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Paycheck Protection Program (SBA Loan) Under the CARES Act - UPDATE



Rödl & Partner Tax Matters Vol 2020 – 4, published March, 30, 2020 - updated May 7, 12 and 18, 2020 and January 28, 2021


The information provided below reflects language used in the CARES Act legislation enacted on March 27, 2020 and subsequent Interim Final Regulations issued by the Treasury with regard to this legislation. The actual application or bank requirements may differ.


On May 18, 2020, the SBA published the interim final rule on the treatment of entities with foreign affiliates.
You can read the full rule here: https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Treatment-of-Entities-with-Foreign-Affiliates.pdf
The SBA stated that there has been uncertainty regarding whether PPP applicants with 500 or fewer employees whose principal place of residence is in the United States qualified for a PPP loan. The SBA has clarified in this rule that any entity that, together with its domestic and foreign affiliates, does not meet the 500-employee or other applicable PPP size standard is ineligible for a PPP loan. It goes on to state, however, that 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) had no more than 500 employees whose principal place of residence is in the United States.
Given this most recent guidance, we recommend that any entity that applied for and received a PPP loan after May 5th and is not eligible based on this guidance return the funds. The deadline to return the funds is May 18, 2020. If a loan application was submitted after May 5, 2020 and is in process and the entity has now determined they do not qualify, we recommend that the loan process be suspended.


One of the key provisions of the CARES Act (the "Act") signed on March 27, 2020 was the creation of The Paycheck Protection Program ("PPP") which is a loan that companies can apply for at any bank that is a federally insured depository, and will work in conjunction with the Small Business Administration.


Key Considerations

Some of the key considerations for the loan include the following:


  • Affiliation Rules - The SBA has clarified that affiliation rules do apply. A business, combined with its affiliates including foreign affiliates, that has 500 or fewer employees is eligible for the PPP loan assuming the business meets any other eligibility requirements.


The Act provides for a waiver of the general affiliation rules in the following cases:


  1. Hotels and Restaurants/Food Service - If a company operates in North American Industry Classification System Sector 72 (Accommodation and Food Services) and employs 500 or fewer employees per physical location, it is eligible to receive a single loan
  2. Franchises that are approved on the SBA
  3. Small businesses that receive financing through the Small Business Investment Company (SBIC) program
  • Covered Period - Covered period for loans received prior to June 5 is the 8-week period following disbursement of the loan. Borrowers that received a loan after June 5 can choose as their covered period either an 8-week or 24-week period following disbursement of the loan.
  • Covered Loan – Any loan made during the Covered Period
  • Credit Elsewhere Test - The typical requirement that an extensive analysis be undertaken to determine if the borrower has the ability to obtain some or all of the requested loan funds from alternative sources is removed during the Covered Period
  • Loan Guarantee - The loan will be guaranteed by the SBA with no collateral or personal guarantee required during the Covered Period
  • Loan Forgiveness - The borrower can apply for some or all of the loan to be forgiven subject to certain conditions outlined below
  • Terms of Loan – For any portion of the loan not forgiven per the guidelines below, the terms are as follows:
    - The portion of the loan that is not forgiven will be repayable over 2 years

    - The interest rate will be 1%

    - Payments are deferred for 6 months; however, interest will accrue over this period

    - There will be no loan fees or prepayment penalties


Maximum Loan Amount

The amount borrowed generally will be the lesser of the following:


  1. For businesses in operation during the period beginning on February 15th, 2019 and ending on June 30, 2019:
  • The sum of:


     - The borrower's average monthly payroll costs incurred during the one year period before the date on 

        which the loan is made (the period is different for seasonal businesses) multiplied by 2.5, and

     - The outstanding amount of a loan under the Disaster Relief Loan Program that was made during the

        period beginning on January 31, 2020 and ending on the date on which covered loans are made



For businesses not in operation during the period beginning on February 15th, 2019 and ending on June 30, 2019:


  • The sum of:

     - The borrower's average total monthly payroll costs incurred during the period beginning on January 1,

       2020 and ending on February 29, 2020 multiplied by 2.5, and

     - The outstanding amount of a loan under the Disaster Relief Loan Program that was made during the

       period beginning on January 31, 2020 and ending on the date on which covered loans are made





  • $10 million


Calculation of Payroll Costs

In determining the average monthly payroll costs, the following amounts are outlined in the Act as included/excluded:




The sum of payments of any compensation with respect to employees that is a:


  • Salary, wage, commission, or similar compensation;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for dismissal or separation;
  • Payment required for the provisions of group health care benefits, including insurance premiums;
  • Payment of any retirement benefit; or
  • Payment of State or local tax assessed on the compensation of employees; and


The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the Covered Period.




