid salaries and payroll taxes on or around February 15, 2020.
• Beneficial owner certifications and/or other documentation required for the lender’s “Know Your Customer” compliance obligations. 

F.13     How are loan applications submitted? 

Most lenders are accepting PPP loan applications online, either by email or through an online portal.  If submitting electronically, please review your PPP loan application carefully to make sure that all portions have been completed and Addendum A is attached.  We have seen lenders ask applicants to initial each page of a PPP loan application but not include Addendum A, which is a critical part of the application. 

---

^[1] _{Pub. L. No. 116-139.}

^[2] _{H.R. 7010.}

^[3] _{Small Business Act § 7(a)(36)(D)(i)(I); IFR #12 § 1; SBA FAQ Question 44.} 

^[4] _{Small Business Act § 7(a)(36)(D)(i)(II); SBA FAQ Question 3.}

^[5] _{Small Business Act § 7(a)(36)(D)(iii).}

^[6] _{13 C.F.R. § 121.301(a); SBA FAQ Question 2.}

^[7] _{Small Business Act § 3(a)(5)(b); SBA FAQ Question 2.}

^[8] _{Interim Final Rule § 2(a); SBA FAQ Question 3.}

^[9] _{IFR #12 § 1.}

^[10] _Id.

^[11] _{Small Business Act § 7(a)(36)(D)(ii).}

^[12] _{See Small Business Act § 7(a)(36)(A)(vii), which defines “nonprofit organization” only to include 501(c)(3) organizations.}

^[13] _{SBA FAQ 42.}

^[14] _{IFR #11 § 1.}

^[15] _{IFR #16 § 1.}

^[16] _{SBA FAQ Question 14; 13 C.F.R. § 121.106(b).}

^[17] _{13 C.F.R. § 121.106(a).}

^[18] _{Interim Final Rule § 2(c); 13 C.F.R. § 120.110; SBA Standard Operating Procedure (SOP) 50 10 5(K), Subpart B, Chapter 2.}

^[19] _{Interim Final Rule § 2(b).}

^[20] _{This provision was amended by IFR #18 § 1.}

^[21] _{IFR #4 § 2(a).}

^[22] _{SBA Standard Operating Procedure (SOP) 50 10 5(K), Subpart B, Chapter 2, Section III(A)(2)(b)(v).}

^[23] _{IFR #4 § 2(b).}

^[24] _{SBA FAQ Question 31.}

^[25] _{IFR #7 § 1.}

^[26] _{Small Business Act § 7(a)(36)(I).}

^[27] _{SBA FAQ Question 37.}

^[28] _{SBA FAQ Question 31.}

^[29] _{Interim Final Rule § 2(r).}

^[30] _{IFR #4 § 5 as modified by IFR #9 and IFR #13 § 1; SBA FAQ Question 31, as modified by SBA FAQ Question 43 and SBA FAQ Question 47.}

^[31] _{SBA FAQ Question 46.}

^[32] _{IFR #4 § 4.}

^{[33] _Id.}

^[34] _{13 C.F.R. § 121.301(f); Affiliation Guidance.}

^[35] _{CARES Act § 1102(e).}

^[36] _{Size Appeal of Southern Contracting Solutions III, LLC, SBA No. SIZ-5956 (2018).}

^[37] _Id.

^[38] _{See Size Appeal of Team Waste Gulf Coast, LLC, SBA No. SIZ-5864 (2017); see also Carntribe-Clement 8AJV # 1, LLC, SBA No. SIZ-5357 (2012); see also DHS Systems, LLC, SBA No. SIZ5211 (2011).}

^[39] _{Carntribe-Clement, SBA No. SIZ-5357 (2012); Size Appeal of BR Construction, LLC, SBA No. SIZ-5303 (2011); McLendon Acres, Inc., SBA No. SIZ-5222 (2011).}

^[40] _{Carntribe-Clement, SBA No. SIZ-5357 (2012); BR Construction, LLC, SBA No. SIZ-5303 (2011).}

