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PPP Is Back! President Trump Signs Covid 3.5

On Behalf of | Apr 24, 2020 | Firm News

As of 1 p.m. Friday, President Trump signed Covid 3.5 legislation, which infused $310 billion into the Paycheck Protection Program, giving small business owners a second chance to receive forgivable loans.

The consensus among bankers is that there is a large backlog of applications. The reason? Congress underfunded the original PPP program, and then delayed for two weeks before adding more funds — after it knew that the funds were depleted.

Now is the time to contact a small-business banker, and complete your application. Please do not delay. It is feasible that the newest tranche of funds will also be depleted (and Leader McConnell has signaled there might not be another round).

In addition, on Thursday evening, the Treasury Department issued additional guidance on the PPP. Among the updates:

Qualification as a “Small Business”

  • The PPP is now open for companies that exceed 500 employees, as long as they qualify as a “small business concern” pursuant to the Small Business Act (15 U.S.C. 632(a)(5)(B)). A business can qualify if both of the following tests are satisfied: (1) it has a maximum tangible net worth of the business of 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.
  • The normal affiliation rules will apply, and possibly disqualify an applicant. But the SBA will respect a shareholder’s relinquishment of control in order to defeat affiliation, as long as the relinquishment is irrevocable. (This requires some careful planning.)

Making the “Uncertainty” Certification.

  • Many businesses are facing consternation over the dilemma of whether to apply for a PPP loan. Maybe the enterprise is doing OK, but suffered some decline. Maybe the enterprise is doing well, but it sees trouble on the horizon. Thursday’s regulations clarify some points.
  • The economic uncertainty must be present as of the date of the loan application, not some future date. This tells me two things:
    1. There will be no Monday-morning quarterbacking for a business that came through covid19 in a strong position, so long as the original certification was truthful.
    2. There will be scrutiny for a business that was strong at the time of the certification, and made the certification without compelling factual support.
  • Typically, a SBA borrower would need to certify that it cannot obtain credit elsewhere. That requirement is suspended. But its ability to access other sources of liquid funds must be taken into account. This would include equity and debt. Public companies can all but forget about PPP.
  • If a borrower now realizes it did not make a correct “uncertainty” certification, it can avoid penalties if it repays the loan by May 7, 2020.

Amount of the Loan

  • Payroll costs are used to determine the amount of the loan. The CARES Act used a trailing 12-month average (which is then multiplied by 2.5). Previous SBA/Treasury guidance used 2019 as the measurement period. Thursday’s guidance now says an employer may use either time period (TTM or 2019), at the employer’s choice. A seasonal business may also use data from spring 2019.
  • Payroll costs do NOT include payroll taxes.
  • Payroll costs can exceed $100,000 per employee, as long as that excess is comprised of benefits.


  • Head count becomes important when considering forgiveness of the loan. This guidance clarifies that these numbers will be calculated on an average basis, based on pay periods.
  • I was disappointed that Treasury did not provide more guidance on forgiveness, as it relates to payroll costs outside the ordinary course of business. Can a S-corp shareholder/employee gross up her pay to $100,000? Can businesses provide bonuses to employees who admirably offered to do riskier work? The answer to those questions is, in general, yes. But will forgiveness be honored? That is TBD.

For more information, please review my previous posts on the CARES Act and PPP:

  • What Entrepreneurs and Lenders Need to Know about CARES Act

  • So you got your PPP loan … Now what?

  • What business owners can expect from the Main Street Business Lending Program

I am actively consulting with business owners about their PPP applications, forgiveness of loans, and business planning. You may reach me at [email protected].

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