  • Employee/owner compensation over $100,000
  • Payroll related withholding taxes imposed or withheld during the covered period of 2/15/20 – 6/30/20
  • Compensation of employees whose principal place of residence is outside of the U.S.
  • Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act


Allowable Uses of Loan Funds

During the Covered Period, borrowers may generally use the proceeds of the loan granted for:


  • Payroll costs;
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Employee salaries, commissions, or similar compensations;
  • Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
  • Rent (including rent under a lease agreement);
  • Utilities; and
  • Interest on any other debt obligations that were incurred before the Covered Period.


Loan Forgiveness

Borrowers under the PPP can apply for loan forgiveness in an amount equal to the sum of the following costs incurred by the borrower during the covered period after the origination date of the loan:


  • Payroll costs as defined above
  • To the extent the underlying obligations or services, as applicable, existed prior to February 15, 2020:

     - Interest payments on any mortgage,

     - Payments of rent on any lease, and

     - Payments for any utility services.


Note that not more than 40% of the loan forgiveness amount can be attributable to non-payroll costs.


A key aspect of the forgiveness provisions outlined in the Act is that any amount forgiven in connection with the program that generally would be includible in gross income of the borrower will be excluded from gross income.


The provisions further outline that the amount forgiven will be reduced proportionally by:


  • Any reduction in the average number of full-time employees per month during thecovered period as compared to specified prior periods that mirror to the periods outlined above in the quantification of the Maximum Loan Amount; and
  • Any reduction in pay of any employee beyond 25 percent of their compensation in the most recent full quarter during which the employee was employed prior to the Covered Period


There are also certain exemptions to the reduction in loan forgiveness for re-hires meeting certain criteria as outlined in the Act.



  1. Do we qualify if our group employs more than 500 individuals on a worldwide basis?


Treasury put out an FAQ 44 on May 5th which confirms that U.S. AND foreign employees must be included in the employee count for eligibility, notwithstanding the wording in the prior guidance that tied eligibility to U.S. employees.

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

For purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S and foreign affiliates, absent a waiver of or an exception to the affiliation rules. 13 C.F.R. 121.301(f)(6). Business concerns seeking to qualify as a “small business concern” under section 3 of the Small Business Act (15 U.S.C. 632) on the basis of the employee-based size standard must do the same.

It is possible for businesses with more than 500 worldwide employees to qualify for first-round PPP loans only if they meet another applicable SBA industry size standard. For second-round PPP borrowers, there is no alternative SBA industry size standard option, and if worldwide employee headcount is over 300, the business will not qualify for the program.


2. Can a foreign-owned business obtain a loan?


There is nothing in the law prohibiting a foreign owned business from obtaining the PPP loan. We encourage you to consult with your banking partner.


3. How do I apply?


Applications are available. Please consult on this point with your business banking partner. Note that not all U.S. banks participate in SBA lending programs. In addition, as a practical matter, we understand that many banks are not accepting applications from companies that did not have an existing banking relationship bank prior to February 15th.


4. What is the expected time frame from date of application to receipt of funds?


Our understanding is that the U.S. government has approximately 30 days to finalize the administrative details of the program.


5. How does the PPP interact with the Employee Retention Credit outlined under the Act?


On December 27th, the Consolidated Appropriations Act was signed into law, which allows borrowers that received a PPP loan to also claim the employee retention credit. This provision is retrospective to the enactment of the employee retention credit, allowing certain PPP borrowers to claim the credit on eligible wages dating back to March 2020. It should be noted that the credit can only be claimed on eligible wages not used to support PPP loan forgiveness (i.e., companies cannot double dip on the same wages for both the credit and PPP loan forgiveness).


Our Recommendations

if you believe the PPP could be beneficial to your business, we recommend you contact your banking partner as soon as possible to express your interest.


Please do not hesitate to reach out to us with further questions.


Paycheck Protection Program



This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

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