Exhibit G-18 — USA v. Crowther (Dkt. 137.11)

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SBA INSPECTOR GENERAL
FLASH REPORT
SMALL BUSINESS ADMINISTRATION'S
IMPLEMENTATION OF THE PAYCHECK PROTECTION
PROGRAM REQUIREMENTS
May 8, 2020
[seal: U.S. SMALL BUSINESS ADMINISTRATION, OFFICE OF INSPECTOR GENERAL]
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[seal: U.S. SMALL BUSINESS ADMINISTRATION, OFFICE OF INSPECTOR GENERAL]
EXECUTIVE SUMMARY
SMALL BUSINESS ADMINISTRATION'S
IMPLEMENTATION OF THE PAYCHECK PROTECTION
PROGRAM REQUIREMENTS
Report
No. 20-14
May 8,
2020
Why We Did This
On April 24, 2020, the Office of Inspector General
(OIG) initiated its planned review of the Small
Business Administration's (SBA's) implementation
of the Paycheck Protection Program (PPP). Based
on this ongoing work, we produced a flash report
to meet the information needs of Senators
Schumer, Cardin, and Brown. We analyzed key
provisions of Section 1102 of the Coronavirus Aid,
Relief, and Economic Security (CARES) Act, which
was signed into law by the President on March 27,
2020, to provide economic relief to our Nation, and
SBA's Interim Final Rules and public guidance
intended to further inform stakeholders of SBA's
implementation of the PPP. Section1102, created
the PPP under section 7(a) of the Small Business
Act, and the PPP provided for $349 billion in fully
guaranteed SBA loans, which can be forgiven if
used in accordance with the Act.
SBA launched the program on April 3, 2020, and
just 14 days later, by April 16, PPP lenders
approved more than 1,661,000 loans totaling
nearly $342.3 billion. On April 24, 2020, the
President signed the Paycheck Protection Program
and Health Care Enhancement Act to provide an
additional $310 billion to the PPP. SBA initiated
this cycle of additional funding on April 27, 2020.
As of May 6, PPP lenders approved an additional
2,441,369 loans, totaling about $183.5 billion. The
Paycheck Protection Program and Health Care
Enhancement Act set aside portions of the
additional funding for smaller lenders, but there
were no other significant differences regarding
requirements for the PPP than in the CARES Act.
The Senators also asked that by May 8, 2020, we
provide recommendations on SBA's current rules,
regulations, policies, and procedures to ensure
small businesses get the money they need and are
treated fairly by PPP lenders.
What We Reviewed
To conduct our comparative analysis, we reviewed
and assessed the regulations for the PPP and for the
Paycheck Protection Program and Health Care
Enhancement Act, in addition to guidance
published in SBA's Interim Final Rules and FAQs
issued as of April 30, 2020. We also assessed the
PPP borrower application and additional public
documents issued by SBA and the U.S. Department
of the Treasury.
What We Found
We found that SBA's Interim Final Rules for
implementing the PPP and SBA's FAQs mostly
aligned with the Act. We identified the following
areas, however, that did not fully align with the
Act's provisions:
• Prioritizing Underserved and Rural
Markets
• Loan Proceeds Eligible for Forgiveness
• Guidance on Loan Deferments
• Registration of Loans
Suggested Actions for SBA
To better align PPP requirements with the
provisions of the CARES Act, we suggest SBA:
• Issue guidance to lenders requiring the
lenders to prioritize borrowers in
underserved markets and revise the
borrower application to include collection
of optional demographic information for
the principals for the remaining available
lending authority and any future lending
under the program.
• For loans that are already disbursed,
include optional demographic information
on forms used to request loan forgiveness.
• Evaluate the potential negative impact to
borrowers regarding the specified
percentage of loan proceeds eligible for
forgiveness and update the requirements,
as deemed necessary.
• Issue guidance to lenders on the
deferment process for PPP loans.
• Register PPP loans by Taxpayer
Identification Number.
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[seal: U.S. SMALL BUSINESS ADMINISTRATION, OFFICE OF INSPECTOR GENERAL]
Office of Inspector General
U.S. Small Business Administration
DATE: May 8, 2020
TO: Jovita Carranza
Administrator
FROM: Hannibal "Mike" Ware
Inspector General
[signature]
SUBJECT: Small Business Administration's Implementation of the Paycheck Protection
Program Requirements
On April 24, 2020, the Office of Inspector General (OIG) initiated its planned review of the Small
Business Administration's (SBA's) implementation of the Paycheck Protection Program (PPP).
Based on this ongoing work, we produced a flash report to meet the information needs of Senators
Schumer, Cardin, and Brown. We analyzed key provisions of the legislation, in addition to SBA's
Interim Final Rules and public guidance intended to further inform stakeholders of SBA's
implementation of the PPP. The Senators also asked that by May 8, 2020, we provide
recommendations on SBA's current rules, regulations, policies, and procedures to ensure small
businesses get the money they need and are treated fairly by any PPP lender. This report presents
the results of our analysis of key provisions of Section 1102 of the CARES Act and SBA's Interim
Final Rules and public guidance intended to further inform stakeholders of SBA's implementation of
the Paycheck Protection Program.
Background
The President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on
March 27, 2020, to provide economic relief to our Nation. One of the Act's largest provisions,
Section 1102, created the PPP under section 7(a) of the Small Business Act. This program provides
$349 billion in fully guaranteed SBA loans—which can be forgiven if used in accordance with the
Act—for certain eligible small businesses, individuals and non-profit organizations to cover payroll,
rent, utility payments, and other limited uses. Between March 27 and April 30, 2020, SBA published
seven Interim Final Rules and issued further guidance in 39 FAQs.
SBA was tasked with expediting the implementation of this unprecedented program to mitigate the
economic impact of social distancing efforts put forth to curb the infection rate of the COVID-19
outbreak. SBA launched the program on April 3, 2020, only 1 week after the Act was passed.
Demand for the program was extraordinary: by April 16, just 14 days after SBA launched the
program, PPP lenders approved more than 1,661,000 loans totaling nearly $342.3 billion.
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Table 1 provides more specific loan information.
Table 1: Summary of Paycheck Protection Program Loans From Round 1
(Data as of 12:00 p.m., Thursday, April 16, 2020)
Loan Count Net Approved Dollars Lender Count
1,661,367 $342,277,999,103 4,975
Source: SBA PPP website.
On April 24, 2020, the President signed the Paycheck Protection Program and Health Care
Enhancement Act to provide an additional $310 billion to the PPP. SBA initiated this cycle of
additional funding on April 27. As of May 6, PPP lenders approved an additional 2,441,369 loans
totaling more than $183.5 billion. Table 2 provides more specific loan information.
Table 2: Summary of Paycheck Protection Program Round 2
(Data as of 5:00 p.m., Wednesday, May 6, 2020)¹
Lender Size Approved Loans Total Amount
>$50 B in Assets 1,147,890 $97,324,262,313
$10 B to $50 B in Assets 347,368 $28,032,705,351
<$10 B in Assets 946,111 $58,168,884,165
Total 2,441,369 $183,525,851,829
Before the PPP, SBA's largest single year in 7(a) lending volume was approximately $25.4 billion, in
fiscal year 2017. Between April 3 and May 6, 2020, SBA lenders participating in the PPP approved
4,102,736 loans totaling more than $525.8 billion, an amount representing more than 20 times the
largest year in SBA's history in just 33 days.
Paycheck Protection Program Statutory Authority, Formal Guidance, and
Other Guidance
Statutory Authority
The PPP provides guaranteed loans to assist certain businesses, individuals, and organizations with
getting back to work and outlines provisions for lending and forgiveness of these loans. The
Paycheck Protection Program and Healthcare Enhancement Act on April 24, 2020, provided
additional funding to the PPP. The Enhancement Act also included a set aside for insured
depository institutions, credit unions, and community financial institutions.
Formal Guidance
SBA also issued Interim Final Rules for the execution of these provisions consistent with the CARES
Act. As of April 30, 2020, SBA issued seven Interim Final Rules. Appendix I includes the Interim
Final Rules issued as of April 30, 2020.
