Still Waiting for a PPP Loan? Make Sure You Ask for the Right Amount!

The government has been busy in the past week, revising the Paycheck Protection Program (PPP). After the bad press it received for providing PPP funds to publicly trade companies and hedge funds, the government issued new regulations forbidding hedge funds and private equity firms from applying for the PPP Loans. The new regulations provide a safe harbor period for returning the loans (without penalty) before May 7.

For ASA members who may have applied for PPP funding and not yet received it, this may free up more PPP funding for small businesses.

The Treasury Department has also updated its Frequently Asked Questions (FAQ) to clarify how the $100,000 cap applies to payroll under the PPP. The FAQs clarify that the $100,000 cap applies to compensation paid directly to employees, (e.g. wages) but not to “non-cash” benefits paid for by the company:

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 plans;
  • 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

This affects the base amount for which an applicant may apply. The applicant may apply for 2.5 times payroll, which includes wages and certain employee benefits. The payroll is capped at $100,000 compensation. This Treasury Department FAQ confirms that the $100,000 applies to wages and other similar compensation, but not to certain employee benefits paid by the company. Thi suggests that the total amount per employee could exceed $100,000 when the company has a substantial package of employee benefits.

Guidance from some banks has been conflicting – if your PPP application was not consistent with the Treasury Department interpretation of the limit, and your PPP loan has not yet been approved, then it may not be too late to update your application to reflect the right amounts.