PPP Updates: Extension of the Application Deadline, Disclosure of PPP Borrowers Receiving Greater than $150,000 in PPP Loans, and the “Owner-Employee” Dilemma
On July 4, 2020, President Trump signed into law a bill passed by the U.S. Congress that extends the application deadline for the Paycheck Protection Program (PPP) from June 30, 2020 to August 8, 2020. The extension of the PPP application deadline comes on the heels of the latest PPP report issued by the U.S. Department of Treasury (Treasury) and U.S. Small Business Administration (SBA) stating that, as of June 30, 2020, approximately $131 billion of the allocated $670 billion remains unspent. In their report the SBA and Treasury added that, as of June 30, 2020, the average PPP loan size was $107,000, and that the PPP has supported approximately 51 million jobs, or roughly 84% of all employees working at small businesses.
Further, on July 6, 2020, the SBA and Treasury disclosed the names of all 658,000+ PPP borrowers that received PPP loans greater than $150,0000 since the launch of the program through June 30, 2020. The data points released alongside each PPP borrower name include, among other information, borrower address, range of loan size (the SBA did not reveal exact dollar amounts of the PPP loans issued to borrowers), NAICS code, business type, demographic information, nonprofit status (to the extent applicable), number of jobs supported, the date the PPP loan was approved, and the name of the PPP lender that made the loan.
Lastly, as previously highlighted in our articles here and here, the PPP has undergone significant changes with respect to loan forgiveness pursuant to the PPP Flexibility Act and the updated loan forgiveness application that was published on June 16, 2020. A growing concern amongst PPP market participants has been the lack of clarity surrounding the term “owner-employee” and its use under the PPP. The term “owner-employee” was introduced by the SBA in its Fourteenth Interim Final Rule dated June 1, 2020, which stated that the amount of loan forgiveness requested for “owner-employees” must be capped at $15,385 per individual for the then maximum 8-week forgiveness period. The latest loan forgiveness application increased the “owner-employee” cap to a disproportionate amount of $20,833 for the 24-week forgiveness period, and the Twentieth Interim Final Rule issued by the SBA on June 26, 2020 further revised the Fourteenth Interim Final Rule to add that, in addition to the increased $20,833 cap (for a 24-week rather than a 8-week forgiveness period), (i) each C corporation owner-employee is capped by the amount of his or her 2019 employee cash compensation and employer retirement and health insurance contributions made on his or her behalf and (ii) each S corporation owner-employee is capped by the amount of his or her 2019 employee cash compensation and employer retirement contributions made on his or her behalf, but in the case of an S corporation owner-employee, employer health insurance contributions made on the owner-employee’s behalf cannot be separately added because those payments are already included in his or her employee cash compensation. The SBA’s rationale for the disparate treatment of “owner-employees” compared to “employees” is that the approach is consistent with the structure of the CARES Act and its “overarching focus on keeping workers paid, and will prevent windfalls [for owners] that Congress did not intend.”
Unfortunately, the SBA has not defined the term “owner-employee”, nor has the SBA provided any guidance to help participants determine if the term “owner-employee” is intended to extend to any employee who owns any portion – even a nominal amount – of the equity interests of the PPP borrower. The instructions to the updated loan forgiveness application direct the PPP borrower to exclude any “owner-employees” from the list of employees identified on the Schedule A Worksheet, but no rubric is provided to guide a borrower in making the distinction between an “owner-employee” and “employee”. This lack of clarity as to which employee should be deemed an “owner-employee” is problematic for PPP borrowers seeking to maximize forgiveness because the per non-owner employee cap for the 24-week forgiveness period is $46,154 whereas the per owner-employee cap is over 50% lower.
*Things are changing quickly and the measures and interpretations described here may change. Our analysis is necessarily limited by the time sensitivities of the current crisis as well as the absence of precedent for some of what is contained here. This analysis represents our best interpretation and recommendations based on where things currently stand.*
 As enacted under the Coronavirus Aid, Relief, and Economic Security Act (as amended, supplemented or otherwise modified from time to time, including, without limitation, by the Paycheck Protection Program and Health Care Enhancement Act, Paycheck Protection Program Flexibility Act, applicable federal regulations and interpretive guidance issued by the SBA and Treasury, the CARES Act).
 We note that the PPP application requires applicants to list all owners of 20% or more of the equity of the business, and that the SBA’s First Interim Final Rule (as amended) prohibits a business from being approved for a PPP loan if 20% or more of that business’s equity is owned by an individual who was convicted of a felony in certain circumstances. We also note that the SBA requires each individual who owns 20% or more of a small business applicant under its traditional 7(a) loan program to provide a personal guaranty. There is, however, no written guidance nor any public announcement suggesting that the SBA would apply a similar minimum ownership threshold to the determination of whether an employee constitutes an “owner-employee”, nor does the SBA distinguish between active or passive ownership, including whether an employee is a member of the board of directors/managers of the business, is a limited partner of the business (as opposed to being a general partner), and/or has voting rights. The SBA considers even minority ownership to be significant in certain contexts.