Business Loan Program Temporary Changes; Paycheck Protection Program — Additional Eligibility Criteria and Requirements for Certain Pledges of Loans

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Summary

An interim final rule of the U.S. Small Business Administration, Business Loan Program Temporary Changes; Paycheck Protection Program—Additional Eligibility Criteria and Requirements for Certain Pledges of Loans, 13 CFR Part 120, Docket Number SBA-2020-0020, RIN 3245-AH36, published in the Federal Register of April 20, 2020. The rule supplements the First PPP Interim Final Rule posted April 2, 2020, which implemented sections 1102 and 1106 of the CARES Act, Pub. L. 116-136, and adds guidance for individuals with self-employment income who file a Form 1040, Schedule C. It also addresses eligibility for certain business concerns and requirements for certain pledges of PPP loans. The rule is effective April 20, 2020, applies to applications submitted through June 30, 2020 or until funds are exhausted, and sets a comment date of May 20, 2020.

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21747 
Federal Register / Vol. 85, No. 76 / Monday, April 20, 2020 / Rules and Regulations 
Where: 
m˙ SD = dry air mass flow rate of infiltration 
air for single-duct portable air 
conditioners, in pounds per minute (lb/ 
m). 
m˙ 95 and m˙ 83 = dry air mass flow rate of 
infiltration air for dual-duct portable air 
conditioners, as calculated based on 
testing according to the test conditions in 
Table 1 of this appendix, in lb/m. 
Vco_SD, Vco_95, and Vco_83 = average 
volumetric flow rate of the condenser 
outlet air during cooling mode testing for 
single-duct portable air conditioners; and 
at the 95 °F and 83 °F dry-bulb outdoor 
conditions for dual-duct portable air 
conditioners, respectively, in cubic feet 
per minute (cfm). 
Vci_95 and Vci_83 = average volumetric flow 
rate of the condenser inlet air during 
cooling mode testing at the 95 °F and 
83 °F dry-bulb outdoor conditions for 
dual-duct portable air conditioners, 
respectively, in cfm. 
rco_SD, rco_95, and rco_83 = average density of 
the condenser outlet air during cooling 
mode testing for single-duct portable air 
conditioners, and at the 95 °F and 83 °F 
dry-bulb outdoor conditions for dual- 
duct portable air conditioners, 
respectively, in pounds mass per cubic 
foot (lbm/ft3). 
rci_95 and rci_83 = average density of the 
condenser inlet air during cooling mode 
testing at the 95 °F and 83 °F dry-bulb 
outdoor conditions for dual-duct 
portable air conditioners, respectively, in 
lbm/ft3. 
wco_SD, wco_95, and wco_83 = average humidity 
ratio of condenser outlet air during 
cooling mode testing for single-duct 
portable air conditioners, and at the 95 °F 
and 83 °F dry-bulb outdoor conditions 
for dual-duct portable air conditioners, 
respectively, in pounds mass of water 
vapor per pounds mass of dry air (lbw/ 
lbda). 
wci_95 and wci_83 = average humidity ratio of 
condenser inlet air during cooling mode 
testing at the 95 °F and 83 °F dry-bulb 
outdoor conditions for dual-duct 
portable air conditioners, respectively, in 
lbw/lbda. 
For single-duct and dual-duct portable air 
conditioners, calculate the sensible 
component of infiltration air heat 
contribution according to: 
Qs_95 = m˙ × 60 × [(cp_da × (Tia_95¥Tindoor)) + 
(cp_wv × (wia_95 × Tia_95¥windoor × Tindoor))] 
Qs_83 = m˙ × 60 × [(cp_da × (Tia_83¥Tindoor)) + 
(cp_wv × (wia_83 × Tia_83¥windoor × Tindoor))] 
Where: 
Qs_95 and Qs_83 = sensible heat added to the 
room by infiltration air, calculated at the 
95 °F and 83 °F dry-bulb outdoor 
conditions in Table 1 of this appendix, 
in Btu/h. 
m˙ = dry air mass flow rate of infiltration air, 
m˙ SD or m˙ 95 when calculating Qs_95 and 
m˙ SD or m˙ 83 when calculating Qs_83, in lb/ 
m. 
cp_da = specific heat of dry air, 0.24 Btu/lbm- 
°F. 
cp_wv = specific heat of water vapor, 0.444 
Btu/lbm-°F. 
Tindoor = indoor chamber dry-bulb 
temperature, 80 °F. 
Tia_95 and Tia_83 = infiltration air dry-bulb 
temperatures for the two test conditions 
in Table 1 of this appendix, 95 °F and 
83 °F, respectively. 
wia_95 and wia_83 = humidity ratios of the 
95 °F and 83 °F dry-bulb infiltration air, 
0.0141 and 0.01086 lbw/lbda, 
respectively. 
windoor = humidity ratio of the indoor chamber 
air, 0.0112 lbw/lbda. 
60 = conversion factor from minutes to hours. 
Calculate the latent heat contribution of the 
infiltration air according to: 
Ql_95 = m˙ × 60 × Hfg × (wia_95¥windoor) 
Ql_83 = m˙ × 60 × Hfg × (wia_83¥windoor) 
Where: 
Ql_95 and Ql_83 = latent heat added to the 
room by infiltration air, calculated at the 
95 °F and 83 °F dry-bulb outdoor 
conditions in Table 1 of this appendix, 
in Btu/h. 
m˙ = mass flow rate of infiltration air, m˙ SD or 
m˙ 95 when calculating Ql_95 and m˙ SD or 
m˙ 83 when calculating Ql_83, in lb/m. 