¹ The information was retrieved from SBA's PPP Website.
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Other Guidance
Additional guidance for the PPP is contained in FAQs and specific loan program forms. As of April
30, 2020, SBA responded to 39 FAQs that addressed various aspects of program implementation.
These areas primarily related to program eligibility, loan size calculations, and loan sales on the
secondary market.
Appendix II provides a detailed comparison of the CARES Act requirements, the Interim Final Rules,
and the 39 FAQs.
Scope
The scope of our review included an assessment of the following:
• Statutory authority for the PPP (Section 1102 of the CARES Act)
• Statutory authority for the Paycheck Protection Program and Health Care Enhancement Act
• Regulations published in SBA's seven Interim Final Rules issued as of April 30, 2020
• SBA's guidance published as 39 FAQs issued as of April 30, 2020
• SBA's PPP Borrower Application
• Additional public documents issued by SBA and the U.S. Department of the Treasury
Results
We found that SBA's formal guidance, issued as its seven Interim Final Rules, for implementing the
PPP and its FAQs mostly aligned with the Act. We identified the following areas, however, that did
not fully align with the Act's provisions:
• Prioritizing Underserved and Rural Markets
• Loan Proceeds Eligible for Forgiveness
• Guidance on Loan Deferments
• Registration of Loans
Prioritizing Underserved and Rural Markets
We did not find any evidence that SBA issued guidance to lenders to prioritize the markets
indicated by the Act. Further, SBA did not include the optional standard demographic information
for principals on its PPP loan application. Section 1102 of the CARES Act states that the
Administrator should issue guidance to lenders and agents to ensure that the processing and
disbursement of covered loans prioritizes small business concerns and entities in underserved and
rural markets, including veterans and members of the military community, small business concerns
owned and controlled by socially and economically disadvantaged individuals (as defined in section
15 U.S.C. 637(d)(3)(C)), women, and businesses in operation for under 2 years.
Because SBA did not provide guidance to lenders about prioritizing borrowers in underserved and
rural markets, these borrowers, including rural, minority and women-owned businesses may not
have received the loans as intended. In addition, because SBA did not require demographic data to
identify PPP borrowers in underserved markets, it is unlikely that SBA will be able to determine the
loan volume to the intended prioritized markets.
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Loan Proceeds Eligible for Forgiveness
We found the formal guidance in SBA's Interim Final Rule did not align with the allowable use
requirements for PPP loans. The CARES Act details the allowable uses for PPP loans, including
payroll costs, payments of interest on any mortgage obligation (which shall not include any
prepayment of or payment of principal on a mortgage obligation), rent (including rent under a lease
agreement), utilities, and interest on any other debt obligations incurred before the covered period.
While the Act did not create any restrictions on the portion of the loan that needed to be used for
payroll, SBA added a requirement in its Interim Final Rule, that at least 75 percent of the loan
proceeds must be used for payroll. SBA, in coordination with the Secretary of the Treasury,
provided the following explanation:
While the Act provides that borrowers are eligible for forgiveness in an amount
equal to the sum of payroll costs and any payments of mortgage interest, rent, and
utilities, the Administrator has determined that the non-payroll portion of the
forgivable loan amount should be limited to effectuate the core purpose of the
statute and ensure finite program resources are devoted primarily to payroll. The
Administrator has determined in consultation with the Secretary that 75 percent is
an appropriate percentage in light of the Act's overarching focus on keeping
workers paid and employed. Further, the Administrator and the Secretary believe
that applying this threshold to loan forgiveness is consistent with the structure of
the Act, which provides a loan amount 75 percent of which is equivalent to eight
weeks of payroll (8 weeks/2.5 months = 56 days/76 days = 74 percent rounded up
to 75 percent). Limiting non-payroll costs to 25 percent of the forgiveness amount
will align these elements of the program and will also help to ensure that the finite
appropriations available for PPP loan forgiveness are directed toward payroll
protection.
In addition to the 75-percent payroll criteria, the maturity term established by the Administrator
and the Secretary would require the borrowers to repay any amount not eligible for forgiveness
within the remainder of the initial 2-year term. The Act, however, allowed for a maximum maturity
of up to 10 years. SBA's requirements could result in an unintended burden to the borrowers. For
example, PPP borrowers who do not use at least 75 percent of the loan for payroll (therefore use
more than 25 percent of their loan proceeds for nonpayroll expenses) may not be able to have all of
their loan forgiven. It may be important to consider that many small businesses have more
operational expenses than employee expenses. Our review of data from round one found that tens
of thousands of borrowers would not meet the 75-percent payroll cost threshold and would
therefore have to repay the amount of nonpayroll costs in excess of 25 percent in less than2 years.
Guidance on Loan Deferments
We found that SBA did not issue guidance on the deferment process for PPP loans to lenders within
30 days as required. Specifically, the Act requires SBA to provide guidance to lenders on the
deferment process within 30 days of enactment (March 27, 2020). Section 1102 of the CARES Act
requires lenders to provide complete payment deferment relief for impacted borrowers with
covered loans for a period of not less than 6 months (including payment of principal, interest, and
fees) and not more than 1 year. As of May 5, 2020, we found no evidence that SBA issued this
guidance.
Without proper and timely guidance for loan deferments, lenders and borrowers may be uncertain
about program requirements for servicing and loan repayments for PPP loans with balances
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remaining after forgiveness. Specifically, lenders may not be adequately prepared to service PPP
loans that carry balances, and borrowers may not know what is required to repay outstanding loan
balances.
Registration of Loans
We found no evidence that SBA registered the loans as required by the Act. While SBA collects the
applicant's Taxpayer Identification Number (TIN), we did not find it registered this information.
Section 1102 states that not later than 15 days after the date on which a loan is made, SBA shall
register the loan using the TIN assigned to the borrower.
Suggested Actions for SBA
To better align PPP requirements with the provisions of the CARES Act we suggest that SBA:
• Issue guidance to lenders requiring the lenders to prioritize borrowers in underserved
markets and revise the PPP borrower application to include the collection of optional
demographic information for principals for the remaining available lending authority and
any future lending under the program.
• For loans that are already disbursed, include optional demographic information on forms
used to request loan forgiveness.
• Evaluate the potential negative impact to borrowers regarding the specified percentage of
loan proceeds eligible for forgiveness and update the requirements, as deemed necessary.
• Issue guidance to lenders on the deferment process for PPP loans.
• Register PPP loans by TIN.
Disclaimer
This report compares and contrasts key provisions of Section 1102of the CARES Act to SBA's
Interim Final Rules and other public guidance to further inform stakeholders of SBA's
implementation of the PPP. We are performing our ongoing review of SBA's implementation of the
PPP under the Council of the Inspectors General for Integrity and Efficiency's Quality Standards for
Inspection and Evaluation, but we have not prepared this flash report to meet this standard.
If you have any questions, please contact me at 202-205-6586 or Andrea Deadwyler, Assistant
Inspector General for Audits, at 202-205-6616.
cc: William Manger, Chief of Staff and Associate Administrator, Office of Capital Access
Brittany Biles, General Counsel
John Miller, Deputy Associate Administrator, Office of Capital Access
William Briggs, Deputy Associate Administrator, Office of Capital Access
Dianna Seaborn, Director, Office of Financial Assistance
Jihoon Kim, Director, Office of Financial Program Operations
Susan Streich, Director, Office of Credit Risk Management
Martin Conrey, Attorney Advisor, Legislation and Appropriations
Tami Perriello, Chief Financial Officer
Tonia Butler, Director, Office of Internal Controls
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Appendix I: Interim Final Rules
Interim Final Rule Number Subject Date Issued
1 Paycheck Protection Program April 2, 2020
2 Affiliation Rules April 3, 2020
3 Additional Eligibility Criteria and Requirements for Certain Pledges of Loans for the Paycheck Protection Program April 14, 2020
4 Promissory Notes, Authorizations, Affiliation, and Eligibility April 24, 2020
5 Seasonal Employers April 27, 2020
6 Disbursements April 28, 2020
7 Requirements – Corporate Groups and Non-Bank and Non-Insured Depository Institution Lenders April 30, 2020
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Appendix II: Detailed Comparison
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(A)(viii) The term 'payroll
costs'-
(I) means
(aa) the sum of payments of any
compensation with respect to employees that is
a—
(AA) salary, wage, commission, or similar
compensation;
(BB) payment of cash tip or equivalent;
(CC) payment for vacation, parental, family
medical, or sick leave;
(DD) allowance for dismissal or separation;
(EE) payment required for the provisions
of group health care benefits, including
insurance premiums;
(FF) payment of any retirement benefit; or
(GG) payment of State or local tax assessed
on the compensation of employees
"(bb) the sum of payments of any
compensation to or income of a sole proprietor
or independent contractor that is a wage,
commission, income, net earnings from self
employment, or similar compensation and that
is in an amount that is not more than $100,000
in 1 year, as prorated for the covered period;
And
Interim Final Rule 1, Issued April 2, 2020, (IFR1)
Section III(2)(f). What qualifies as "payroll costs?"
