Interim Final Rule for the Paycheck Protection Program

by Christina Moore and guest author Chris Hopper with Taylor English Decisions chopper@tedecisions.com

April 3, 2020

On April 2, 2020, the Small Business Administration (SBA) released an Interim Final Rule implementing the Paycheck Protection Program (PPP) provisions and (the loan forgiveness provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The U.S. Department of the Treasury (the Treasury) released informal guidance on PPP on March 31, 2020. The CARES Act was enacted a few days prior on March 27, 2020.

The Interim Final Rule provides additional guidance to lenders and borrowers regarding the PPP application, loan terms and loan forgiveness provisions. The interim final rule also provides clarification regarding the SBA’s interpretation of a number of aspects of the PPP, including the following:

What Do Borrowers Need to Know and Do?

  • Lending Period. The PPP lending period will run from April 3, 2020, through June 30, 2020.
  • Eligibility. Generally, under the PPP eligible applicants will have 500 or fewer employees whose principal place of residence is in the United States, or a business that operates in a certain industry and meets the applicable SBA employee-based size standards for that industry.  Additionally, an applicant would need to have been in operation on February 15, 2020 and paying either employees or independent contractors as reported on a Form 1099-MISC.
    • Individuals who operate under a sole proprietorship or as an independent contractor, or eligible self-employed individuals, are also eligible to apply for a PPP.
  • Maximum Loan Amount. Under the PPP, the maximum loan amount is the lesser of $10 million or an amount that applicants will calculate using a payroll-based formula specified in the CARES Act.  Applicants cannot count compensation to employees whose principal place of residence is outside of the United States, in addition to certain other exclusions.
  • Interest Rates. The CARES Act allowed a maximum interest rate of 4%, which initial guidance from the Treasury lowered to 0.5%. Due to concerns that such a low interest rate would discourage lenders from making PPP loans, the Treasury and the SBA have raised the interest rate slightly to 1%.
  • IC Calculating Number of Employees. Independent contractors do not count as employees of a business applicant for purposes of the headcount limitations on a PPP.  Also, you may not include compensation to an IC in seeking forgiveness of the PPP loan. Independent contractors may apply for their own PPP loan.
  • Limit on Number of Loans per Borrower. Borrowers may only apply for one PPP loan between now and June 30, 2020. The Interim Final Rule encourages borrowers to consider applying for the maximum amount for which they are eligible.
  • E-Signatures. E-signatures and e-consents may be used for completing the application.
  • Deferral. While the CARES Act authorized payment of principal and interest to be deferred for up to one year, the SBA and the Treasury have determined a six-month deferral is appropriate given the 1% interest rate and loan forgiveness provisions of the CARES Act.
  • Non-Payroll Costs. In a significant change to the CARES Act, the SBA and the Treasury have confirmed that no more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.
  • Form of Application, Certificates and Forgiveness Evidence.
    • Applicants must submit SBA Form 2483 (Paycheck Protection Program Application Form) and supporting payroll documentation such as tax documents, bank records and as otherwise requested by the SBA approved lender.
    • Potential borrowers will need to provide certification in good faith as to: (a) the application and information provided, (b) operations, (c) need for support, (d) that funds will be used to retain workers/maintain payroll, make mortgage interest payments, lease payments or utility payments and (d) the applicant has not and will not receive another loan under the PPP loan program.
    • To achieve loan forgiveness, borrowers must provide documentation verifying number of full-time equivalent employees on payroll, amounts of payroll costs, covered mortgage interest payments, covered rent payments and covered utility payments for the 8-week period following origination of the loan.
  • EIDL Recipients Eligible for PPP Loans. Borrowers who received a loan through the SBA Economic Injury Disaster Loan (EIDL) program from Jan. 31, 2020, through April 3, 2020, are eligible to apply for a PPP loan.  If an EIDL was used for payroll costs, however, the PPP must be used to refinance your EIDL, and proceeds from any non-repayable advance on the EIDL will be deducted from the PPP loan forgiveness.
  • Misuse of Funds. If PPP funds are used for unauthorized purposes, the SBA will direct you to repay those amounts. If you are knowingly using funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud.

What Do Lenders Need to Know and Do?

  • Lender Forms. Lenders must submit SBA Form 2484 electronically to the SBA and maintain the forms and supporting documentation provided by the borrower in their files.
  • Verification of Borrower Documentation. Lenders do not need to conduct any independent verification of the documentation and attestation provided by borrowers in support of their requests for loan forgiveness.
  • Lender Underwriting. Underwriting obligations are limited. Each lender shall:
    1. Confirm receipt of borrower certificates.
    2. Confirm receipt of information demonstrating employees were paid salaries and payroll taxes on or before February 15, 2020.
    3. Confirm dollar amount of average monthly payroll costs for the preceding calendar year.
    4. Follow applicable Bank Security Act (BSA) requirements.
  • SBA Advance Purchases. A lender may request that the SBA purchase the expected forgiveness amount of any PPP loan or pool of PPP loans at the end of the seventh week following origination of the loan(s). Such advance purchases will occur within 15 days of the SBA receiving a complete report of the expected forgiveness amount.

What Do Both Borrowers and Lenders Need to Know and Do?

  • Loan Terms and Conditions. Loans will be guaranteed under the PPP under the same terms, conditions and processes as other SBA 7(a) loans, with certain changes including but not limited to:
    1. The guarantee percentage is 100 percent.No collateral will be required.
    2. No personal guarantees will be required.
    3. The interest rate will be 100 basis points or one percent.
    4. All loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower in order to determine eligibility of the borrower and the use of loan proceeds.
  • Agent Fees: Agent fees will be paid by the lender out of the fees the lender receives from SBA.
    1. 1.00 percent for loans of not more than $350,000;
    2. 0.50 percent for loans of more than $350,000 and less than $2 million; and
    3. 0.25 percent for loans of at least $2 million.
  • Secondary Markets. PPP loans may be sold by lenders on the secondary market after the loan is fully disbursed.
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