Hfg = latent heat of vaporization for water 
vapor, 1061 Btu/lbm. 
wia_95 and wia_83 = humidity ratios of the 
95 °F and 83 °F dry-bulb infiltration air, 
0.0141 and 0.01086 lbw/lbda, 
respectively. 
windoor = humidity ratio of the indoor chamber 
air, 0.0112 lbw/lbda. 
60 = conversion factor from minutes to hours. 
The total heat contribution of the 
infiltration air is the sum of the sensible and 
latent heat: 
Qinfiltration_95 = Qs_95 + Ql_95 
Qinfiltration_83 = Qs_83 + Ql_83 
Where: 
Qinfiltration_95 and Qinfiltration_83 = total 
infiltration air heat in cooling mode, 
calculated at the 95 °F and 83 °F dry-bulb 
outdoor conditions in Table 1 of this 
appendix, in Btu/h. 
Qs_95 and Qs_83 = sensible heat added to the 
room by infiltration air, calculated at the 
95 °F and 83 °F dry-bulb outdoor 
conditions in Table 1 of this appendix, 
in Btu/h. 
Ql_95 and Ql_83 = latent heat added to the 
room by infiltration air, calculated at the 
95 °F and 83 °F dry-bulb outdoor 
conditions in Table 1 of this appendix, 
in Btu/h. 
* 
* 
* 
* 
* 
[FR Doc. 2020–07733 Filed 4–17–20; 8:45 am] 
BILLING CODE 6450–01–P 
SMALL BUSINESS ADMINISTRATION 
13 CFR Part 120 
[Docket Number SBA–2020–0020] 
RIN 3245–AH36 
Business Loan Program Temporary 
Changes; Paycheck Protection 
Program—Additional Eligibility Criteria 
and Requirements for Certain Pledges 
of Loans 
AGENCY: U. S. Small Business 
Administration. 
ACTION: Interim final rule. 
SUMMARY: On April 2, 2020, the U.S. 
Small Business Administration (SBA) 
posted an interim final rule (the First 
PPP Interim Final Rule) announcing the 
implementation of sections 1102 and 
1106 of the Coronavirus Aid, Relief, and 
Economic Security Act (CARES Act or 
the Act). Section 1102 of the Act 
temporarily adds a new program, titled 
the ‘‘Paycheck Protection Program,’’ to 
the SBA’s 7(a) Loan Program. Section 
1106 of the Act provides for forgiveness 
of up to the full principal amount of 
qualifying loans guaranteed under the 
Paycheck Protection Program (PPP). The 
PPP is intended to provide economic 
relief to small businesses nationwide 
adversely impacted by the Coronavirus 
Disease 2019 (COVID–19). This interim 
final rule supplements the First PPP 
Interim Final Rule with guidance for 
individuals with self-employment 
income who file a Form 1040, Schedule 
C. This rule also addresses eligibility 
issues for certain business concerns and 
requirements for certain pledges of PPP 
loans. This interim final rule 
supplements SBA’s implementation of 
sections 1102 and 1106 of the Act and 
requests public comment. 
DATES: 
Effective Date: This rule is effective 
April 20, 2020. 
Applicability Date: This interim final 
rule applies to applications submitted 
under the Paycheck Protection Program 
through June 30, 2020, or until funds 
made available for this purpose are 
exhausted. 
Comment Date: Comments must be 
received on or before May 20, 2020. 
ADDRESSES: You may submit comments, 
identified by number SBA–2020–0020 
through the Federal eRulemaking Portal: 
http://www.regulations.gov. Follow the 
instructions for submitting comments. 
SBA will post all comments on 
www.regulations.gov. If you wish to 
submit confidential business 
information (CBI) as defined in the User 
Notice at www.regulations.gov, please 
send an email to ppp-ifr@sba.gov. 
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Highlight the information that you 
consider to be CBI and explain why you 
believe SBA should hold this 
information as confidential. SBA will 
review the information and make the 
final determination whether it will 
publish the information. 
FOR FURTHER INFORMATION CONTACT: A 
Call Center Representative at 833–572– 
0502, or the local SBA Field Office; the 
list of offices can be found at https://
www.sba.gov/tools/local-assistance/ 
districtoffices. 
SUPPLEMENTARY INFORMATION: 
I. Background Information 
On March 13, 2020, President Trump 
declared the ongoing Coronavirus 
Disease 2019 (COVID–19) pandemic of 
sufficient severity and magnitude to 
warrant an emergency declaration for all 
States, territories, and the District of 
Columbia. With the COVID–19 
emergency, many small businesses 
nationwide are experiencing economic 
hardship as a direct result of the 
Federal, State, tribal, and local public 
health measures that are being taken to 
minimize the public’s exposure to the 
virus. These measures, some of which 
are government-mandated, are being 
implemented nationwide and include 
the closures of restaurants, bars, and 
gyms. In addition, based on the advice 
of public health officials, other 
measures, such as keeping a safe 
distance from others or even stay-at- 
home orders, are being implemented, 
resulting in a dramatic decrease in 
economic activity as the public avoids 
malls, retail stores, and other 
businesses. 
On March 27, 2020, the President 
signed the Coronavirus Aid, Relief, and 
Economic Security Act (the CARES Act 
or the Act) (Pub. L. 116–136) to provide 
emergency assistance and health care 
response for individuals, families, and 
businesses affected by the coronavirus 
pandemic. The Small Business 
Administration (SBA) received funding 
and authority through the Act to modify 
existing loan programs and establish a 
new loan program to assist small 
businesses nationwide adversely 
impacted by the COVID–19 emergency. 