Payroll costs consist of compensation to
employees (whose principal place of residence is
the United States) in the form of salary, wages,
commissions, or similar compensation; cash tips
or the equivalent (based on employer records of
past tips or, in the absence of such records, a
reasonable, good-faith employer estimate of such
tips); payment for vacation, parental, family,
medical, or sick leave; allowance for separation or
dismissal; payment for the provision of employee
benefits consisting of group health care coverage,
including insurance premiums, and retirement;
payment of state and local taxes assessed on
compensation of employees; and for an
independent contractor or sole proprietor, wages,
commissions, income, or net earnings from self-
employment, or similar compensation.
FAQ # 7: The CARES Act excludes from the
definition of payroll costs any employee
compensation in excess of an annual salary of
$100,000. Does that exclusion apply to all
employee benefits of monetary value?
Answer: No. The exclusion of compensation in
excess of $100,000 annually applies only to cash
compensation, not to non-cash benefits, including:
- employer contributions to defined-benefit or
defined-contribution retirement plans;
- payment for the provision of employee benefits
consisting of group health care coverage, including
insurance premiums; and
- payment of state and local taxes assessed on
compensation of employees.
FAQ # 8: Do PPP loans cover paid sick leave?
Answer: Yes. PPP loans covers payroll costs,
including costs for employee vacation, parental,
family, medical, and sick leave. However, the
CARES Act excludes qualified sick and family leave
wages for which a credit is allowed under sections
7001 and 7003 of the Families First Coronavirus
Response Act (Public Law 116–127). Learn more
about the Paid Sick Leave Refundable Credit here.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(A)(viii) The term 'payroll
costs'-
"(II) shall not include—
"(aa) the compensation of an individual
employee in excess of an annual salary of
$100,000, as prorated for the covered period;
"(bb) taxes imposed or withheld under
chapters 21, 22, or 24 of the Internal Revenue
Code of 1986 during the covered period;
"(cc) any compensation of an employee whose
principal place of residence is outside of the
United States;
"(dd) qualified sick leave wages for which a
credit is allowed under section 7001 of the
Families First Coronavirus Response Act
(Public Law 116–127); or
"(ee) qualified family leave wages for which a
credit is allowed under section 7003 of the
Families First Coronavirus Response Act
(Public Law 116–127);
IFR1 Section III(2)(f). What qualifies as "payroll
costs?"
Payroll costs consist of compensation to
employees (whose principal place of residence is
the United States) in the form of salary, wages,
commissions, or similar compensation; cash tips
or the equivalent (based on employer records of
past tips or, in the absence of such records, a
reasonable, good-faith employer estimate of such
tips); payment for vacation, parental, family,
medical, or sick leave; allowance for separation or
dismissal; payment for the provision of employee
benefits consisting of group health care coverage,
including insurance premiums, and retirement;
payment of state and local taxes assessed on
compensation of employees; and for an
independent contractor or sole proprietor, wages,
commissions, income, or net earnings from self-
employment, or similar compensation.
FAQ # 7: The CARES Act excludes from the
definition of payroll costs any employee
compensation in excess of an annual salary of
$100,000. Does that exclusion apply to all
employee benefits of monetary value?
Answer: No. The exclusion of compensation in
excess of $100,000 annually applies only to cash
compensation, not to non-cash benefits, including:
- employer contributions to defined-benefit or
defined-contribution retirement plans;
- payment for the provision of employee benefits
consisting of group health care coverage, including
insurance premiums; and
- payment of state and local taxes assessed on
compensation of employees.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(B) PAYCHECK PROTECTION
LOANS.—
Except as otherwise provided in this paragraph,
the Administrator may guarantee covered loans
under the same terms, conditions, and processes
as a loan made under this subsection.
IFR1 Section III(4)a. What are the loan terms and
conditions?
Loans will be guaranteed under the PPP under the
same terms, conditions and processes as other
7(a) loans, with certain changes including but not
limited to:
i. The guarantee percentage is 100 percent.
ii. No collateral will be required.
iii. No personal guarantees will be required.
iv. The interest rate will be 100 basis points or
one percent.
v. All loans will be processed by all lenders under
delegated authority and lenders will be
permitted to rely on certifications of the
borrower in order to determine eligibility of the
borrower and the use of loan proceeds.
We did not identify any FAQ that related directly
to this requirement.
Section 1102(a)(2)(C) REGISTRATION OF
LOANS.—
Not later than 15 days after the date on which a
loan is made under this paragraph, the
Administration shall register the loan using
the TIN (as defined in section 7701 of the Internal
Revenue Code of 1986) assigned to the borrower.
We did not identify any requirements in the
Interim Final Rules as of April 30, 2020 that
related directly to this requirement.
We did not identify any FAQ that related directly
to this requirement.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D) INCREASED ELIGIBILITY
FOR CERTAIN SMALL BUSINESSES AND
ORGANIZATIONS.—
"(i) IN GENERAL.—During the covered period, in
addition to small business concerns, any
business concern, nonprofit organization,
veterans organization, or Tribal business
concern described in section 31(b)(2)(C) shall be
eligible to receive a covered loan if the business
concern, nonprofit organization, veterans
organization, or Tribal business concern employs
not more than the greater of—
"(I) 500 employees; or
"(II) if applicable, the size standard in number
of employees established by the Administration
for the industry in which the business concern,
nonprofit organization, veterans organization,
or Tribal business concern operates.
IFR1 Section III(2)(a) Am I eligible?
You are eligible for a PPP loan if you have 500 or
fewer employees whose principal place of
residence is in the United States, or are a business
that operates in a certain industry and meet the
applicable SBA employee-based size standards for
that industry, and:
i. You are:
A. A small business concern as defined in
section 3 of the Small Business Act (15 USC
632), and subject to SBA's affiliation rules
under 13 CFR 121.301(f) unless specifically
waived in the Act;
B. A tax-exempt nonprofit organization
described in section 501(c)(3) of the Internal
Revenue Code (IRC), a tax-exempt veterans
organization described in section 501(c)(19) of
the IRC, Tribal business concern described in
section 31(b)(2)(C) of the Small Business Act,
or any other business; and
ii. You were in operation on February 15, 2020
and either had employees for whom you paid
salaries and payroll taxes or paid independent
contractors, as reported on a Form 1099-MISC.
You are also eligible for a PPP loan if you are an
individual who operates under a sole
proprietorship or as an independent contractor
or eligible self-employed individual, you were in
operation on February 15, 2020.
FAQ # 2: Are small business concerns (as defined
in section 3 of the Small Business Act, 15 U.S.C.
632) required to have 500 or fewer employees to
be eligible borrowers in the PPP?
Answer: No. Small business concerns can be
eligible borrowers even if they have more than
500 employees, as long as they satisfy the existing
statutory and regulatory definition of a "small
business concern" under section 3 of the Small
Business Act, 15 U.S.C. 632. A business can qualify
if it meets the SBA employee-based or revenue-
based size standard corresponding to its primary
industry. Go to www.sba.gov/size for the industry
size standards.
