SBA Issues Final Interim Rule for Paycheck Protection Program Loans

On April 2, 2020, the Small Business Administration released the guidance that we all have anticipated regarding the application for, and administration of, the Paycheck Protection Program ("PPP") loan authorized by the CARES Act. A link to the SBA’s Interim Final Rule (referred to as the “Guidance” in this Alert) is here .

The Guidance will be subject to public comment, but under the authority of the CARES Act, it is effective as soon as it is published in the Federal Register. Eligible borrowers may submit applications for PPP loans to lenders beginning at noon today . The Application period will continue through June 30, 2020, but borrowers should recognize that the total program funds are limited to $349,000,000,000 under CARES, and applications will be approved on a first come, first served basis. Borrowers should therefore assemble payroll and other required documentation and act promptly. Click here for the latest version of the SBA application.

Some pertinent provisions of the guidance can be summarized as follows: 

  • In addition to the application, borrowers must provide payroll records, payroll tax filings and Forms 1099-MISC, or, in the case of sole proprietors who do not have this detailed information, statements of income and expenses. Borrowers who do not have statements mush establish payroll expenses by reference to bank statements and records.

  • The Guidance provides examples of how to use payroll costs to calculate the maximum loan amount. The Guidance confirms that compensation of employees over $100,000 should be included in the calculation of payroll costs, but the amount of compensation to be included is capped at $100,000.

  • The Guidance contains a detailed description of “payroll costs” that is consistent with the CARES Act.

  • The interest rate on PPP loans, contrary to Treasury’s previous guidance, will be the same for all loans: 100 basis points or 1% annually. There will be a six-month deferral on payments following loan disbursement, but interest accrues during the deferral.

  • Proceeds of the loan can be used for payroll costs, mortgage interest, rent, costs related to the continuation of health benefits, utilities, interest payments on debt incurred before February 15, 2020, and to refinance Economic Injury Disaster Loans (SBA 7(b) Loans) made between January 31, 2020 and April 3, 2020.

  • Notwithstanding the many permitted uses of PPP loan proceeds, the Guidance provides that at least 75% of the loan proceeds must be used for payroll costs, and no more than 25% of the loan forgiveness amount may be attributable to non-payroll costs, such as mortgage interest, utilities, and interest expense.

  • Independent contractors do not count as employees for purposes of a borrower’s PPP loan forgiveness.

  • Lenders may rely on documents that have been submitted by a borrower, and certifications made by the borrower, in considering an application for approval. A lender need not independently verify the documentation, and will be held harmless for a borrower's failure to comply with program criteria. 

  • Certain lenders that are not already qualified as SBA 7(a) lenders will be automatically approved if they meet certain criteria outlined in the Guidance (such as being federally insured and not in a “Troubled Condition” as determined by the Lender’s federal regulator).
This alert is intended to notify its readers of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have. We are fully operational during this pandemic and we stand ready to assist your business with any of the aforementioned benefits. Please do not hesitate to contact us with your questions and concerns.
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