Section 1102 of the Act temporarily 
permits SBA to guarantee 100 percent of 
7(a) loans under a new program titled 
the ‘‘Paycheck Protection Program.’’ 
Section 1106 of the Act provides for 
forgiveness of up to the full principal 
amount of qualifying loans guaranteed 
under the Paycheck Protection Program. 
II. Comments and Immediate Effective 
Date 
The intent of the Act is that SBA 
provide relief to America’s small 
businesses expeditiously. This intent, 
along with the dramatic decrease in 
economic activity nationwide, provides 
good cause for SBA to dispense with the 
30-day delayed effective date provided 
in the Administrative Procedure Act. 
Specifically, small businesses need to be 
informed on whether they are eligible to 
apply for a loan, how to apply for a 
loan, and the terms of the loan under 
section 1102 of the Act as soon as 
possible because the last day to apply 
for and receive a loan is June 30, 2020. 
The immediate effective date of this 
interim final rule will benefit small 
businesses so that they can immediately 
determine their eligibility and apply for 
the loan with a full understanding of 
loan terms and conditions. This interim 
final rule is effective without advance 
notice and public comment because 
section 1114 of the Act authorizes SBA 
to issue regulations to implement Title 
I of the Act without regard to notice 
requirements. This rule is being issued 
to allow for immediate implementation 
of this program. Although this interim 
final rule is effective immediately, 
comments are solicited from interested 
members of the public on all aspects of 
the interim final rule, including section 
III below. These comments must be 
submitted on or before May 20, 2020. 
SBA will consider these comments and 
the need for making any revisions as a 
result of these comments. 
III. Additional Paycheck Protection 
Program Eligibility Criteria and 
Requirements for Certain Pledges of 
Loans 
Overview 
The CARES Act was enacted to 
provide immediate assistance to 
individuals, families, and organizations 
affected by the COVID–19 emergency. 
Among the provisions contained in the 
CARES Act are provisions authorizing 
SBA to temporarily guarantee loans 
under the Paycheck Protection Program 
(PPP). Loans under the PPP will be 100 
percent guaranteed by SBA, and the full 
principal amount of the loans and any 
accrued interest may qualify for loan 
forgiveness. Additional information 
about the PPP is available in the First 
PPP Interim Final Rule (85 FR 20811) 
and a second interim final rule (85 FR 
20817) posted April 3, 2020. 
1. Individuals With Self-Employment 
Income Who File a Form 1040, 
Schedule C 
a. I have income from self- 
employment and file a Form 1040, 
Schedule C. Am I eligible for a PPP 
Loan? 
You are eligible for a PPP loan if: (i) 
You were in operation on February 15, 
2020; (ii) you are an individual with 
self-employment income (such as an 
independent contractor or a sole 
proprietor); (iii) your principal place of 
residence is in the United States; and 
(iv) you filed or will file a Form 1040 
Schedule C for 2019. However, if you 
are a partner in a partnership, you may 
not submit a separate PPP loan 
application for yourself as a self- 
employed individual. Instead, the self- 
employment income of general active 
partners may be reported as a payroll 
cost, up to $100,000 annualized, on a 
PPP loan application filed by or on 
behalf of the partnership. Partnerships 
are eligible for PPP loans under the Act, 
and the Administrator has determined, 
in consultation with the Secretary of the 
Treasury (Secretary), that limiting a 
partnership and its partners (and an LLC 
filing taxes as a partnership) to one PPP 
loan is necessary to help ensure that as 
many eligible borrowers as possible 
obtain PPP loans before the statutory 
deadline of June 30, 2020. This 
limitation will allow lenders to more 
quickly process applications and lower 
the burdens of applying for 
partnerships/partners. The 
Administrator has further determined 
that permitting partners to apply as self- 
employed individuals would create 
unnecessary confusion regarding which 
entity, the partner or the partnership, 
applies for partner and LLC member 
income, and would generate loan 
proceeds use coordination and 
allocation issues. Rent, mortgage 
interest, utilities, and other debt service 
are generally incurred at the partnership 
level, not partner level, so it is most 
natural to provide the funds for these 
expenses to the partnership, not 
individual partners. In addition, you 
should be aware that participation in 
the PPP may affect your eligibility for 
state-administered unemployment 
compensation or unemployment 
assistance programs, including the 
programs authorized by Title II, Subtitle 
A of the CARES Act, or CARES Act 
Employee Retention Credits. SBA will 
issue additional guidance for those 
individuals with self-employment 
income who: (i) Were not in operation 
in 2019 but who were in operation on 
February 15, 2020, and (ii) will file a 
Form 1040 Schedule C for 2020. 
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21749 
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b. How do I calculate the maximum 
amount I can borrow and what 
documentation is required? 
How you calculate your maximum 
loan amount depends upon whether or 
not you employ other individuals. If you 
have no employees, the following 
methodology should be used to 
calculate your maximum loan amount: 
i. Step 1: Find your 2019 IRS Form 
1040 Schedule C line 31 net profit 
amount (if you have not yet filed a 2019 
return, fill it out and compute the 
value). If this amount is over $100,000, 
reduce it to $100,000. If this amount is 
zero or less, you are not eligible for a 
PPP loan. 
ii. Step 2: Calculate the average 
monthly net profit amount (divide the 
amount from Step 1 by 12). 
iii. Step 3: Multiply the average 
monthly net profit amount from Step 2 
by 2.5. 
iv. Step 4: Add the outstanding 
amount of any Economic Injury Disaster 
Loan (EIDL) made between January 31, 
2020 and April 3, 2020 that you seek to 
refinance, less the amount of any 
advance under an EIDL COVID–19 loan 
(because it does not have to be repaid). 
