SBA Issues More Guidance on Laid-Off Employees, Extends “Safe Harbor” Repayment Date

06 May 2020

The SBA and Treasury continued its trickle of new information so far this week, updating their FAQ on May 3rd and again on May 4th with two critical updates for borrowers.

Exception for laid-off employees who refuse to return

The first major update provided, and a sneak peek into the forgiveness regulations, covers a scenario when a borrower of an employee refuses to return to work. Using the “de minimis” exemptions allowed under the CARES Act, any employee who is was laid-off whom the borrower offered to rehire (for the same salary & number of hours) will be “excluded” from forgiveness reduction calculation. How this exclusion will work is still open considering the reduction is based on a fraction of employees in a base period vs employees in the 8 week covered loan period.

In order to qualify for this exemption –

1. The borrower must have made a “good-faith,” written offer of rehire AND

2. The employees rejection of that offer must be documented by the borrower.

There is no guidance yet, but borrowers may want to include in any written offer that a refusal to respond is a deemed rejection; it is unsure of that provision would pass the SBA requirement, but may assist in the case where many employees just don’t respond.

Finally, the FAQ reminds borrowers that in the event of a rejection of re-employment an employee may forfeit eligibility for continued unemployment compensation.

Extension of “Safe Harbor Deadline” to May 14th, 2020

The second major update relates to an extension to return funds under the PPP Loan Program. In late April 2020, the SBA and Treasury updated the FAQ with the now famous Question 31, requiring borrowers to now also assess economic need and necessity for this loan, taking into account current business activity and their ability to access other sources of liquidity. See more on this update here.

The updated FAQ on May 5, 2020 allows now for the repayment deadline for any borrower that applied for a PPP Loan prior to April 24th and re-assesses their need under the new criteria to return this loan by May 14, 2020 (prior was May 7th) and still be considered to have made the initial certification in good faith. This should be welcome news to some borrowers who are still working to assess and document everything under the increased guidance and potential scrutiny.

In what feels like a broken record, we are still awaiting from the SBA Regulations to help guide borrowers in forgiveness calculation. These regulations will be crucial, but at this point, with all the uncertainty around all these programs, more information is always appreciated.


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