Below are a collection of terms found in our articles related to the Coronavirus Aid, Relief, and Economic Security (“CARES Act”), the Payment Protection Program (“PPP”), The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “PPP2 Act”), the Consolidated Appropriations Act, 2021 (“2021 Appropriations Act”), and other funding programs related to United States government response to the COVID-19 pandemic.
Affiliation: Under the “Affiliation Rules Applicable to U.S. Small Business Administration Paycheck Protection Program” April 3, 2020 (the “PPP Affiliation Rules”), there are four tests for affiliation based on control: (i) affiliation based on ownership, (ii) affiliation arising under stock options, convertible securities, and agreements to merge, (iii) affiliation based on management, and (iv) affiliation based on identity of interest. For more visit this page.
Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by Economic Aid Act: Sometimes referred to as the “Consolidated First Draw PPP IFR” or (“IFR”) restates existing regulatory provisions into a single regulation on borrower eligibility, lender eligibility, and loan applications or origination requirements issues for new First Draw PPP Loans, as well as general rules relating to First Draw PPP Loan increases and loan forgiveness.
Economic Aid Act: Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act.
Employees: The SBA counts all individuals employed on a full-time, part-time, or other basis. A borrower must therefore calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. This includes employees obtained from a temporary employee agency, professional employee organization or leasing concern. Independent contractors and volunteers do not count as employees.
Foreign Affiliate Employees:
Improper Use of First Draw PPP Loans: First Draw PPP Loan proceeds may not be used for (1) lobbying activities, as defined in section 3 of the Lobbying Disclosure Act of 1995 (2 U.S.C. 1602); (2) lobbying expenditures related to a State or local election; or (3) expenditures designed to influence the enactment of legislation, appropriations, regulation, administrative action, or Executive order proposed or pending before Congress or any State government, State legislature, or local legislature or legislative body.
New Entity: A borrower that did not exist during the 1-year period preceding February 15, 2020, but was in operation on February 15, 2020).
Payroll Costs: Consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation. Payroll costs also include a housing stipend or allowance.
Portfolio Companies: Private equity-owned businesses.
Proper Use of First Draw PPP Loans: Except for self-employed borrowers (see Question 13), the proceeds of the First Draw PPP Loan are to be used for:
- payroll costs (as defined in the CARES Act, Economic Aid Act and the IFR)
- costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums;
- mortgage interest payments (but not mortgage prepayments or principal payments);
- rent payments;
- utility payments;
- interest payments on any other debt obligations that were incurred before February 15, 2020;
- refinancing an EIDL loan made between January 31, 2020 and April 3, 2020;
- covered operations expenditures (that is payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses);
- covered property damage costs (costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation);
- covered supplier costs (expenditures made by a borrower to a supplier of goods for the supply of goods that—(A) are essential to the operations of the borrower at the time at which the expenditure is made; and (B) is made pursuant to a contract, order, or purchase order—(i) in effect at any time before the covered period with respect to the applicable covered loan; or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan); and
- covered worker protection expenditures ((A) operating or a capital expenditures to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency with respect to the COVID–19 expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19; (B) such expenditures may include—(i) the purchase, maintenance, or renovation of assets that create or expand—(I) a drive-through window facility; (II) an indoor, outdoor, or combined air or air pressure ventilation or filtration system; (III) a physical barrier such as a sneeze guard; (IV) an expansion of 51 additional indoor, outdoor, or combined business space; (V) an onsite or offsite health screening capability; or (VI) other assets relating to the compliance with the requirements or guidance described in subparagraph (A), as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and (ii) the purchase of—(I) covered materials described in section 328.103(a) of title 44, Code of Federal Regulations, or any successor regulation; (II) particulate filtering facepiece respirators approved by the National Institute for Occupational Safety and Health, including those approved only for emergency use authorization; or (III) other kinds of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and (C) such expenditures do not include residential real property or intangible property).
Second Draw Rules: The SBA released an Interim Final Rule called “Business Loan Program Temporary Changes; Paycheck Protection Second Draw Loans” (“Second Draw Rules”). These rules announced the implementation of section 311 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Economic Aid Act”).
Seasonal Employers: An employer that did not operate for more than seven months in any calendar year or that during the preceding calendar year, had gross receipts for any six months of that year that were not more than 33.33 percent of the gross receipts of the employer for the other six months of that year).
Unauthorized Use of First Draw PPP Funds: If the borrower uses PPP funds for unauthorized purposes, the SBA will direct the borrower to repay those amounts. If the borrower knowingly used the funds for unauthorized purposes, it will be subject to additional liability such as charges for fraud. If one of its shareholders, members, or partners uses PPP funds for unauthorized purposes, the SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
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