Regardless of whether you have filed 
a 2019 tax return with the IRS, you must 
provide the 2019 Form 1040 Schedule C 
with your PPP loan application to 
substantiate the applied-for PPP loan 
amount and a 2019 IRS Form 1099– 
MISC detailing nonemployee 
compensation received (box 7), invoice, 
bank statement, or book of record that 
establishes you are self-employed. You 
must provide a 2020 invoice, bank 
statement, or book of record to establish 
you were in operation on or around 
February 15, 2020. 
If you have employees, the following 
methodology should be used to 
calculate your maximum loan amount: 
i. Step 1: Compute 2019 payroll by 
adding the following: 
a. Your 2019 Form 1040 Schedule C 
line 31 net profit amount (if you have 
not yet filed a 2019 return, fill it out and 
compute the value), up to $100,000 
annualized, if this amount is over 
$100,000, reduce it to $100,000, if this 
amount is less than zero, set this 
amount at zero; 
b. 2019 gross wages and tips paid to 
your employees whose principal place 
of residence is in the United States 
computed using 2019 IRS Form 941 
Taxable Medicare wages & tips (line 
5c—column 1) from each quarter plus 
any pre-tax employee contributions for 
health insurance or other fringe benefits 
excluded from Taxable Medicare wages 
& tips; subtract any amounts paid to any 
individual employee in excess of 
$100,000 annualized and any amounts 
paid to any employee whose principal 
place of residence is outside the United 
States; and 
c. 2019 employer health insurance 
contributions (health insurance 
component of Form 1040 Schedule C 
line 14), retirement contributions (Form 
1040 Schedule C line 19), and state and 
local taxes assessed on employee 
compensation (primarily under state 
laws commonly referred to as the State 
Unemployment Tax Act or SUTA from 
state quarterly wage reporting forms). 
ii. Step 2: Calculate the average 
monthly amount (divide the amount 
from Step 1 by 12). 
iii. Step 3: Multiply the average 
monthly amount from Step 2 by 2.5. 
iv. Step 4: Add the outstanding 
amount of any EIDL made between 
January 31, 2020 and April 3, 2020 that 
you seek to refinance, less the amount 
of any advance under an EIDL COVID– 
19 loan (because it does not have to be 
repaid). 
You must supply your 2019 Form 
1040 Schedule C, Form 941 (or other tax 
forms or equivalent payroll processor 
records containing similar information) 
and state quarterly wage unemployment 
insurance tax reporting forms from each 
quarter in 2019 or equivalent payroll 
processor records, along with evidence 
of any retirement and health insurance 
contributions, if applicable. A payroll 
statement or similar documentation 
from the pay period that covered 
February 15, 2020 must be provided to 
establish you were in operation on 
February 15, 2020. 
d. How can PPP loans be used by 
individuals with income from self- 
employment who file a 2019 Form 1040, 
Schedule C? 
The proceeds of a PPP loan are to be 
used for the following. 
i. Owner compensation replacement, 
calculated based on 2019 net profit as 
described in Paragraph 1.b. above. 
ii. Employee payroll costs (as defined 
in the First PPP Interim Final Rule) for 
employees whose principal place of 
residence is in the United States, if you 
have employees. 
iii. Mortgage interest payments (but 
not mortgage prepayments or principal 
payments) on any business mortgage 
obligation on real or personal property 
(e.g., the interest on your mortgage for 
the warehouse you purchased to store 
business equipment or the interest on an 
auto loan for a vehicle you use to 
perform your business), business rent 
payments (e.g., the warehouse where 
you store business equipment or the 
vehicle you use to perform your 
business), and business utility payments 
(e.g., the cost of electricity in the 
warehouse you rent or gas you use 
driving your business vehicle). You 
must have claimed or be entitled to 
claim a deduction for such expenses on 
your 2019 Form 1040 Schedule C for 
them to be a permissible use during the 
eight-week period following the first 
disbursement of the loan (the ‘‘covered 
period’’). For example, if you did not 
claim or are not entitled to claim 
utilities expenses on your 2019 Form 
1040 Schedule C, you cannot use the 
proceeds for utilities during the covered 
period. 
iv. Interest payments on any other 
debt obligations that were incurred 
before February 15, 2020 (such amounts 
are not eligible for PPP loan 
forgiveness). 
v. Refinancing an SBA EIDL loan 
made between January 31, 2020 and 
April 3, 2020 (maturity will be reset to 
PPP’s maturity of two years). 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. 
The Administrator, in consultation 
with the Secretary, determined that it is 
appropriate to limit self-employed 
individuals’ (who file a Form 1040 
Schedule C) use of loan proceeds to 
those types of allowable uses for which 
the borrower made expenditures in 
2019. The Administrator has 
determined that this limitation on self- 
employed individuals who file a Form 
1040 Schedule C is consistent with the 
borrower certification required by the 
Act; specifically, that the PPP loan is 
necessary ‘‘to support the ongoing 
operations’’ of the borrower. The 
Administrator and the Secretary thus 
believe that this limitation is consistent 
with the structure of the Act to maintain 
existing operations and payroll and not 
for business expansion. This limitation 
on the use of PPP loan proceeds will 
also help to ensure that the finite 
appropriations available for these loans 
are directed toward maintaining existing 
operations and payroll, as each loan that 
is made depletes the appropriation. 
