But do you really understand the terms of the program? No. And why don’t you know? Because no one knows and the rules are constantly changing.  One of the big problems with the roll out of the program to the banks was the uncertainty the banks had about just what they were getting into.  Many people are frustrated with their banks…and when the big banks like Wells Fargo never really had the ability to make the loans in the first place, to lead their customers on was gross betrayal. One big lesson that seems very clear from reporting nationwide is that local banks did a really great job of communicating with their customers through the application procedure. For those that have loans funded, it’s going to be more important than ever that borrowers have solid banking relationships so they can work through the more complicated aspects of loan forgiveness.

What I want to do with this Blog is provide the very best information currently available and help people to understand the details. The most critical part, the Actual Interim Rule is found at the bottom.

Some Additional Information on How PPP Loans and Forgiveness Information is Being Communicated

Congress passed the CARES act on 3/25/20. The bill had an ambitious goal…get money out into the streets as soon as possible. The portion of the Act specific to PPP loans essentially directed the Department of the Treasury to open the floodgates and fast-track approval of getting federally-backed funds into the hands of businesses using banks as conduits.  From the outset, Congress wanted very little documentation or underwriting because the primary goal was to get the money out into the streets immediately. Congress didn’t want employment numbers spiking any higher than they already have…and they wanted employees to be able to meet their own expenses.  And while Congress and the text of the CARES Act was very clear, working out the details on how these loans would function proved a little bit more difficult than the overly-ambitious directives of Congress.

The Paycheck Protection Program- The Devil IS In the Details

So Congress, by enacting CARES, tells the Treasury to get the money flowing. Similarly in the 2008 Crash, Geithner, Bernake and Paulson developed the concept of “Foaming the Runways” by pumping billions of dollars directly into banks to get money out into the streets….and it worked.  Next, officials within both the Department of Treasury and Small Business Administration have a furious and non-stop round of meetings to work out the details of the program. Finally, SBA officials are charged with implementing these rules and procedures and pushing this information down through their regional banking contacts. All of this was occurring nonstop and immediately after CARES was passed on 3/25/20.  Given the enormity of the tasks before all the parties, it really is a testament to hard work, cooperation and sense of mission that these things got worked out so quickly.  Through conference calls and written information pumped down to banks, they got their processes and documents done in a matter of days.

$350 Billion Gone…In a Matter of Days

OK, so the press is reporting that these great loans are out there…and really there was a full court press at federal, state and local levels to apply for and get these loans. The very public push on this communicated that it was nearly a sense of public duty to help get this money out into the community. The really interesting thing is that…in a matter of days…this $350 billion was loaned out….when the SBA had only made $25 billion in the entire year previously.

Give The Banks a Break

So much criticisms directed at the banks and from my perspective, with the exception of Wells Fargo, much of that criticism seems unfair…every indication is that the banks were doing the best they could under challenging circumstances. And with changes and more guidance on the next rounds, these critiques can be addressed. The bottom line here is, we’re all in deep trouble, we’re all in this together…and we’ve got to work together to help each other and help our communities out of this problem.  Congress has passed and will continue to pass new CARES-related relief and the rules will continue to change. It looks like smaller banks will be given access to even more money in future funding based in part on the positive performance in the first round…it will be important to monitor banks and the processes as this all goes forward to see who is able to most effectively execute the goals of the program.   What I know for certain though is…if you’re not getting good information and solid advice from your bank now…if you’re talking to foreign call centers and getting canned emails and responsive, that’s not a good sign.


I will continue to be a champion for my local bank, Valley Bank because they have always been very responsive and helpful not just for me the account holder, but for my customers as well. When you think about your banking relationship, consider that you’re entrusting your family’s entire security and stability to a company…a bank…you just shouldn’t entrust that whole relationship unless you’ve got personal contact with someone…or a team of people that can be there to answer your questions. This concept transcends this PPP experience. When you think about your prior banking questions, concerns or issues….do you have cell phone numbers for real people that live in your community and can answer your questions? If not…you need to change banks.


Ok, so back to the PPP…here are some things and advice I know with absolute certainty:

Keep A Segregated Bank Account

Whatever proceeds you actually receive, open up a brand new account with the funding bank, and don’t take a dime out of that account for any purpose other than payroll and up to 25% of the money to be used for rent, mortgage or utilities.  No one knows exactly what the reporting and forgiveness process will work like, but to keep accounting clear and simple start with all the money in one place, with crystal clear records about where the money goes.

Forgiveness (May Be) The Hardest Part

Remember at the front end that this money is not a grant, it’s not forgiven, it’s not “free money”. The money is a loan, albeit on favorable terms. In order to convert the loan to a forgiveable grant, you will need to comply with a series of continually changing requirements.  No one knows the exact details because they only exist now as an Interim Rule, so it will be up to borrowers to constantly monitor the rule and changes to make the best case for forgiveness.