Additionally, a business can qualify for the
Paycheck Protection Program as a small business
concern if it met both tests in SBA's "alternative
size standard" as of March 27, 2020: (1) maximum
tangible net worth of the business is not more
than $15 million; and (2) the average net income
after Federal income taxes (excluding any carry-
over losses) of the business for the two full fiscal
years before the date of the application is not
more than $5 million.
A business that qualifies as a small business
concern under section 3 of the Small Business Act,
15 U.S.C. 632, may truthfully attest to its eligibility
for PPP loans on the Borrower Application Form,
unless otherwise ineligible.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(ii) INCLUSION OF SOLE
PROPRIETORS, INDEPENDENT
CONTRACTORS, AND ELIGIBLE SELF-EMPLOYED
INDIVIDUALS.—
"(I) IN GENERAL.—During the covered period,
individuals who operate under a sole
proprietorship or as an independent contractor
and eligible self-employed individuals shall be
eligible to receive a covered loan.
"(II) DOCUMENTATION.—An eligible self-
employed individual, independent contractor, or
sole proprietorship seeking a covered loan shall
submit such documentation as is necessary to
establish such individual as eligible, including
payroll tax filings reported to the Internal
Revenue Service, Forms 1099–MISC, and income
and expenses from the sole proprietorship, as
determined by the Administrator and the
Secretary.
IFR1 Section III(2)(a) Am I eligible?
You are also eligible for a PPP loan if you are an
individual who operates under a sole
proprietorship or as an independent contractor or
eligible self-employed individual, you were in
operation on February 15, 2020.
You must also submit such documentation as is
necessary to establish eligibility such as payroll
processor records, payroll tax filings, or 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. SBA intends to
promptly issue additional guidance with regard to
the applicability of affiliation rules at 13 CFR §§
121.103 and 121.301 to PPP loans
FAQ # 15: Should payments that an eligible
borrower made to an independent contractor or
sole proprietor be included in calculations of the
eligible borrower's payroll costs?
Answer: No. Any amounts that an eligible
borrower has paid to an independent contractor
or sole proprietor should be excluded from the
eligible business's payroll costs. However, an
independent contractor or sole proprietor will
itself be eligible for a loan under the PPP, if it
satisfies the applicable requirements.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(iii) BUSINESS CONCERNS
WITH MORE THAN 1 PHYSICAL LOCATION.—
During the covered period, any business concern
that employs not more than 500 employees per
physical location of the business concern and that
is assigned a North American Industry
Classification System code beginning with 72 at
the time of disbursal shall be eligible to receive a
covered loan.
Interim Final Rule on Applicable Affiliation Rules,
Issued April 3, 2020, (IFR2) Section III(1)
How do SBA's affiliation rules affect my eligibility
and apply to me under the PPP?
An entity generally is eligible for the PPP if it,
combined with its affiliates, is a small business as
defined in section 3 of the Small Business Act (15
U.S.C. 632), or (1) has 500 or fewer employees
whose principal place of residence is in the United
States or is a business that operates in a certain
industry and meets applicable SBA employee-
based size standards for that industry, and (2) is a
tax-exempt nonprofit organization described in
section 501(c)(3) of the Internal Revenue Code
(IRC), a tax-exempt veterans organization
described in section 501(c)(19) of the IRC, a Tribal
business concern described in section 31(b)(2)(C)
of the Small Business Act, or any other business
concern. Prior to the Act, the nonprofit
organizations listed above were not eligible for
SBA Business Loan Programs under section 7(a) of
the Small Business Act; only for-profit small
business concerns were eligible. *For brevity, we
excluded additional text from the Interim Final
Rule.
FAQ # 24: How do the $10 million cap and
affiliation rules work for hotels and restaurants
(and any business assigned a North American
Industry Classification System (NAICS) code
beginning with 72)?
Answer: Under the CARES Act, any single business
entity that is assigned a NAICS code beginning
with 72 (including hotels and restaurants) and
that employs not more than 500 employees per
physical location is eligible to receive a PPP loan.
In addition, SBA's affiliation rules (13 CFR 121.103
and 13 CFR 121.301) do not apply to any business
entity that is assigned a NAICS code beginning
with 72 and that employs not more than a total of
500 employees. As a result, if each hotel or
restaurant location owned by a parent business is
a separate legal business entity, each hotel or
restaurant location that employs not more than
500 employees is permitted to apply for a
separate PPP loan provided it uses its unique EIN.
The $10 million maximum loan amount limitation
applies to each eligible business entity, because
individual business entities cannot apply for more
than one loan. The following examples illustrate
how these principles apply.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(iv) WAIVER OF
AFFILIATION RULES.—During the covered period,
the provisions applicable to affiliations under
section 121.103 of title 13, Code of Federal
Regulations, or any successor regulation, are
waived with respect to eligibility for a covered
loan for—
"(I) any business concern with not more than
500 employees that, as of the date on which the
covered loan is disbursed, is assigned a North
American Industry Classification System code
beginning with 72;
"(II) any business concern operating as a
franchise that is assigned a franchise identifier
code by the Administration; and
"(III) any business concern that receives
financial assistance from a company licensed
under section 301 of the Small Business
Investment Act of 1958 (15 U.S.C. 681).
IFR2 Section III. Affiliate Rules for Paycheck
Protection Program
1. Affiliation Rules Generally
Are affiliates considered together for purposes of
determining eligibility?
In most cases, a borrower will be considered
together with its affiliates for purposes of
determining eligibility for the PPP.
Section 7(a)(36)(D)(iv) of the Small Business Act
(15 U.S.C. 636(a)(36)(D)(iv), as added by the Act,
waives the affiliation rules contained in § 121.103
for (1) any business concern with not more than
500 employees that, as of the date on which the
loan is disbursed, is assigned a North American
Industry Classification System code beginning
with 72; (2) any business concern operating as a
franchise that is assigned a franchise identifier
code by the Administration; and (3) any business
concern that receives financial assistance from a
company licensed under section 301 of the Small
Business Investment Act of 1958 (15 U.S.C. 681).
This Interim Final Rule has no effect on these
statutory waivers, which remain in full force and
effect. As a result, the affiliation rules contained in
section 121.301 also do not apply to these types of
entities.
FAQ # 23: How do the $10 million cap and
affiliation rules work for franchises?
Answer: If a franchise brand is listed on the SBA
Franchise Directory, each of its franchisees that
meets the applicable size standard can apply for a
PPP loan. (The franchisor does not apply on behalf
of its franchisees.) The $10 million cap on PPP
loans is a limit per franchisee entity, and each
franchisee is limited to one PPP loan.
Franchise brands that have been denied listing on
the Directory because of affiliation between
franchisor and franchisee may request listing to
receive PPP loans. SBA will not apply affiliation
rules to a franchise brand requesting listing on the
Directory to participate in the PPP, but SBA will
confirm that the brand is otherwise eligible for
listing on the Directory.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(v) EMPLOYEE.—For
purposes of determining whether a business
concern, nonprofit organization, veterans
organization, or Tribal business concern described
in section 31(b)(2)(C) employs not more than 500
employees under clause (i)(I), the term 'employee'
includes individuals employed on a full-time, part-
time, or other basis.
IFR2 Section III(3) § 121.103 How does SBA
determine affiliation?"
In addition, the eligibility criteria set forth in 15
U.S.C. 636(a)(36)(D) are satisfied for any faith
based organization having not more than 500
employees (including individuals employed on a
full-time, part-time, or other basis) that pays
federal payroll taxes using its own Internal
Revenue Service Employer Identification Number
(EIN) or that would be eligible for a deduction
under the second sentence of 26 U.S.C. 512(b)(12)
if the organization earned unrelated business
taxable income.
FAQ 36: To determine borrower eligibility under
the 500-employee or other applicable threshold
established by the CARES Act, must a borrower
count all employees or only full-time equivalent
employees?