Finally, although the Act makes 
businesses in operation on February 15, 
2020 eligible for PPP loans, the 
Administrator, in consultation with the 
Secretary, has determined that self- 
employed individuals will need to rely 
on their 2019 Form 1040 Schedule C, 
which provides verifiable 
documentation on expenses between 
January 1, 2019 and December 31, 2019. 
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21750 
Federal Register / Vol. 85, No. 76 / Monday, April 20, 2020 / Rules and Regulations 
For individuals with income from self- 
employment from 2019 for which they 
have filed or will file a 2019 Form 1040 
Schedule C, expenses incurred between 
January 1, 2020 and February 14, 2020 
may not be considered because of the 
lack of verifiable documentation on 
expenses in this period. SBA will issue 
additional guidance for those 
individuals with self-employment 
income who: (i) Were not in operation 
in 2019 but who were in operation on 
February 15, 2020, and (ii) will file a 
Form 1040 Schedule C for 2020. 
e. Are there any other restrictions on 
how I can use PPP loan proceeds? 
Yes. At least 75 percent of the PPP 
loan proceeds shall be used for payroll 
costs. For purposes of determining the 
percentage of use of proceeds for payroll 
costs (but not for forgiveness purposes), 
the amount of any refinanced EIDL will 
be included. The rationale for this 75 
percent floor is contained in the First 
PPP Interim Final Rule. 
f. What amounts shall be eligible for 
forgiveness? 
The amount of loan forgiveness can be 
up to the full principal amount of the 
loan plus accrued interest. The actual 
amount of loan forgiveness will depend, 
in part, on the total amount spent over 
the covered period on: 
i. Payroll costs including salary, 
wages, and tips, up to $100,000 of 
annualized pay per employee (for eight 
weeks, a maximum of $15,385 per 
individual), as well as covered benefits 
for employees (but not owners), 
including health care expenses, 
retirement contributions, and state taxes 
imposed on employee payroll paid by 
the employer (such as unemployment 
insurance premiums); 
ii. owner compensation replacement, 
calculated based on 2019 net profit as 
described in Paragraph 1.b. above, with 
forgiveness of such amounts limited to 
eight weeks’ worth (8/52) of 2019 net 
profit, but excluding any qualified sick 
leave equivalent amount for which a 
credit is claimed under section 7002 of 
the Families First Coronavirus Response 
Act (FFCRA) (Pub. L. 116–127) or 
qualified family leave equivalent 
amount for which a credit is claimed 
under section 7004 of FFCRA; 
iii. payments of interest on mortgage 
obligations on real or personal property 
incurred before February 15, 2020, to 
the extent they are deductible on Form 
1040 Schedule C (business mortgage 
payments); 
iv. rent payments on lease agreements 
in force before February 15, 2020, to the 
extent they are deductible on Form 1040 
Schedule C (business rent payments); 
and 
v. utility payments under service 
agreements dated before February 15, 
2020 to the extent they are deductible 
on Form 1040 Schedule C (business 
utility payments). 
The Administrator, in consultation 
with the Secretary, has determined that 
it is appropriate to limit the forgiveness 
of owner compensation replacement for 
individuals with self-employment 
income who file a Schedule C to eight 
weeks’ worth (8/52) of 2019 net profit. 
This is most consistent with the 
structure of the Act and its overarching 
focus on keeping workers paid, and will 
prevent windfalls that Congress did not 
intend. 
Congress determined that the 
maximum loan amount is based on 2.5 
months of the borrower’s payroll during 
the one-year period preceding the loan. 
Congress also determined that the 
maximum amount of loan forgiveness is 
based on the borrower’s eligible 
payments—i.e., the sum of payroll costs 
and certain overhead expenses—over 
the eight-week period following the date 
of loan disbursement. For individuals 
with self-employment income who file 
a Schedule C, the Administrator, in 
consultation with the Secretary, has 
determined that it is appropriate to limit 
loan forgiveness to a proportionate 
eight-week share of 2019 net profit, as 
reflected in the individual’s 2019 Form 
1040 Schedule C. This is because many 
self-employed individuals have few of 
the overhead expenses that qualify for 
forgiveness under the Act. For example, 
many such individuals operate out of 
either their homes, vehicles, or sheds 
and thus do not incur qualifying 
mortgage interest, rent, or utility 
payments. As a result, most of their 
receipts will constitute net income. 
Allowing such a self-employed 
individual to treat the full amount of a 
PPP loan as net income would result in 
a windfall. The entire amount of the 
PPP loan (a maximum of 2.5 times 
monthly payroll costs) would be 
forgiven even though Congress designed 
this program to limit forgiveness to 
certain eligible expenses incurred in an 
eight-week covered period. Limiting 
forgiveness to eight weeks of net profit 
from the owner’s 2019 Form 1040 
Schedule C is consistent with the 
structure of the Act, which provides for 
loan forgiveness based on eight weeks of 
expenditures. This limitation will also 
help to ensure that the finite 
appropriations are directed toward 
payroll protection, consistent with the 
Act’s central objective. Finally, 75 
percent of the amount forgiven must be 
attributable to payroll costs for the 
reasons specified in the First PPP 
Interim Final Rule. 
g. What documentation will I be 
required to submit to my lender with my 
request for loan forgiveness? 