Be A Hyper-Responsible Steward Of The Money

There are several legitimate questions surrounding the program that I still cannot get clear understanding of. Example: If I’m a non-essential business with collapsed sales, but received a full PPP loan, should I pay reduced payroll amounts commensurate with acutual employee hours/value or does the intent of the program encourage me to pay the previous average payrolls regardless of today’s current sales/revenue environment? I think the program encourages full payment, subject to the restrictions below.  But beyond all else, every single penny must be used in a prudent, responsible and hyper vigilant manner.

Respect All Existing Laws And Orders

A clear intent of the program is to help people and businesses that are in the middle of a crisis. A clear intent of the program is to help people comply with existing Orders, and to stabilize society while we work through this crisis.  This clearly means that one should not be operating “business as usual” and at the same time take advantage of a program designed to help those who cannot or are not operating “business as usual”.

Does Your Business Really Need The Loan To Survive?

A pizza shop certifies on the application that the loan is necessary, but after Stay at Home goes into effect, sales shoot through the roof and profitability actually INCREASES. Should the pizza shop take the loan? Probably not….remember the certification that the loan is “necessary” for survival. Pay close attention to what Mnuchin said about “Harsh” penalties for businesses that took the loans but didn’t need them. There will be penalties for those that abuse the system.

There Will Be Penalties For Those That Abuse The System!

There was a great post in Forbes on this very subject, written by former prosecutors…beware and be wary.



And Now, Without Further Adieu, the information directly from the SBA:

As of April 6, 2020


Frequently Asked Questions (FAQs)
The Small Business Administration (SBA), in consultation with the Department of the Treasury,
intends to provide timely additional guidance to address borrower and lender questions
concerning the implementation of the Paycheck Protection Program (PPP), established by section
1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act). This
document will be updated on a regular basis.

Borrowers and lenders may rely on the guidance provided in this document as SBA’s
interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rule
(“PPP Interim Final Rule”). The U.S. government will not challenge lender PPP actions
that conform to this guidance, and to the PPP Interim Final Rule and any subsequent rulemaking
in effect at the time.

1. Question: Paragraph 3.b.iii of the Paycheck Protection Program Interim Final Rule
states that lenders must “[c]onfirm the dollar amount of average monthly payroll costs for
the preceding calendar year by reviewing the payroll documentation submitted with the
borrower’s application.” Does that require that the lender replicate every borrower’s

Answer: No. Providing an accurate calculation of payroll costs is the responsibility of
the borrower, and the borrower must attest to the accuracy of those calculations. Lenders
are expected to perform a good faith review, in a reasonable time, of the borrower’s
calculations and supporting documents concerning average monthly payroll cost. The
level of diligence by a lender should be informed by the quality of supporting documents
supplied by the borrower. Minimal review of calculations based on a payroll report by a
recognized third-party payroll processor, for example, would be reasonable.
If lenders identify errors in the borrower’s calculation or material lack of substantiation in
the borrower’s supporting documents, the lender should work with the borrower to
remedy the error.

2. Question: Are small business concerns (as defined in section 3 of the Small Business
Act, 15 U.S.C. 632) required to have 500 or fewer employees to be eligible borrowers in
the PPP?

Answer: No. Small business concerns can be eligible borrowers even if they have more
than 500 employees, as long as they satisfy the existing statutory and regulatory
definition of a “small business concern” under section 3 of the Small Business Act, 15
U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-
based size standard corresponding to its primary industry. Go to www.sba.gov/size for
the industry size standards.

Additionally, a business can qualify for the Paycheck Protection Program as a small
business concern if it met both tests in SBA’s “alternative size standard” as of March 27,
2020: (1) maximum tangible net worth of the business is not more than $15 million; and
(2) the average net income after Federal income taxes (excluding any carry-over losses)
of the business for the two full fiscal years before the date of the application is not more
than $5 million.

A business that qualifies as a small business concern under section 3 of the Small
Business Act, 15 U.S.C. 632, may truthfully attest to its eligibility for PPP loans on the
Borrower Application Form, unless otherwise ineligible.

3. Question: Does my business have to qualify as a small business concern (as defined in
section 3 of the Small Business Act, 15 U.S.C. 632) in order to participate in the PPP?

