On April 2, 2020, the Small Business Administration (SBA) issued its Interim Final Rule on the Paycheck Protection Loan Program (PPP) from the recent CARES legislation. This lays out the SBA formal guidance for implementing the PPP loans. The latest developments in this guidance are summarized below.
This SBA guidance in these regulations applies to loan applications submitted under the PPP through June 30, 2020, or until funds made available for this purpose are exhausted. The effective date of the interim final rules is immediate and without notice. Comments received in the next 30 days may cause the SBA to enact revisions.
Loans will be 100% guaranteed by the SBA. The full principal amount may be forgiven if certain requirements are met.
Lenders are not required to comply with Section 120.150, “What are SBA’s lending criteria?” Lenders are allowed to rely on specified documents provided by the borrower and certifications of borrowers to determine eligibility and use of loan proceeds.
Eligible covered businesses include any business concern, not-for-profit organization, veteran organization, or Tribal business concern, with no more than 500 employees whose principal place of residence is in the U.S. – or those in a specified industry that meet the SBA employee-based size standards. The business must have been in operation on February 15, 2020 and either had employees for whom salaries are paid or independent contractors for whom a 1099-MISC was issued. Sole proprietors and independent contractors are also eligible.
Specific payroll documentation requirements include payroll processor records and payroll tax filings. Sole proprietorships are required to submit Form 1099 or income and expenses that sufficiently demonstrates the qualifying payroll amount. The SBA intends to issue additional guidance on applicability of affiliation rules.
Ineligible borrowers include:
The maximum amount borrowed is still the lesser of: (1) $10 million; or (2) a calculated Maximum Loan Amount. The Maximum Loan Amount is 2.5 times the average monthly payroll costs defined as all compensation and certain benefit costs, including health insurance, retirement benefits, and unemployment benefits. Compensation in excess of $100,000 is excluded from the calculation. Any outstanding Disaster Loan amount for loans made between January 31 and April 3, 2020, less the amount of any “advance” up to $10,000, is added to the PPP loan amount.
The interest rate is now 1% with a maturity of two years. Borrowers receive a six-month deferment of payments following the date of the loan. They can only apply one time for a PPP loan, and the loan is on a “first-come-first-served” basis.
The Loan Forgiveness Amount can be up to the full principal amount AND any accrued interest. The amount forgiven will depend on the total amount of payroll costs, payments of interest, rent payments, and utility payments over the eight-week period following the date of the loan. Payroll costs included in the forgiveness amount will be reduced for the amount of Social Security taxes withheld and federal taxes withheld for each employee during the period of April 3 through June 30, 2020. Further SBA guidance may be needed to explain this adjustment.
If the non-payroll costs, as defined, are in excess of 25% of the total, the forgiveness amount will be reduced by that amount of non-payroll costs for the Loan Forgiveness Amount. Independent contractors do not count as employees for purposes of the PPP loan forgiveness. Proceeds from any advance from a Disaster Loan obtained between January 31 and April 3, 2020 will be deducted from the loan forgiveness amount.
Applicants must submit SBA Form 2483, Paycheck Protection Program Application Form, and payroll documentation.
Misuse of the PPP funds can result in the SBA requiring immediate payback of the loan; if knowingly being misused, the borrower can be subject to additional liabilities.
The applicant must certify to the following:
All SBA 7(a) lenders are automatically approved to make PPP loans on an approved basis. The types of lenders that meet criteria and are eligible to make PPP loans are as follows:
An additional requirement for these lenders includes that they originated at least $50 million of loans during a consecutive 12-month period in the last 36 months.
The following loan terms are addressed in the guidance:
It was helpful the SBA provided this guidance, and further developments are likely. This is a rapidly changing environment. Please contact your Sikich advisor with any questions.
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