In addition to the borrower 
certification required by Section 
1106(e)(3) of the Act, to substantiate 
your request for loan forgiveness, if you 
have employees, you should submit 
Form 941 and state quarterly wage 
unemployment insurance tax reporting 
forms or equivalent payroll processor 
records that best correspond to the 
covered period (with evidence of any 
retirement and health insurance 
contributions). Whether or not you have 
employees, you must submit evidence 
of business rent, business mortgage 
interest payments on real or personal 
property, or business utility payments 
during the covered period if you used 
loan proceeds for those purposes. 
The 2019 Form 1040 Schedule C that 
was provided at the time of the PPP loan 
application must be used to determine 
the amount of net profit allocated to the 
owner for the eight-week covered 
period. The Administrator, in 
consultation with the Secretary, 
determined that for purposes of loan 
forgiveness it is appropriate to require 
self-employed individuals to rely on the 
2019 Form 1040 Schedule C to 
determine the amount of net profit 
allocated to the owner during the 
covered period for the reasons described 
in Paragraph 1.d. above. 
2. Clarification Regarding Eligible 
Businesses 
a. Are eligible businesses owned by 
directors or shareholders of a PPP 
Lender permitted to apply for a PPP 
Loan through the Lender with which 
they are associated? 
The Administrator recognizes that, 
unlike other SBA loan programs, the 
financial terms for PPP Loans are 
uniform for all borrowers, and the 
standard underwriting process does not 
apply because no creditworthiness 
assessment is required for PPP Loans. 
Consequently, there is no meaningful 
risk of underwriting bias or below- 
market rates and terms. The 
Administrator also recognizes that many 
directors and equity holders of PPP 
Lenders are owners of unrelated 
businesses. For those reasons, the 
Administrator, in consultation with the 
Secretary, has determined that SBA 
regulations (including 13 CFR 120.110 
and 120.140) shall not apply to prohibit 
an otherwise eligible business owned 
(in whole or part) by an outside director 
or holder of a less than 30 percent 
equity interest in a PPP Lender from 
obtaining a PPP loan from the PPP 
Lender on whose board the director 
serves or in which the equity owner 
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21751 
Federal Register / Vol. 85, No. 76 / Monday, April 20, 2020 / Rules and Regulations 
holds an interest, provided that the 
eligible business owned by the director 
or equity holder follows the same 
process as any similarly situated 
customer or account holder of the 
Lender. Favoritism by the Lender in 
processing time or prioritization of the 
director’s or equity holder’s PPP 
application is prohibited. The 
Administrator cautions, however, that 
Lenders should comply with all other 
applicable state and federal regulations 
concerning loans to associates of the 
Lender. Lenders should also consult 
their own internal policies concerning 
lending to individuals or entities 
associated with the Lender. 
The foregoing paragraph does not 
apply to a director or owner who is also 
an officer or key employee of the PPP 
Lender. Officers and key employees of 
a PPP Lender may obtain a PPP Loan 
from a different lender, but not from the 
PPP Lender with which they are 
associated. SBA also reminds Lenders 
that the ‘‘Authorized Lender Official’’ 
for each PPP Loan is subject to the 
limitations described in the Lender 
Application Form, which states in 
relevant part: ‘‘Neither the undersigned 
Authorized Lender Official, nor such 
individual’s spouse or children, has a 
financial interest in the Applicant 
[Borrower].’’ 
b. Are businesses that receive revenue 
from legal gaming eligible for a PPP 
Loan? 
A business that is otherwise eligible 
for a PPP Loan is not rendered ineligible 
due to its receipt of legal gaming 
revenues if the existing standard in 13 
CFR 120.110(g) is met or the following 
two conditions are satisfied: (a) The 
business’s legal gaming revenue (net of 
payouts but not other expenses) did not 
exceed $1 million in 2019; and (b) legal 
gaming revenue (net of payouts but not 
other expenses) comprised less than 50 
percent of the business’s total revenue 
in 2019. Businesses that received illegal 
gaming revenue are categorically 
ineligible. The Administrator, in 
consultation with the Secretary, believes 
this test appropriately balances the 
longstanding policy reasons for limiting 
lending to businesses primarily and 
substantially engaged in gaming activity 
with the policy aim of making the PPP 
Loan available to a broad segment of 
U.S. businesses and their employees. 
3. Requirements for Certain Pledges of 
PPP Loans 
Do the requirements for loan pledges 
under 13 CFR 120.434 apply to PPP 
loans pledged for borrowings from a 
Federal Reserve Bank (FRB) or advances 
by a Federal Home Loan Bank (FHLB)? 
No. Pursuant to SBA regulations at 13 
CFR 120.435(d) and (e), a pledge of 7(a) 
loans to a FRB or FHLB does not require 
SBA’s prior written consent or notice to 
SBA. SBA, in consultation with 
Treasury, has determined that for 
purposes of loans made under the PPP, 
the additional requirements set forth in 
120.434 shall also not apply. This 
would mean, for example, that SBA 
would not have to approve loan 
documents or require a multi-party 
agreement among SBA, the lender, and 
others. 
4. Additional Information 
SBA may provide further guidance, if 
needed, through SBA notices that will 
be posted on SBA’s website at 
www.sba.gov. Questions on the 
Paycheck Protection Program may be 
directed to the Lender Relations 
Specialist in the local SBA Field Office. 
The local SBA Field Office may be 
found at https://www.sba.gov/tools/ 
local-assistance/districtoffices. 