Answer: No. In addition to small business concerns, a business is eligible for a PPP loan
if the business has 500 or fewer employees whose principal place of residence is in the
United States, or the business meets the SBA employee-based size standards for the
industry in which it operates (if applicable). Similarly, PPP loans are also available for
qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the
Internal Revenue Code (IRC), tax-exempt veterans organization described in section
501(c)(19) of the IRC, and Tribal business concerns described in section 31(b)(2)(C) of
the Small Business Act that have 500 or fewer employees whose principal place of
residence is in the United States, or meet the SBA employee-based size standards for the
industry in which they operate.

4. Question: Are lenders required to make an independent determination regarding
applicability of affiliation rules under 13 C.F.R. 121.301(f) to borrowers?

Answer: No. It is the responsibility of the borrower to determine which entities (if any)
are its affiliates and determine the employee headcount of the borrower and its affiliates.
Lenders are permitted to rely on borrowers’ certifications.

5. Question: Are borrowers required to apply SBA’s affiliation rules under 13 C.F.R.

Answer: Yes. Borrowers must apply the affiliation rules set forth in SBA’s Interim
Final Rule on Affiliation. A borrower must certify on the Borrower Application Form
that the borrower is eligible to receive a PPP loan, and that certification means that the
borrower is a small business concern as defined in section 3 of the Small Business Act
(15 U.S.C. 632), meets the applicable SBA employee-based or revenue-based size
standard, or meets the tests in SBA’s alternative size standard, after applying the
affiliation rules, if applicable. SBA’s existing affiliation exclusions apply to the PPP,
including, for example the exclusions under 13 CFR 121.103(b)(2).
As of April 6, 2020

6. Question: The affiliation rule based on ownership (13 C.F.R. 121.301(f)(1)) states that
SBA will deem a minority shareholder in a business to control the business if the
shareholder has the right to prevent a quorum or otherwise block action by the board of
directors or shareholders. If a minority shareholder irrevocably gives up those rights, is it
still considered to be an affiliate of the business?

Answer: No. If a minority shareholder in a business irrevocably waives or relinquishes
any existing rights specified in 13 C.F.R. 121.301(f)(1), the minority shareholder would
no longer be an affiliate of the business (assuming no other relationship that triggers the
affiliation rules).

7. Question: The CARES Act excludes from the definition of payroll costs any employee
compensation in excess of an annual salary of $100,000. Does that exclusion apply to all
employee benefits of monetary value?

Answer: No. The exclusion of compensation in excess of $100,000 annually applies
only to cash compensation, not to non-cash benefits, including:
 employer contributions to defined-benefit or defined-contribution retirement
 payment for the provision of employee benefits consisting of group health care
coverage, including insurance premiums; and
 payment of state and local taxes assessed on compensation of employees.

8. Question: Do PPP loans cover paid sick leave?

Answer: Yes. PPP loans covers payroll costs, including costs for employee vacation,
parental, family, medical, and sick leave. However, the CARES Act excludes qualified
sick and family leave wages for which a credit is allowed under sections 7001 and 7003
of the Families First Coronavirus Response Act (Public Law 116–127). Learn more
about the Paid Sick Leave Refundable Credit here.

9. Question: My small business is a seasonal business whose activity increases from April
to June. Considering activity from that period would be a more accurate reflection of my
business’s operations. However, my small business was not fully ramped up on February
15, 2020. Am I still eligible?

Answer: In evaluating a borrower’s eligibility, a lender may consider whether a seasonal
borrower was in operation on February 15, 2020 or for an 8-week period between
February 15, 2019 and June 30, 2019.

10. Question: What if an eligible borrower contracts with a third-party payer such as a
payroll provider or a Professional Employer Organization (PEO) to process payroll and
report payroll taxes?

Answer: SBA recognizes that eligible borrowers that use PEOs or similar payroll
providers are required under some state registration laws to report wage and other data on
As of April 6, 2020 the Employer Identification Number (EIN) of the PEO or other payroll provider. In these
cases, payroll documentation provided by the payroll provider that indicates the amount
of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s
employees will be considered acceptable PPP loan payroll documentation. Relevant
information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941
Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly
Federal Tax Return, should be used if it is available; otherwise, the eligible borrower
should obtain a statement from the payroll provider documenting the amount of wages
and payroll taxes. In addition, employees of the eligible borrower will not be considered
employees of the eligible borrower’s payroll provider or PEO.

11. Question: May lenders accept signatures from a single individual who is authorized to
sign on behalf of the borrower?

Answer: Yes. However, the borrower should bear in mind that, as the Borrower
Application Form indicates, only an authorized representative of the business seeking a
loan may sign on behalf of the business. An individual’s signature as an “Authorized
Representative of Applicant” is a representation to the lender and to the U.S. government
that the signer is authorized to make the certifications, including with respect to the
applicant and each owner of 20% or more of the applicant’s equity, contained in the
Borrower Application Form. Lenders may rely on that representation and accept a single
individual’s signature on that basis.

