SBA Paycheck Protection Program: Interim Final Rules Released

April 2, 2020

On April 2, the SBA released interim final guidance on key provisions of the Paycheck Protection Program (PPP). The CARES Act authorized $349 billion to provide guaranteed loans under this new 7(a) program. The formal guidance is effective immediately and applies to applications submitted under the PPP through June 30, 2020, or until funds are exhausted. According to the SBA, the immediate effective date of the rule will “benefit small businesses so they can immediately apply for the loan with a full understanding of loan terms and conditions.”

The guidance provides important information for both borrowers and lenders as they prepare for high demand. The areas covered in the guidance include but are not limited to:  

  • Borrower Eligibility – The guidance includes a section called “What Borrowers Need to Know and Do?” that describes the documents needed to establish eligibility. The documents include payroll records, payroll tax filings and Forms 1099-MISC, or income and expenses from a sole proprietorship. The SBA also stated that guidance on affiliation rules is forthcoming.
  • Loan Amounts – The guidance provides a methodology and examples for calculating the amount that can be borrowed.
  • Payroll Costs – The guidance describes payroll costs and clarifies that independent contractors do not count as employees for purposes of PPP loan calculations.
  • Interest Rate – The interest rate is 100 basis points or 1% with a six-month deferral following loan disbursement.
  • Loan Forgiveness – In describing how a borrower must use loan proceeds in order to obtain full or partial loan forgiveness, the guidance provides that no more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. Independent contractors do not count as employees for purposes of a borrower’s PPP loan forgiveness. The SBA will provide additional guidance on loan forgiveness.
  • Loan Proceeds Use – The guidance describes use of the loan proceeds and confirms that “at least 75% of the PPP loan proceeds shall be used for payroll costs.”
  • Application/Borrower Certifications – Applicants must submit SBA Form 2483 (Paycheck Protection Program Application Form), payroll documentation and complete all borrower certifications stated on the application. For loan forgiveness, borrowers must certify that documentation will be provided verifying the number of full-time equivalent employees on payroll as well as the dollar amount of payroll costs, covered mortgage interest payments, covered rent payments and covered utilities for the eight-week period following the loan.
  • Lender Protections – Lenders may rely on certifications of the borrower in order to determine eligibility and use of loan proceeds, and on specified documents provided by the borrower to determine qualifying loan amount and eligibility for loan forgiveness. Lenders must comply with the applicable lender obligations set forth in the guidance but will be held harmless for borrowers’ failure to comply with program criteria.
  • Agency Fees – Agent fees will be paid by the lender out of the fees the lender receives from the SBA. The total amount that an agent may collect from the lender for assistance in preparing an application for a PPP loan (including referral to the lender) may not exceed:
    • 1% for loans of not more than $350,000;
    • 0.50% for loans of more than $350,000 and less than $2 million; and
    • 0.25% for loans of at least $2 million.

      Marks Paneth will be providing additional information relating to any PPP guidance. You may also visit our Pandemic Resource Center for additional updates and guidance on the coronavirus (COVID-19).

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