Compliance With Executive Orders 
12866, 12988, 13132, 13563, and 13771, 
the Paperwork Reduction Act (44 
U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601–612) 
Executive Orders 12866, 13563, and 
13771 
This interim final rule is 
economically significant for the 
purposes of Executive Orders 12866 and 
13563, and is considered a major rule 
under the Congressional Review Act. 
SBA, however, is proceeding under the 
emergency provision at Executive Order 
12866 Section 6(a)(3)(D) based on the 
need to move expeditiously to mitigate 
the current economic conditions arising 
from the COVID–19 emergency. This 
rule’s designation under Executive 
Order 13771 will be informed by public 
comment. 
Executive Order 12988 
SBA has drafted this rule, to the 
extent practicable, in accordance with 
the standards set forth in section 3(a) 
and 3(b)(2) of Executive Order 12988, to 
minimize litigation, eliminate 
ambiguity, and reduce burden. The rule 
has no preemptive or retroactive effect. 
Executive Order 13132 
SBA has determined that this rule 
will not have substantial direct effects 
on the States, on the relationship 
between the National Government and 
the States, or on the distribution of 
power and responsibilities among the 
various layers of government. Therefore, 
SBA has determined that this rule has 
no federalism implications warranting 
preparation of a federalism assessment. 
Paperwork Reduction Act, 44 U.S.C. 
Chapter 35 
SBA has determined that this rule 
will not impose new or modify existing 
recordkeeping or reporting requirements 
under the Paperwork Reduction Act. 
Regulatory Flexibility Act (RFA) 
The Regulatory Flexibility Act (RFA) 
generally requires that when an agency 
issues a proposed rule, or a final rule 
pursuant to section 553(b) of the APA or 
another law, the agency must prepare a 
regulatory flexibility analysis that meets 
the requirements of the RFA and 
publish such analysis in the Federal 
Register. 5 U.S.C. 603, 604. Specifically, 
the RFA normally requires agencies to 
describe the impact of a rulemaking on 
small entities by providing a regulatory 
impact analysis. Such analysis must 
address the consideration of regulatory 
options that would lessen the economic 
effect of the rule on small entities. The 
RFA defines a ‘‘small entity’’ as (1) a 
proprietary firm meeting the size 
standards of the Small Business 
Administration (SBA); (2) a nonprofit 
organization that is not dominant in its 
field; or (3) a small government 
jurisdiction with a population of less 
than 50,000. 5 U.S.C. 601(3)–(6). Except 
for such small government jurisdictions, 
neither State nor local governments are 
‘‘small entities.’’ Similarly, for purposes 
of the RFA, individual persons are not 
small entities. The requirement to 
conduct a regulatory impact analysis 
does not apply if the head of the agency 
‘‘certifies that the rule will not, if 
promulgated, have a significant 
economic impact on a substantial 
number of small entities.’’ 5 U.S.C. 
605(b). The agency must, however, 
publish the certification in the Federal 
Register at the time of publication of the 
rule, ‘‘along with a statement providing 
the factual basis for such certification.’’ 
If the agency head has not waived the 
requirements for a regulatory flexibility 
analysis in accordance with the RFA’s 
waiver provision, and no other RFA 
exception applies, the agency must 
prepare the regulatory flexibility 
analysis and publish it in the Federal 
Register at the time of promulgation or, 
if the rule is promulgated in response to 
an emergency that makes timely 
compliance impracticable, within 180 
days of publication of the final rule. 5 
U.S.C. 604(a), 608(b). Rules that are 
exempt from notice and comment are 
also exempt from the RFA requirements, 
including conducting a regulatory 
flexibility analysis, when among other 
things the agency for good cause finds 
that notice and public procedure are 
impracticable, unnecessary, or contrary 
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21752 
Federal Register / Vol. 85, No. 76 / Monday, April 20, 2020 / Rules and Regulations 
to the public interest. SBA Office of 
Advocacy guide: How to Comply with 
the Regulatory Flexibility Act. Ch.1. p.9. 
Accordingly, SBA is not required to 
conduct a regulatory flexibility analysis. 
List of Subjects in 13 CFR Part 120 
Community development, 
Environmental protection, Equal 
employment opportunity, Exports, Loan 
programs—business, Reporting and 
recordkeeping requirements, Small 
businesses. 
For the reasons stated above, the 
Small Business Administration amends 
13 CFR part 120 as set forth below. 
PART 120—BUSINESS LOANS 
■1. The authority citation for part 120 
continues to read as follows: 
Authority: 15 U.S.C. 634(b)(6), (b)(7), 
(b)(14), (h), and note, 636(a), (h) and (m), and 
note, 650, 657t, and note, 657u, and note, 
687(f), 696(3) and (7), and note, and 697(a) 
and (e), and note. 
■2. Revise § 120.435 to read as follows: 
§ 120.435
Which loan pledges do not 
require notice to or consent by SBA? 
(a) Notwithstanding the provisions of 
§ 120.434(e), 7(a) loans may be pledged 
for the following purposes without 
notice to or consent by SBA: 
(1) Treasury tax and loan accounts; 
(2) The deposit of public funds; 
(3) Uninvested trust funds; 
(4) Borrowings from a Federal Reserve 
Bank; or 
(5) Advances by a Federal Home Loan 
Bank. 
(b) For purposes of the Paycheck 
Protection Program (PPP), the other 
provisions of § 120.434 shall also not 
apply to PPP loans pledged under 
paragraph (a)(4) or (5) of this section. 
Jovita Carranza, 
Administrator. 