12. Question: I need to request a loan to support my small business operations in light of
current economic uncertainty. However, I pleaded guilty to a felony crime a very long
time ago. Am I still eligible for the PPP?

Answer: Yes. Businesses are only ineligible if an owner of 20 percent or more of the
equity of the applicant is presently incarcerated, on probation, on parole; subject to an
indictment, criminal information, arraignment, or other means by which formal criminal
charges are brought in any jurisdiction; or, within the last five years, for any felony, has
been convicted; pleaded guilty; pleaded nolo contendere; been placed on pretrial
diversion; or been placed on any form of parole or probation (including probation before

13. Question: Are lenders permitted to use their own online portals and an electronic form
that they create to collect the same information and certifications as in the Borrower
Application Form, in order to complete implementation of their online portals?

Answer: Yes. Lenders may use their own online systems and a form they establish that
asks for the same information (using the same language) as the Borrower Application
Form. Lenders are still required to send the data to SBA using SBA’s interface.

14. Question: What time period should borrowers use to determine their number of
employees and payroll costs to calculate their maximum loan amounts?
As of April 6, 2020

Answer: In general, borrowers can calculate their aggregate payroll costs using data
either from the previous 12 months or from calendar year 2019. For seasonal businesses,
the applicant may use average monthly payroll for the period between February 15, 2019,
or March 1, 2019, and June 30, 2019. An applicant that was not in business from
February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the
period January 1, 2020 through February 29, 2020. Borrowers may use their average employment over the same time periods to determine
their number of employees, for the purposes of applying an employee-based size
standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average
number of employees per pay period in the 12 completed calendar months prior to the
date of the loan application (or the average number of employees for each of the pay
periods that the business has been operational, if it has not been operational for 12

15. Question: Should payments that an eligible borrower made to an independent contractor
or sole proprietor be included in calculations of the eligible borrower’s payroll costs?

Answer: No. Any amounts that an eligible borrower has paid to an independent
contractor or sole proprietor should be excluded from the eligible business’s payroll
costs. However, an independent contractor or sole proprietor will itself be eligible for a
loan under the PPP, if it satisfies the applicable requirements.

16. Question: How should a borrower account for federal taxes when determining its
payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan,
and the amount of a loan that may be forgiven?

Answer: Under the Act, payroll costs are calculated on a gross basis without regard to
(i.e., not including subtractions or additions based on) federal taxes imposed or withheld,
such as the employee’s and employer’s share of Federal Insurance Contributions Act
(FICA) and income taxes required to be withheld from employees. As a result, payroll
costs are not reduced by taxes imposed on an employee and required to be withheld by
the employer, but payroll costs do not include the employer’s share of payroll tax. For
example, an employee who earned $4,000 per month in gross wages, from which $500 in
federal taxes was withheld, would count as $4,000 in payroll costs. The employee would
receive $3,500, and $500 would be paid to the federal government. However, the
employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from
payroll costs under the statute.2

The definition of “payroll costs” in the CARES Act, 15 U.S.C. 636(a)(36)(A)(viii), excludes “taxes imposed or
withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period,” defined as
February 15, 2020, to June 30, 2020. As described above, the SBA interprets this statutory exclusion to mean that
payroll costs are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or
withheld from employee wages. Unlike employer-side payroll taxes, such employee-side taxes are ordinarily
expressed as a reduction in employee take-home pay; their exclusion from the definition of payroll costs means
payroll costs should not be reduced based on taxes imposed on the employee or withheld from employee wages.
This interpretation is consistent with the text of the statute and advances the legislative purpose of ensuring workers
As of April 6, 2020

17. Question: I filed or approved a loan application based on the version of the PPP Interim
Final Rule published on April 2, 2020. Do I need to take any action based on the updated
guidance in these FAQs?
Answer: No. Borrowers and lenders may rely on the laws, rules, and guidance available
at the time of the relevant application. However, borrowers whose previously submitted
loan applications have not yet been processed may revise their applications based on
clarifications reflected in these FAQs.

18. Question: Are PPP loans for existing customers considered new accounts for FinCEN
Rule CDD purposes? Are lenders required to collect, certify, or verify beneficial
ownership information in accordance with the rule requirements for existing customers?

Answer: If the PPP loan is being made to an existing customer and the necessary
information was previously verified, you do not need to re-verify the information.
Furthermore, if federally insured depository institutions and federally insured credit
unions eligible to participate in the PPP program have not yet collected beneficial
ownership information on existing customers, such institutions do not need to collect and
verify beneficial ownership information for those customers applying for new PPP loans,
unless otherwise indicated by the lender’s risk-based approach to BSA compliance.



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