Answer: For purposes of loan eligibility, the
CARES Act defines the term employee to include
"individuals employed on a full-time, part-time, or
other basis." A borrower must therefore calculate
the total number of employees, including part-
time employees, when determining their
employee headcount for purposes of the eligibility
threshold. For example, if a borrower has 200 full-
time employees and 50 part-time employees each
working 10 hours per week, the borrower has a
total of 250 employees. By contrast, for purposes
of loan forgiveness, the CARES Act uses the
standard of "fulltime equivalent employees" to
determine the extent to which the loan forgiveness
amount will be reduced in the event of workforce
reductions.
15
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(vi) AFFILIATION.—The
provisions applicable to affiliations under section
121.103 of title 13, Code of Federal Regulations, or
any successor thereto, shall apply with respect to a
nonprofit organization and a veterans
organization in the same manner as with respect
to a small business concern.
IFR2 Section III(1) How do SBA's affiliation rules
affect my eligibility and apply to me under the
PPP?
The Act made such nonprofit organizations not
only eligible for the PPP, but also subjected them
to SBA's affiliation rules. Specifically, section 1102
of the Act provides that the provisions applicable
to affiliations under 13 CFR 121.103 apply with
respect to nonprofit organizations and veterans
organizations in the same manner as with respect
to small business concerns. However, the detailed
affiliation standards contained in section 121.103
currently do not apply to PPP borrowers, because
section 121.103(a)(8) provides that applicants in
SBA's Business Loan Programs (which include the
PPP) are subject to the affiliation rule contained in
13 CFR 121.301.
FAQ 3: Does my business have to qualify as a small
business concern (as defined in section 3 of the
Small Business Act, 15 U.S.C. 632) in order to
participate in the PPP?
Answer: In addition to small business concerns, a
business is eligible for a PPP loan if the business
has 500 or fewer employees whose principal place
of residence is in the United States, or the business
meets the SBA employee-based size standards for
the industry in which it operates (if applicable).
Similarly, PPP loans are also available for
qualifying tax-exempt nonprofit organizations
described in section 501(c)(3) of the Internal
Revenue Code (IRC), tax-exempt veterans
organization described in section 501(c)(19) of
the IRC, and Tribal business concerns described in
section 31(b)(2)(C) of the Small Business Act that
have 500 or fewer employees whose principal
place of residence is in the United States, or meet
the SBA employee-based size standards for the
industry in which they operate.
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PageID 1462
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(E) MAXIMUM LOAN
AMOUNT.—During the covered period, with
respect to a covered loan, the maximum loan
amount shall be the lesser of—
"(i)(I) the sum of—
"(aa) the product obtained by multiplying—
"(AA) the average total monthly payments by
the applicant for payroll costs incurred during
the 1-year period before the date on which the
loan is made, except that, in the case of an
applicant that is seasonal employer, as
determined by the Administrator, the average
total monthly payments for payroll shall be for
the 12-week period beginning February 15,
2019, or at the election of the eligible recipient,
March 1, 2019, and ending June 30, 2019; by
"(BB) 2.5; and
"(bb) the outstanding amount of a loan under
subsection (b)(2) that was made during the
period beginning on January 31, 2020 and
ending on the date on which covered loans are
made available to be refinanced under the
covered loan; or
IFR1 Section III(2)d. I have determined that I am
eligible. How much can I borrow?
Under the PPP, the maximum loan amount is the
lesser of $10 million or an amount that you will
calculate using a payroll-based formula specified
in the Act, as explained below.
Section III(2)e. How do I calculate the maximum
amount I can borrow?
The following methodology, which is one of the
methodologies contained in the Act, will be most
useful for many applicants.
i. Step 1: Aggregate payroll costs (defined in
detail below in f.) from the last twelve months
for employees whose principal place of residence
is the United States.
ii. Step 2: Subtract any compensation paid to an
employee in excess of an annual salary of
$100,000 and/or any amounts paid to an
independent contractor or sole proprietor in
excess of $100,000 per year.
iii. Step 3: Calculate average monthly payroll
costs (divide the amount from Step 2 by 12).
iv. Step 4: Multiply the average monthly payroll
costs from Step 3 by 2.5.
v. Step 5: Add the outstanding amount of an
Economic Injury Disaster Loan (EIDL) made
between January 31, 2020 and April 3, 2020, less
the amount of any "advance" under an EIDL
COVID–19 loan (because it does not have to be
repaid).
FAQ 9: My small business is a seasonal business
whose activity increases from April to June.
Considering activity from that period would be a
more accurate reflection of my business's
operations. However, my small business was not
fully ramped up on February 15, 2020. Am I still
eligible?
Answer: In evaluating a borrower's eligibility, a
lender may consider whether a seasonal borrower
was in operation on February 15, 2020 or for an 8-
week period between February 15, 2019 and June
30, 2019.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
(II) if requested by an otherwise eligible
recipient that was not in business during the
period beginning on February 15, 2019 and
ending on June 30, 2019, the sum of—
"(aa) the product obtained by multiplying—
"(AA) the average total monthly payments by
the applicant for payroll costs incurred during
the period beginning on January 1, 2020 and
ending on February 29, 2020; by
"(BB) 2.5; and
"(bb) the outstanding amount of a loan under
subsection (b)(2) that was made during the
period beginning on January 31, 2020 and
ending on the date on which covered loans are
made available to be refinanced under the
covered loan; or
"(ii) $10,000,000.
(Continued from previous page)
FAQ 14: What time period should borrowers use
to determine their number of employees and
payroll costs to calculate their maximum loan
amounts?
Answer: In general, borrowers can calculate their
aggregate payroll costs using data either from the
previous 12 months or from calendar year 2019.
For seasonal businesses, the applicant may use
average monthly payroll for the period between
February 15, 2019, or March 1, 2019, and June 30,
2019. An applicant that was not in business from
February 15, 2019 to June 30, 2019 may use the
average monthly payroll costs for the period
January 1, 2020 through February 29, 2020.
Borrowers may use their average employment
over the same time periods to determine their
number of employees, for the purposes of
applying an employee-based size standard.
Alternatively, borrowers may elect to use SBA's
usual calculation: the average number of
employees per pay period in the 12 completed
calendar months prior to the date of the loan
application (or the average number of employees
for each of the pay periods that the business has
been operational, if it has not been operational for
12 months).
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F) ALLOWABLE USES OF
COVERED LOANS.—
"(i) IN GENERAL.—During the covered period,
an eligible recipient may, in addition to the
allowable uses of a loan made under this
subsection, use the proceeds of the covered loan
for—
"(I) payroll costs;
"(II) costs related to the continuation of group
health care benefits during periods of paid sick,
medical, or family leave, and insurance
premiums;
"(III) employee salaries, commissions, or
similar compensations;
"(IV) payments of interest on any mortgage
obligation (which shall not include any
prepayment of or payment of principal on a
mortgage obligation);
"(V) rent (including rent under a lease
agreement);
"(VI) utilities; and
"(VII) interest on any other debt obligations
that were incurred before the covered period.
IFR1 Section III(2)r.
The proceeds of a PPP loan are to be used for:
i. payroll costs (as defined in the Act and in 2.f.);
ii. costs related to the continuation of group
health care benefits during periods of paid sick,
medical, or family leave, and insurance
premiums;
iii. mortgage interest payments (but not
mortgage prepayments or principal payments);
iv. rent payments;
v. utility payments;
vi. interest payments on any other debt
obligations that were incurred before February
15, 2020; and/or
vii. refinancing an SBA EIDL loan made between
January 31, 2020 and April 3, 2020. If you
received an SBA EIDL loan from January 31,
2020 through April 3, 2020, you can apply for a
PPP loan. If your EIDL loan was not used for
payroll costs, it does not affect your eligibility for
a PPP loan. If your EIDL loan was used for
payroll costs, your PPP loan must be used to
refinance your 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, at least 75 percent of the PPP loan
proceeds shall be used for payroll costs.
FAQ 7: The CARES Act excludes from the definition
of payroll costs any employee compensation in
excess of an annual salary of $100,000. Does that
exclusion apply to all employee benefits of
monetary value?