^[41] _{See Team Waste Gulf Coast, LLC, SBA No. SIZ-5864 (2017); see also Carntribe-Clement, SBA No. SIZ-5357 (2012); see also Size Appeal of Eagle Pharmaceuticals, Inc., SBA No. SIZ-5023 (2009).}

^[42] _{Carntribe-Clement, SBA No. SIZ-5357 (2012).}

^[43] _{Size Appeal of Carntribe-Clement 8AJV # 1, LLC, SBA No. SIZ-5357 (2012).}

^[44] _{Id.; EA Eng’g, Sci. and Tech., Inc., SBA No. SIZ4973 (2008).}

^[45] _{Size Appeal of McLendon Acres, Inc., SBA No. SIZ-5222 (2011).}

^[46] _{Size Appeal of DHS Systems, LLC, SBA No. SIZ-5211 (2011).}

^[47] _{Size Appeal of Dooleymack Government Contracting, LLC, SBA No. SIZ-5086 (2009).}

^[48] _{Size Appeal of Southern Contracting Solutions III, LLC, SBA No. SIZ-5956 (2018).}

^[49] _{SBA FAQ Question 6.}

^[50] _{Small Business Act § 7(a)(36)(D)(iv).}

^[51] _{Small Business Act § 7(a)(36)(D)(iv)(III).}

^[52] _{IFR #4 § 2(b) footnote 2.}

^[53] _{13 C.F.R. § 121.301(f)(3).}

^[54] _{SBA FAQ Question 23.}

^[55] _{SBA FAQ Question 23.}

^[56] _{SBA FAQ Question 24.}

^[57] _{SBA FAQ Question 24.}

^[58] _{IFR #7 § 1.}

^[59] _{Interim Final Rule § 2(i).}

^[60] _{Small Business Act § 7(a)(36)(K)(ii), as amended by Flexibility Act § 2.}

^[61] _{Interim Final Rule § 2(j).}

^[62] _{Flexibility Act § 2(b).}

^[63] _{Small Business Act § 7(a)(36)(M)(ii), as amended by Flexibility Act § 3(c); Interim Final Rule § 2(n), as revised by IFR #17 § 1(c).}

^[64] _{Small Business Act § 7(a)(36)(M)(v), as amended by Flexibility Act § 3(c).}

^[65] _{Interim Final Rule § 2(n), as revised by IFR #17 § 1(c).}

^[66] _{Small Business Act § 7(a)(36)(R).}

^[67] _{Interim Final Rule § 4(b).}

^[68] _{Small Business Act § 7(a)(36)(J).}

^[69] _{IFR #6 § 1(a).}

^[70] _{IFR #3 § 1(a).}

^[71] _{IFR #10 § 1(a).}

^[72] _{IFR #5 § 3.}

^[73] _{IFR #10 § 1(b)}^.

^[74] _{IFR #17 § II.}

^[75] _{Small Business Act § 7(a)(36)(F)(i).}

^[76] _{Interim Final Rule § 2(r).}

^[77] _{CARES Act § 1106(d)(7), as added by Flexibility Act § 3(b).}

^[78] _{IFR #17 § 1(e), amending Interim Final Rule § 2(r).}

^[79] _{Interim Final Rule § 2(r).}

^[80] _{CARES Act § 1106(e).}

^[81] _{Interim Final Rule § 2(s).}

^[82] _{Small Business Act § 7(a)(36)(A)(viii); SBA FAQ Question 16.}

^[83] _{Interim Final Rule § 2(h); SBA FAQ Question 15.}

^[84] _{IFR #3 § 1(a).}

^[85] _{IFR #14 § 3(c), as amended by IFR #20 § 1(d).}

^[86] _{Small Business Act § 7(a)(36)(A)(viii)(II)(cc).}

^[87] _{SBA FAQ Question 10.}

^[88] _{SBA FAQ Question 16.}

^[89] _{SBA FAQ Question 32.}

^[90] _{IFR #5 § 3.}

^[91] _{SBA FAQ Question 14.}

^[92] _{Forgiveness Application Instructions p. 2; EZ Forgiveness Application Instructions p. 3.}

