SBA issues final interim rule for Paycheck Protection Program

Late in the day on Thursday, April 2, the small business administration posted on its website a copy of the Interim Final Rule (you can view the IFR here) for the Paycheck Protection Program (PPP) loans. The SBA stated that the posting was in advance of publication in the CFR. This Interim Final Rule provides clarity on questions that potential applicants, lenders and even legislators had on the interpretation and application of the PPP.

The IFR constitutes official action by the SBA, and as a result is definitive and binding as opposed to the prior publications by the Department of Treasury and the SBA. At the same time that the SBA posted the IFR, it also posted a final Borrower Application Form (view it here). Although many businesses have used a form of application during the week of March 30, the final form published by the SBA differs significantly in several areas.

Summarized below for a quick understanding of the IFR and the final Application, we list the key differences between (a) the IFR and final Application and (b) the Department of Treasury guidance issued on March 31 and the draft loan application form released on March 27. We provided a detailed summary of that guidance . Although we will subsequently provide a more comprehensive overview of the IFR, the summary of changes should be most useful on April 3 and the following days.

Key changes or clarifications in the IFR and final loan Application:

  • An applicant may include in the calculation of the maximum loan amount any outstanding amount from an Economic Injury Disaster Loan (EIDL) made between Jan. 31 and April 3.
  • IFR clarifies that independent contractors issued 1099s by an applicant may not be included in the employee count nor amounts paid included as payroll costs.
  • Compensation for employees residing outside of the U.S. may not be included in payroll costs.
  • The compensation amount in excess of $100,000 (annualized) for any employees earning those amounts will be excluded, but the employee and up to $100,000 is included in the applicable totals.
  • Annual interest accruing on the loan will be 1%.
  • The loans will be issued on a first-come, first-served basis. We do not have any information to know how the queuing of applications will be handled within any particular lending institution.
  • Each lender is obligated to confirm it received information from the applicant that it paid salaries and payroll taxes on or around Feb. 15, 2020, and it must review and confirm the average monthly payroll costs for the preceding calendar year. Lenders are permitted to rely upon the documentation provided by each applicant. This ability to rely on applicant submitted documentation alleviates concerns expressed by lenders.
  • The final Borrower Application Form omits any explicit certification requirement that all owners holding more than 20% of ownership interest in the applicant are U.S. citizens or lawful permanent residents.
  • The applicant must certify that it is eligible to receive a loan under the rules in effect at the time the application is submitted. This appears to be a requirement that an applicant must self-certify that it satisfies the size requirements imposed by the PPP, as well as other PPP requirements.
  • The application must certify that, to the extent feasible, the applicant will purchase only “American made equipment and products.”
  • The application now omits any requirement for signatures by owners holding 20% or greater interests in the applicant.

The changes and clarifications listed in this alert are not a complete list of all of the requirements for applicants and lenders as stated in the IFR. However, by highlighting the changes from the U.S. Treasury guidance issued on March 31, the alert provides notice of key issues relevant to all applicants intending to submit completed Applications starting on April 3.

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