Answer: No. The exclusion of compensation in
excess of $100,000 annually applies only to cash
compensation, not to non-cash benefits, including:
- employer contributions to defined-benefit or
defined-contribution retirement plans;
- payment for the provision of employee benefits
consisting of group health care coverage, including
insurance premiums; and
- payment of state and local taxes assessed on
compensation of employees.
FAQ 8: Do PPP loans cover paid sick leave?
Answer: Yes. PPP loans covers payroll costs,
including costs for employee vacation, parental,
family, medical, and sick leave. However, the
CARES Act excludes qualified sick and family leave
wages for which a credit is allowed under sections
7001 and 7003 of the Families First Coronavirus
Response Act (Public Law 116–127). Learn more
about the Paid Sick Leave Refundable Credit here.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
(Continued from previous page)
(Continued from previous page)
FAQ 15: Should payments that an eligible
borrower made to an independent contractor or
sole proprietor be included in calculations of the
eligible borrower's payroll costs?
Answer: No. Any amounts that an eligible
borrower has paid to an independent contractor
or sole proprietor should be excluded from the
eligible business's payroll costs. However, an
independent contractor or sole proprietor will
itself be eligible for a loan under the PPP, if it
satisfies the applicable requirements.
FAQ 32: Does the cost of a housing stipend or
allowance provided to an employee as part of
compensation count toward payroll costs?
Answer: Yes. Payroll costs includes all cash
compensation paid to employees, subject to the
$100,000 annual compensation per employee
limitation.
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PageID 1466
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F)(ii) DELEGATED
AUTHORITY.—
"(I) IN GENERAL.—For purposes of making
covered loans for the purposes described in
clause (i), a lender approved to make loans
under this subsection shall be deemed to have
been delegated authority by the Administrator to
make and approve covered loans, subject to the
provisions of this paragraph.
"(II) CONSIDERATIONS.—In evaluating the
eligibility of a borrower for a covered loan with
the terms described in this paragraph, a lender
shall consider whether the borrower—
"(aa) was in operation on February 15, 2020;
and
"(bb)(AA) had employees for whom the
borrower paid salaries and payroll taxes; or
"(BB) paid independent contractors, as
reported on a Form 1099–MISC.
IFR1 Section III(3)a. Who is eligible to make PPP
loans?
i. All SBA 7(a) lenders are automatically
approved to make PPP loans on a delegated
basis.
ii. The Act provides that the authority to make
PPP loans can be extended to additional lenders
determined by the Administrator and the
Secretary to have the necessary qualifications to
process, close, disburse, and service loans made
with the SBA guarantee. Since SBA is authorized
to make PPP loans up to $349 billion by June 30,
2020, the Administrator and the Secretary have
jointly determined that authorizing additional
lenders is necessary to achieve the purpose of
allowing as many eligible borrowers as possible
to receive loans by the June 30, 2020 deadline.
We did not identify any FAQ that related directly
to this requirement.
21
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F)(iii) ADDITIONAL
LENDERS.—The authority to make loans under
this paragraph shall be extended to additional
lenders determined by the Administrator and the
Secretary of the Treasury to have the necessary
qualifications to process, close, disburse and
service loans made with the guarantee of the
Administration.
IFR1 Section III(3)(a)(iii). The following types of
lenders have been determined to meet the criteria
and are eligible to make PPP loans unless they
currently are designated in Troubled Condition by
their primary Federal regulator or are subject to a
formal enforcement action with their primary
Federal regulator that addresses unsafe or
unsound lending practices:
I. Any federally insured depository institution or
any federally insured credit union;
II. Any Farm Credit System institution (other
than the Federal Agricultural Mortgage
Corporation) as defined in 12 U.S.C. 2002(a) that
applies the requirements under the Bank Secrecy
Act and its implementing regulations (collectively,
BSA) as a federally regulated financial institution,
or functionally equivalent requirements that are
not altered by this rule; and
III. Any depository or non-depository financing
provider that originates, maintains, and services
business loans or other commercial financial
receivables and participation interests; has a
formalized compliance program; applies the
requirements under the BSA as a federally
regulated financial institution, or the BSA
requirements of an equivalent federally regulated
financial institution; has been operating since at
least February 15, 2019, and has originated,
maintained, and serviced more than $50 million in
business loans or other commercial financial
receivables during a consecutive 12 month period
in the past 36 months, or is a service provider to
any insured depository institution that has a
FAQ 22: I am a non-bank lender that meets all
applicable criteria of the PPP Interim Final Rule.
Will I be automatically enrolled as a PPP lender?
What criteria will SBA and the Treasury
Department use to assess whether to approve my
application to participate as a PPP lender?
Answer: We encourage lenders that are not
currently 7(a) lenders to apply in order to
increase the scope of PPP lending options and the
speed with which PPP loans can be disbursed to
help small businesses across America. We
recognize that financial technology solutions can
promote efficiency and financial inclusion in
implementing the PPP. Applicants should submit
SBA Form 3507 and the relevant attachments to
NFRLApplicationForPPP@sba.gov. Submission of
the SBA Form 3507 does not result in automatic
enrollment in the PPP. SBA and the Treasury
Department will evaluate each application from a
non-bank or non-insured depository institution
lender and determine whether the applicant has
the necessary qualifications to process, close,
disburse, and service PPP loans made with SBA's
guarantee. SBA may request additional
information from the applicant before making a
determination.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
(Continued from previous page)
contract to support such institution's lending
activities in accordance with 12 U.S.C. 1867(c) and
is in good standing with the appropriate Federal
banking agency.
(Continued from previous page)
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F)(iv) REFINANCE.—A loan
made under subsection (b)(2) during the period
beginning on January 31, 2020 and ending on the
date on which covered loans are made available
may be refinanced as part of a covered loan.
IFR1 Section III(2)(r)vii. Refinancing an SBA EIDL
loan made between January 31, 2020 and April 3,
2020. If you received an SBA EIDL loan from
January 31, 2020 through April 3, 2020, you can
apply for a PPP loan. If your EIDL loan was not
used for payroll costs, it does not affect your
eligibility for a PPP loan. If your EIDL loan was
used for payroll costs, your PPP loan must be used
to refinance your 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.
We did not identify any FAQ that related directly
to this requirement.
24
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F)(v) NONRECOURSE.—
Notwithstanding the waiver of the personal
guarantee requirement or collateral under
subparagraph (J), the Administrator shall have no
recourse against any individual shareholder,
member, or partner of an eligible recipient of a
covered loan for nonpayment of any covered loan,
except to the extent that such shareholder,
member, or partner uses the covered loan
proceeds for a purpose not authorized under
clause (i).
IFR1 Section III(2)s. What happens if PPP loan
funds are misused?
If you use PPP funds for unauthorized purposes,
SBA will direct you to repay those amounts. If you
knowingly use the funds for unauthorized
purposes, you will be subject to additional liability
such as charges for fraud. If one of your
shareholders, members, or partners uses PPP
funds for unauthorized purposes, SBA will have
recourse against the shareholder, member, or
partner for the unauthorized use.
We did not identify any FAQ that related directly
to this requirement.
25
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(G) BORROWER
REQUIREMENTS.—
"(i) CERTIFICATION.—An eligible recipient
applying for a covered loan shall make a good
faith certification—
"(I) that the uncertainty of current economic
conditions makes necessary the loan request to
support the ongoing operations of the eligible
recipient;
"(II) acknowledging that funds will be used to
retain workers and maintain payroll or make
mortgage payments, lease payments, and utility
payments;
"(III) that the eligible recipient does not have
an application pending for a loan under this
subsection for the same purpose and
duplicative of amounts applied for or received
under a covered loan; and
"(IV) during the period beginning on February
15, 2020 and ending on December 31, 2020,
that the eligible recipient has not received
amounts under this subsection for the same
purpose and duplicative of amounts applied for
or received under a covered loan.
IFR1 Section III(2)t. What certifications need to be
made?