[FR Doc. 2020–08257 Filed 4–17–20; 8:45 am] 
BILLING CODE P 
DEPARTMENT OF TRANSPORTATION 
Federal Aviation Administration 
14 CFR Part 39 
[Docket No. FAA–2019–1074; Product 
Identifier 2019–NM–191–AD; Amendment 
39–19900; AD 2020–07–21] 
RIN 2120–AA64 
Airworthiness Directives; Yabora˜ 
Indu´stria Aerona´utica S.A. (Type 
Certificate Previously Held by Embraer 
S.A.) Airplanes 
AGENCY: Federal Aviation 
Administration (FAA), Department of 
Transportation (DOT). 
ACTION: Final rule. 
SUMMARY: The FAA is adopting a new 
airworthiness directive (AD) for certain 
Yabora˜ Indu´stria Aerona´utica S.A. 
Model ERJ–170 airplanes and Model ERJ 
190–100 STD, –100 LR, –100 ECJ, –100 
IGW, –200 STD, –200 LR, and –200 IGW 
airplanes. This AD was prompted by a 
determination that certain main landing 
gear (MLG) aft pintle pins repaired 
using a sulphamate nickel plating have 
a life limit that is less than the certified 
life limit. This AD requires a one-time 
records review or a general visual 
inspection (GVI) of the MLG aft pintle 
pins to determine if certain repairs were 
done, and replacement of certain MLG 
aft pintle pins with serviceable MLG aft 
pintle pins, as specified in an Ageˆncia 
Nacional de Aviac¸a˜o Civil (ANAC) 
Brazilian AD, which is incorporated by 
reference. The FAA is issuing this AD 
to address the unsafe condition on these 
products. 
DATES: This AD is effective May 26, 
2020. 
The Director of the Federal Register 
approved the incorporation by reference 
of a certain publication listed in this AD 
as of May 26, 2020. 
ADDRESSES: For the material 
incorporated by reference (IBR) in this 
AD contact National Civil Aviation 
Agency, Aeronautical Products 
Certification Branch (GGCP), Rua 
Laurent Martins, n° 209, Jardim 
Esplanada, CEP 12242–431—Sa˜o Jose´ 
dos Campos—SP, Brazil; telephone 55 
(12) 3203–6600; email pac@anac.gov.br; 
internet www.anac.gov.br/en/. You may 
find this IBR material on the ANAC 
website at https://sistemas.anac.gov.br/ 
certificacao/DA/DAE.asp. You may 
view this IBR material at the FAA, 
Transport Standards Branch, 2200 
South 216th St., Des Moines, WA. For 
information on the availability of this 
material at the FAA, call 206–231–3195. 
It is also available in the AD docket on 
the internet at https://
www.regulations.gov by searching for 
and locating Docket No. FAA–2019– 
1074. 
Examining the AD Docket 
You may examine the AD docket on 
the internet at https://
www.regulations.gov by searching for 
and locating Docket No. FAA–2019– 
1074; or in person at Docket Operations 
between 9 a.m. and 5 p.m., Monday 
through Friday, except Federal holidays. 
The AD docket contains this final rule, 
the regulatory evaluation, any 
comments received, and other 
information. The address for Docket 
Operations is U.S. Department of 
Transportation, Docket Operations, M– 
30, West Building Ground Floor, Room 
W12–140, 1200 New Jersey Avenue SE, 
Washington, DC 20590. 
FOR FURTHER INFORMATION CONTACT: 
Krista Greer, Aerospace Engineer, 
International Section, Transport 
Standards Branch, FAA, 2200 South 
216th St., Des Moines, WA 98198; 
telephone and fax 206–231–3221; email 
krista.greer@faa.gov. 
SUPPLEMENTARY INFORMATION: 
Discussion 
The ANAC, which is the aviation 
authority for Brazil, has issued Brazilian 
AD 2019–11–07, effective November 18, 
2019 (‘‘Brazilian AD 2019–11–07’’) (also 
referred to as the Mandatory Continuing 
Airworthiness Information, or ‘‘the 
MCAI’’), to correct an unsafe condition 
for certain Yabora˜ Indu´stria Aerona´utica 
S.A. Model ERJ 170–100 LR, –100 STD, 
–100 SE, and –100 SU airplanes; Model 
ERJ 170–200 LR, –200 SU, –200 STD, 
and –200 LL airplanes; and Model ERJ 
190–100 STD, –100 LR, –100 ECJ, –100 
IGW, –100 SR, –200 STD, –200 LR, and 
–200 IGW airplanes. Model ERJ 190–100 
SR airplanes are not certified by the 
FAA and are not included on the U.S. 
type certificate data sheet; this AD, 
therefore, does not include those 
airplanes in the applicability. 
The FAA issued a notice of proposed 
rulemaking (NPRM) to amend 14 CFR 
part 39 by adding an AD that would 
apply to certain Yabora˜ Indu´stria 
Aerona´utica S.A. Model ERJ 170–100 
LR, –100 STD, –100 SE, and –100 SU 
airplanes; Model ERJ 170–200 LR, –200 
SU, –200 STD, and –200 LL airplanes; 
and Model ERJ 190–100 STD, –100 LR, 
–100 ECJ, –100 IGW, –200 STD, –200 
LR, and –200 IGW airplanes. The NPRM 
published in the Federal Register on 
January 17, 2020 (85 FR 2909). The 
NPRM was prompted by a 
determination that certain MLG aft 
pintle pins repaired using a sulphamate 
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