^[93] _{CARES Act § 1106(b).}

^[94] _{CARES Act § 1106(d)(7), as added by Flexibility Act § 3(b).}

^[95] _{IFR #17 § 1(e), amending Interim Final Rule § 2(r).}

^[96] _{CARES Act § 1106(a)(3), as amended by Flexibility Act § 3(b).}

^[97] _{IFR #14 § 3(a); Forgiveness Application Instructions p. 2; EZ Forgiveness Application Instructions p. 3.}

^[98] _{IFR #14 § 4(a); Forgiveness Application Instructions p. 2; EZ Forgiveness Application Instructions p. 3.}

^[99] _{IFR #17 § 1(d), amending Interim Final Rule § 2(o).}

^[100] _{IFR #14 § 3(a); Forgiveness Application Instructions p. 1; EZ Forgiveness Application Instructions p. 2.}

^[101] _{CARES Act § 1106(a)(5).}

^[102] _{IFR #3 § 1(d)(iii).}

^[103] _{IFR #14 § 3(b).}

^[104] _{Forgiveness Application Instructions p. 4; EZ Forgiveness Application Instructions p. 2.}

^[105] _Id.

^[106] _{Forgiveness Application Instructions p. 4; EZ Forgiveness Application Instructions p. 2.}

^[107] _{IFR #14 § 4(a).}

^[108] _{IFR #14 § 4(b).}

^[109] _{IFR #14 § 2.}

^[110] _{IFR #17 § 1(e), amending Interim Final Rule § 2(r).}

^[111] _{IFR #14 §§ 3(a) and 4(a).}

^[112] _{CARES Act § 1106(d)(2); Forgiveness Application p. 4.}

^[113] _{CARES Act § 1106(d)(3); IFR #14 § 5(e); Forgiveness Application p. 4.}

^[114] _{CARES Act § 1106(d)(5), as amended by Flexibility Act § 3(b).}

^[115] _{CARES Act § 1106(d)(5); IFR #14 § 5(g); Forgiveness Application pp. 4-5.}

^[116] _{IFR #14 §§ 5(a) and 5(h), as amended by IFR #20 § 1(f); Forgiveness Application Instructions p. 5.}

^[117] _{CARES Act § 1106(d)(7), as added by Flexibility Act § 3(b).}

^[118] _{IFR #14 § 5(b), as amended by IFR #20 § 1(f).}

^[119] _Id.

^[120] _Id.

^[121] _{IFR #14 § 5(d); Forgiveness Application Instructions p. 4.}

^[122] _{IFR #15 § 2(a), as amended by IFR #20 § 2(b).}

^[123] _{CARES Act § 1106(e)-(g); IFR #15 § 2(b), as amended by IFR #20 § 2(b).}

^[124] _{Forgiveness Application Instructions p. 6.}

^[125] _{EZ Forgiveness Application Instructions p. 4.}

^[126] _{SBA FAQ Question 39.}

^[127] _{IFR #15 § 2(c).}

^[128] _{IFR #15 § 2(b), as amended by IFR #20 § 2(b).}

^[129] _{IFR #15 §§ 1(d) and 1(f).}

^[130] _{IFR #15 § 1(c); Forgiveness Application Instructions p. 6; EZ Forgiveness Application Instructions p. 4.}

^[131] _{CARES Act § 1106(i).}

^[132] _{EZ Forgiveness Application Instructions p. 1.}

^[133] _{IFR #14 § 2(b), as added by IFR #20 § 1(c).}

^[134] _{SBA FAQ Question 31.}

^[135] _Id.

^[136] _{SBA FAQ Question 31.}

^[137] _{IFR #4 § 5 as modified by IFR #9 and IFR #13 § 1; SBA FAQ Question 31, as modified by SBA FAQ Question 43 and SBA FAQ Question 47.}

^[138] _{SBA FAQ Question 47.}

^[139] _Id.