On the Paycheck Protection Program application,
an authorized representative of the applicant must
certify in good faith to all of the below:
i. The applicant was in operation on February
15, 2020 and had employees for whom it paid
salaries and payroll taxes or paid independent
contractors, as reported on a Form 1099–MISC.
ii. Current economic uncertainty makes this
loan request necessary to support the ongoing
operations of the Applicant.
iii. The funds will be used to retain workers
and maintain payroll or make mortgage interest
payments, lease payments, and utility payments;
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. As explained above, not
more than 25 percent of loan proceeds may be
used for non-payroll costs.
vi. During the period beginning on February
15, 2020 and ending on December 31, 2020, the
applicant has not and will not receive another
loan under this program.
Note: For brevity, we excluded certifications iv, v,
vii, and viii from the Interim Final Rule.
FAQ 31: Do businesses owned by large companies
with adequate sources of liquidity to support the
business's ongoing operations qualify for a PPP
loan?
Answer: In addition to reviewing applicable
affiliation rules to determine eligibility, all
borrowers must assess their economic need for a
PPP loan under the standard established by the
CARES Act and the PPP regulations at the time of
the loan application. Although the CARES Act
suspends the ordinary requirement that
borrowers must be unable to obtain credit
elsewhere (as defined in section 3(h) of the Small
Business Act), borrowers still must certify in good
faith that their PPP loan request is necessary.
Specifically, before submitting a PPP application,
all borrowers should review carefully the required
certification that "[c]urrent economic uncertainty
makes this loan request necessary to support the
ongoing operations of the Applicant." Borrowers
must make this certification in good faith, taking
into account their current business activity and
their ability to access other sources of liquidity
sufficient to support their ongoing operations in a
manner that is not significantly detrimental to the
business.
Note: For brevity, we limited the text above to
sections of the answer to FAQ 31 related to this
topic.
26
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PageID 1472
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(H) FEE WAIVER.—During the
covered period, with respect to a covered loan—
"(i) in lieu of the fee otherwise applicable under
paragraph (23)(A), the Administrator shall
collect no fee; and
"(ii) in lieu of the fee otherwise applicable
under paragraph (18)(A), the Administrator
shall collect no fee.
IFR1 Section III(4)b. Are there any fee waivers?
i. There will be no up-front guarantee fee
payable to SBA by the Borrower;
ii. There will be no lender's annual service fee
("on-going guaranty fee") payable to SBA;
iii. There will be no subsidy recoupment fee;
and
iv. There will be no fee payable to SBA for any
guarantee sold into the secondary market.
We did not identify any FAQ that related directly
to this requirement.
Section 1102(a)(2)(I) CREDIT ELSEWHERE.—
During the covered period, the requirement that a
small business concern is unable to obtain credit
elsewhere, as defined in section 3(h), shall not
apply to a covered loan.
Section III(3)e. Do lenders have to apply the
"credit elsewhere test"?
No. When evaluating an applicant's eligibility
lenders will not be required to apply the "credit
elsewhere test" (as set forth in section 7(a)(1)(A)
of the Small Business Act (15 U.S.C. 636) and SBA
regulations at 13 CFR 120.101)).
FAQ 31: Do businesses owned by large companies
with adequate sources of liquidity to support the
business's ongoing operations qualify for a PPP
loan?
Answer: Although the CARES Act suspends the
ordinary requirement that borrowers must be
unable to obtain credit elsewhere (as defined in
section 3(h) of the Small Business Act), borrowers
still must certify in good faith that their PPP loan
request is necessary.
Note: For of brevity, we limited the text above to
sections of the answer to FAQ 31 related to this
topic.
27
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 29 of 40
PageID 1473
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(J) WAIVER OF PERSONAL
GUARANTEE REQUIREMENT.— During the
covered period, with respect to a covered loan—
"(i) no personal guarantee shall be required for
the covered loan; and
"(ii) no collateral shall be required for the
covered loan.
IFR1 Section III(4)a. What are the loan terms and
conditions?
Loans will be guaranteed under the PPP under
the same terms, conditions and processes as other
7(a) loans, with certain changes including but not
limited to:
i. The guarantee percentage is 100 percent.
ii. No collateral will be required.
iii. No personal guarantees will be required.
iv. The interest rate will be 100 basis points or
one percent.
v. All loans will be processed by all lenders
under delegated authority and lenders will be
permitted to rely on certifications of the
borrower in order to determine eligibility of the
borrower and the use of loan proceeds.
We did not identify any FAQ that related directly
to this requirement.
28
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PageID 1474
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(K) MATURITY FOR LOANS
WITH REMAINING BALANCE AFTER
APPLICATION OF FORGIVENESS.—With respect to
a covered loan that has a remaining balance after
reduction based on the loan forgiveness amount
under section 1106 of the CARES Act—
"(i) the remaining balance shall continue to be
guaranteed by the Administration under this
subsection; and
"(ii) the covered loan shall have a maximum
maturity of 10 years from the date on which the
borrower applies for loan forgiveness under that
section.
IFR1 Section III(2)j. What will be the maturity date
on a PPP loan?
The maturity is two years. While the Act
provides that a loan will have a maximum
maturity of up to ten years from the date the
borrower applies for loan forgiveness (described
below), the Administrator, in consultation with the
Secretary, determined that a two year loan term is
sufficient in light of the temporary economic
dislocations caused by the coronavirus.
Specifically, the considerable economic disruption
caused by the coronavirus is expected to abate
well before the two year maturity date such that
borrowers will be able to re-commence business
operations and pay off any outstanding balances
on their PPP loans.
We did not identify any FAQ that related directly
to this requirement.
29
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 31 of 40
PageID 1475
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(L) INTEREST RATE
REQUIREMENTS.—A covered loan shall bear an
interest rate not to exceed 4 percent.
IFR1 Section III(2)i. What is the interest rate on a
PPP loan?
The interest rate will be 100 basis points or one
percent.
The Administrator, in consultation with the
Secretary, determined that a one percent interest
rate is appropriate. First, it provides low cost
funds to borrowers to meet eligible payroll costs
and other eligible expenses during this temporary
period of economic dislocation caused by the
coronavirus. Second, for lenders, the 100 basis
points offers an attractive interest rate relative to
the cost of funding for comparable maturities. For
example, the FDIC's weekly national average rate
for a 24-month CD deposit product for the week of
March 30, 2020 is 42 basis points for non-jumbo
and 44 basis points for jumbo
(https://www.fdic.gov/regulations/resources/rat
es/). Third, the interest rate is higher than the
yield on Treasury securities of comparable
maturity. For example, the yield on the Treasury
two-year note is approximately 23 basis points.
This higher yield combined with the fact that the
loans are 100 percent guaranteed by the SBA and
the fact that lenders will receive a substantial
processing fee from the SBA provide ample
inducement for lenders to participate in the PPP.
We did not identify any FAQ that related directly
to this requirement.
30
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 32 of 40
PageID 1476
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(M) LOAN DEFERMENT.—
"(i) DEFINITION OF IMPACTED BORROWER.—
"(I) IN GENERAL.—In this subparagraph, the
term 'impacted borrower' means an eligible
recipient that—
"(aa) is in operation on February 15, 2020;
and
"(bb) has an application for a covered loan
that is approved or pending approval on or
after the date of enactment of this paragraph.
"(II) PRESUMPTION.—For purposes of this
subparagraph, an impacted borrower is
presumed to have been adversely impacted by
COVID–19.
"(ii) DEFERRAL.—During the covered period,
the Administrator shall—
"(I) consider each eligible recipient that
applies for a covered loan to be an impacted
borrower; and
"(II) require lenders under this subsection to
provide complete payment deferment relief for
impacted borrowers with covered loans for a
period of not less than 6 months, including
payment of principal, interest, and fees, and not
more than 1 year.
IFR1 Section III(2)n. When will I have to begin
paying principal and interest on my PPP loan?
