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Apr 2020
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April 03, 2020

SBA Issues Interim Final Rule Related to PPP Loans

On Thursday April 2, 2020, the Small Business Administration (SBA) issued an interim final rule describing how it interprets the Paycheck Protection Program (PPP) and other related SBA loan provisions of the CARES Act. The interim rule clarified some, but not all, of the open issues related to the administration of the PPP loan program.

The interim rule provides the following:
 
  • A simple methodology to calculate a borrower’s maximum loan amount permitted under the PPP, and provides several examples of such calculations. 
  • Payments to independent contractors are not to be included in the calculation of payroll costs because independent contractors have the ability to apply for a PPP loan on their own. 
  • Applicants must submit such documentation as is necessary to establish eligibility, such as payroll processor records, payroll tax filings, Form 1099-MISC or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount. 
  • The interest rate for PPP loans is 1%. This is an increase from 0.5%, which the Department of Treasury announced earlier in the week. 
  • PPP loans will have a two-year term. The CARES Act permitted up to a maximum term of 10 years. 
  • Payments may be deferred for six months from the loan disbursement date. Interest will continue to accrue during this deferment period. 
  • At least 75% of PPP loan proceeds must be used for payroll costs. Note that this is a new, stand-alone requirement that applies regardless of whether any of the loan is forgiven. 
  • Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. 
  • Applicants must submit SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation, as described above. The lender must submit SBA Form 2484 (Paycheck Protection Program Lender’s Application for 7(a) Loan Guaranty) electronically in accordance with program requirements and maintain the forms and supporting documentation in its files. 
  • An applicant that received an SBA Economic Injury Disaster Loan (EIDL) from January 31, 2020 through April 3, 2020, can apply for a PPP loan. If the EIDL loan was not used for payroll costs, it does not affect eligibility for a PPP loan. If the EIDL loan was used for payroll costs, the PPP loan must be used to refinance a borrower’s EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan. However, since at least 75% of the PPP loan proceeds shall be used for payroll costs, the amount of any EIDL loan that is refinanced will be included in this calculation. 
  • If PPP funds are used for unauthorized purposes, SBA will direct the borrower to repay those amounts. If a borrower knowingly uses the funds for unauthorized purposes, the borrower will be subject to additional liability such as charges for fraud. If one of a borrower’s shareholders, members or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member or partner for the unauthorized use. 
  • Applicants will have to make several certifications at the time of their application, including the certifications listed in the CARES Act and the following:
     
    • I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable such as for charges of fraud.

    • Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments and covered utilities for the eight-week period following this loan will be provided to the lender.

    • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments and covered utilities. As explained above, not more than 25% of the forgiven amount may be for non-payroll costs.

    • I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than 30 years and/or a fine of not more than $1,000,000.

    • I acknowledge that the lender will confirm the eligible loan amount using tax documents I have submitted. I affirm that these tax documents are identical to those submitted to the Internal Revenue Service. I also understand, acknowledge and agree that the lender can share the tax information with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

  • The guidance states that lenders will have to comply with the following:
     
    • Confirm receipt of borrower certifications contained in the Paycheck Protection Program Application form issued by the Administration;

    • Confirm receipt of information demonstrating that a borrower had employees for whom the borrower paid salaries and payroll taxes on or around February 15, 2020;

    • Confirm the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll documentation submitted with the borrower’s application; and

    • Follow applicable Bank Secrecy Act requirements. 

  • With respect to the borrower’s application to have the loan forgiven, the lender may rely upon veracity of the documentation the borrower submits supporting its request if the borrower attests that it has accurately verified the payments for eligible costs. 
  • The SBA will hold harmless any lender that relies on such borrower documents and attestation from a borrower.

The Interim Final Rule confirmed that the SBA’s affiliation rules will apply to PPP loan applications. According to the Interim Final Rule, the SBA will be issuing a guidance promptly on how to apply those rules. The affiliation rules generally require a company to count its own employees, plus the employees of its foreign and domestic affiliates to determine whether the entity qualifies for a PPP loan. The affiliation rules are complicated and specific to the SBA. If you have concerns about the affiliation rules, please contact Ford Turrell, Tim Hillegonds, Rob Davies, Matt Crowe or your Warner attorney.   

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