You will not have to make any payments for six
months following the date of disbursement of the
loan. However, interest will continue to accrue on
PPP loans during this six-month deferment. The
Act authorizes the Administrator to defer loan
payments for up to one year. The Administrator
determined, in consultation with the Secretary,
that a six-month deferment period is appropriate
in light of the modest interest rate (one percent)
on PPP loans and the loan forgiveness provisions
contained in the Act.
We did not identify any FAQ that related directly
to this requirement.
31
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 33 of 40
PageID 1477
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(M)(iii) SECONDARY
MARKET.—During the covered period, with
respect to a covered loan that is sold on the
secondary market, if an investor declines to
approve a deferral requested by a lender under
clause (ii), the Administrator shall exercise the
authority to purchase the loan so that the
impacted borrower may receive a deferral for a
period of not less than 6 months, including
payment of principal, interest, and fees, and not
more than 1 year.
We did not identify any requirements in the
Interim Final Rules issued to date that related
directly to this requirement.
We did not identify any FAQ that related directly
to this requirement.
Section 1102(a)(2)(M)(iv) GUIDANCE.—Not later
than 30 days after the date of enactment of this
paragraph, the Administrator shall provide
guidance to lenders under this paragraph on the
deferment process described in this
subparagraph.
We did not identify any requirements in the
Interim Final Rules issued to date that related
directly to this requirement.
We did not identify any FAQ that related directly
to this requirement.
32
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 34 of 40
PageID 1478
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(N) SECONDARY MARKET
SALES.—A covered loan shall be eligible to be sold
in the secondary market consistent with this
subsection. The Administrator may not collect any
fee for any guarantee sold into the secondary
market under this subparagraph.
IFR1 Section III(4)b. Are there any fee waivers?
iv. There will be no fee payable to SBA for any
guarantee sold into the secondary market.
IFR1 Section III(4)d. Can PPP loans be sold into
the secondary market?
Yes. A PPP loan may be sold on the secondary
market after the loan is fully disbursed. A PPP loan
may be sold on the secondary market at a
premium or a discount to par value. SBA will issue
guidance regarding any advance purchase for
loans sold in the secondary market.
FAQ 30: Can a lender sell a PPP loan into the
secondary market?
Answer: Yes. A PPP loan may be sold into the
secondary market at any time after the loan is fully
disbursed. A secondary market sale of a PPP loan
does not require SBA approval. A PPP loan sold
into the secondary market is 100% SBA
guaranteed. A PPP loan may be sold on the
secondary market at a premium or a discount to
par value.
33
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 35 of 40
PageID 1479
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(O) REGULATORY CAPITAL
REQUIREMENTS.—
"(i) RISK WEIGHT.—With respect to the
appropriate Federal banking agencies or the
National Credit Union Administration Board
applying capital requirements under their
respective risk-based capital requirements, a
covered loan shall receive a risk weight of zero
percent.
"(ii) TEMPORARY RELIEF FROM TDR
DISCLOSURES.—Notwithstanding any other
provision of law, an insured depository
institution or an insured credit union that
modifies a covered loan in relation to COVID–19-
related difficulties in a troubled debt
restructuring on or after March 13, 2020, shall
not be required to comply with the Financial
Accounting Standards Board Accounting
Standards Codification Subtopic 310–40
('Receivables – Troubled Debt Restructurings by
Creditors') for purposes of compliance with the
requirements of the Federal Deposit Insurance
Act (12 U.S.C. 1811 et seq.), until such time and
under such circumstances as the appropriate
Federal banking agency or the National Credit
Union Administration Board, as applicable,
determines appropriate.
We did not identify any requirements in the
Interim Final Rules issued to date that related
directly to this requirement.
We did not identify any FAQ that related directly
to this requirement.
34
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 36 of 40
PageID 1480
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(P) REIMBURSEMENT FOR
PROCESSING.—
"(i) IN GENERAL.—The Administrator shall
reimburse a lender authorized to make a covered
loan at a rate, based on the balance of the
financing outstanding at the time of
disbursement of the covered loan, of—
"(I) 5 percent for loans of not more than
$350,000;
"(II) 3 percent for loans of more than
$350,000 and less than $2,000,000; and
"(III) 1 percent for loans of not less than
$2,000,000.
"(ii) FEE LIMITS.—An agent that assists an
eligible recipient to prepare an application for a
covered loan may not collect a fee in excess of
the limits established by the Administrator.
"(iii) TIMING.—A reimbursement described in
clause (i) shall be made not later than 5 days
after the disbursement of the covered loan.
IFR1 Section III(3)d. What fees will lenders be
paid?
SBA will pay lenders fees for processing PPP loans
in the following amounts:
i. Five (5) percent for loans of not more than
$350,000;
ii. Three (3) percent for loans of more than
$350,000 and less than $2,000,000; and
iii. One (1) percent for loans of at least
$2,000,000.
IFR1 Section III(4)c. Who pays the fee to an agent
who assists a borrower?
Agent fees will be paid by the lender out of the
fees the lender receives from SBA. Agents may not
collect fees from the borrower or be paid out of
the PPP loan proceeds. 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:
i. One (1) percent for loans of not more than
$350,000;
ii. 0.50 percent for loans of more than $350,000
and less than $2 million; and
iii. 0.25 percent for loans of at least $2 million.
The Act authorizes the Administrator to establish
limits on agent fees. The Administrator, in
consultation with the Secretary, determined that
the agent fee limits set forth above are reasonable
We did not identify any FAQ that related directly
to this requirement.
35
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 37 of 40
PageID 1481
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
(Continued from previous page)
based upon the application requirements and the
fees that lenders receive for making PPP loans.
(Continued from previous page)
36
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 38 of 40
PageID 1482
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(P)(iv) SENSE OF THE
SENATE.—It is the sense of the Senate that the
Administrator should issue guidance to lenders
and agents to ensure that the processing and
disbursement of covered loans prioritizes small
business concerns and entities in underserved and
rural markets, including veterans and members of
the military community, small business concerns
owned and controlled by socially and
economically disadvantaged individuals (as
defined in section 8(d)(3)(C)), women, and
businesses in operation for less than 2 years.
Note: This citation is the same as 637(d)(3)( C).
IFR1 Section III(2)m. Is the PPP "first-come, first-
served?"
Yes.
We did not identify any FAQ that related directly
to this requirement.
37
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 39 of 40
PageID 1483
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(Q) DUPLICATION.—Nothing in
this paragraph shall prohibit a recipient of an
economic injury disaster loan made under
subsection (b)(2) during the period beginning on
January 31, 2020 and ending on the date on which
covered loans are made available that is for a
purpose other than paying payroll costs and other
obligations described in subparagraph (F) from
receiving assistance under this paragraph.
Section 1102(a)(2)(R) WAIVER OF PREPAYMENT
PENALTY.—Notwithstanding any other provision
of law, there shall be no prepayment penalty for
any payment made on a covered loan.".
IFR1 Section III(2)(r)vii. How can PPP loans be
used?
Refinancing an SBA EIDL loan made between
January 31, 2020 and April 3, 2020. If you received
an SBA EIDL loan from January 31, 2020 through
April 3, 2020, you can apply for a PPP loan. If your
EIDL loan was not used for payroll costs, it does
not affect your eligibility for a PPP loan. If your
EIDL loan was used for payroll costs, your PPP
loan must be used to refinance your EIDL loan.
We did not identify any FAQ that related directly
to this requirement.
38
Case 2:20-cr-00114-JES-M_M Document 137-11 Filed 03/31/21 Page 40 of 40
PageID 1484
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(b) COMMITMENTS FOR 7(A)
LOANS.—During the period beginning on
February 15, 2020 and ending on June 30, 2020—
(1) the amount authorized for commitments for
general business loans authorized under section
7(a) of the Small Business Act (15 U.S.C. 636(a)),
including loans made under paragraph (36) of
such section, as added by subsection (a), shall be
$349,000,000,000; and
IFR1 Section III.(1) General- SBA is authorized to
guarantee loans under the PPP through June 30,
2020. Congress authorized a program level of
$349,000,000,000 to provide guaranteed loans
under this new 7(a) program.
We did not identify any FAQ that related directly
to this requirement.
39


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