Business Loan Program Temporary Changes; Paycheck Protection Program — Treatment of Owners and Forgiveness of Certain Nonpayroll Costs

Record facts

Summary

An interim final rule issued by the U.S. Small Business Administration, published in the Federal Register on August 27, 2020 at 13 CFR Part 120, Docket Number SBA-2020-0044, RIN 3245-AH56. It supplements earlier Paycheck Protection Program interim final rules on loan forgiveness. The rule states that owner-employees with less than a 5 percent ownership stake in a C- or S-Corporation are not subject to the owner-employee compensation rule, and that forgiveness may not include amounts attributable to a tenant or sub-tenant of the borrower or, for home-based businesses, household expenses. It gives four examples and states that rent paid to a related party may be forgiven only up to the mortgage interest owed, where the lease and mortgage predate February 15, 2020, while mortgage interest paid to a related party is not. It is effective August 25, 2020, with comments due September 28, 2020.

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This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
Rules and Regulations
Federal Register
52881 
Vol. 85, No. 167 
Thursday, August 27, 2020 
SMALL BUSINESS ADMINISTRATION 
13 CFR Part 120 
[Docket Number SBA–2020–0044] 
RIN 3245–AH56 
Business Loan Program Temporary 
Changes; Paycheck Protection 
Program—Treatment of Owners and 
Forgiveness of Certain Nonpayroll 
Costs 
AGENCY: U.S. Small Business 
Administration. 
ACTION: Interim final rule. 
SUMMARY: On April 2, 2020, the U.S. 
Small Business Administration (SBA) 
posted on its website an interim final 
rule relating to the implementation of 
Sections 1102 and 1106 of the 
Coronavirus Aid, Relief, and Economic 
Security Act (CARES Act or the Act) 
(published in the Federal Register on 
April 15, 2020). Section 1102 of the Act 
temporarily adds a new product, titled 
the ‘‘Paycheck Protection Program,’’ to 
the U.S. Small Business 
Administration’s (SBA’s) 7(a) Loan 
Program. Subsequently, SBA issued a 
number of interim final rules 
implementing the Paycheck Protection 
Program. This interim final rule 
supplements the previously posted 
interim final rules by providing 
additional guidance on treatment of 
owners and forgiveness of certain 
nonpayroll costs. 
DATES: 
Effective date: The provisions in this 
interim final rule are effective August 
25, 2020. 
Comment date: Comments must be 
received on or before September 28, 
2020. 
ADDRESSES: You may submit comments, 
identified by number SBA–2020–0044 
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. 
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, have been 
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, have been 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) 
(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 CARES 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 CARES 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 CARES 
Act provides for forgiveness of up to the 
full principal amount of qualifying 
loans guaranteed under the Paycheck 
Protection Program (PPP). 
On April 24, 2020, the President 
signed the Paycheck Protection Program 
and Health Care Enhancement Act (Pub. 
L. 116–139), which provided additional 
funding and authority for the PPP. On 
June 5, 2020, the President signed the 
Paycheck Protection Program Flexibility 
Act of 2020 (Flexibility Act) (Pub. L. 
116–142), which changed provisions of 
the PPP relating to the maturity of PPP 
loans, the deferral of PPP loan 
payments, and the forgiveness of PPP 
loans. On July 4, 2020, the President 
signed into law S. 4116, which 
reauthorized lending under the PPP 
through August 8, 2020 (Pub. L. 116– 
147). 
This interim final rule addresses the 
ownership percentage that triggers the 
applicability of owner compensation 
rules for forgiveness purposes. This 
interim final rule also addresses 
limitations on the eligibility of certain 
nonpayroll costs for forgiveness. 
II. Comments and Immediate Effective 
Date 
This interim final rule is effective 
without advance notice and public 
comment because Section 1114 of the 
CARES Act authorizes SBA to issue 
regulations to implement Title I of the 
Act without regard to notice 
requirements. In addition, SBA has 
determined that there is good cause for 
dispensing with advance public notice 
and comment on the grounds that it 
would be contrary to the public interest. 
Specifically, advance public notice and 
comment would defeat the purpose of 
this interim final rule given that SBA’s 
authority to guarantee PPP loans 
expired on August 8, 2020 and SBA 
began accepting lender loan forgiveness 
submissions on August 10, 2020. These 
same reasons provide good cause for 
SBA to dispense with the 30-day 
delayed effective date provided in the 
Administrative Procedure Act (APA). 
See 5 U.S.C. 553(b)(B). Although this 
interim final rule is effective on or 
before date of filing, comments are 
solicited from interested members of the 
public on all aspects of the interim final 
rule, including Section III below. These 
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Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Rules and Regulations 
1 In this context, the related party itself would not 
also be eligible to request forgiveness for this 
amount. 
comments must be submitted on or 
before September 28, 2020. The SBA 
will consider these comments and the 
need for making any revisions as a 
result of these comments. 
III. Paycheck Protection Program— 
Treatment of Owners and Forgiveness 
of Certain Nonpayroll Costs 
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 a new 7(a) loan program titled the 
‘‘Paycheck Protection Program.’’ Loans 
guaranteed under the Paycheck 
Protection Program (PPP) will be 100 
percent guaranteed by SBA, and the full 
principal amount of the loans may 
qualify for loan forgiveness. The 
purpose of this interim final rule is to 
provide additional guidance concerning 
the ownership percentage that triggers 
the applicability of the owner 
compensation rule for forgiveness 
purposes and limitations on the 
eligibility of certain nonpayroll costs for 
forgiveness. 
1. Owners 
Are any individuals with an 
ownership stake in a PPP borrower 
exempt from application of the PPP 
owner-employee compensation rule 
when determining the amount of their 
compensation that is eligible for loan 
forgiveness? 
Yes, owner-employees with less than 
a 5 percent ownership stake in a C- or 
S-Corporation are not subject to the 
owner-employee compensation rule. 
The First Loan Forgiveness Rule, as 
revised by the Revisions to Loan 
Forgiveness and Loan Review 
Procedures Interim Final Rules, 85 FR 
38304, 38307 (June 26, 2020), caps the 
amount of loan forgiveness for payroll 
compensation attributable to an owner- 
employee. There is no exception in the 
rule based on the owner-employee’s 
percentage of ownership. The 
Administrator, in consultation with the 
Secretary, has now determined that an 
owner-employee in a C- or S- 
Corporation who has less than a 5 
percent ownership stake will not be 
subject to the owner-employee 
compensation rule. This exemption is 
intended to cover owner-employees 
who have no meaningful ability to 
influence decisions over how loan 
proceeds are allocated. 
2. Eligibility of Certain Nonpayroll Costs 
for Loan Forgiveness 
a. Are amounts attributable to the 
business operation of a tenant or sub- 
tenant of the PPP borrower or, in the 
context of home-based businesses, 
household expenses, eligible for 
forgiveness? 
No, the amount of loan forgiveness 
requested for nonpayroll costs may not 
include any amount attributable to the 
business operation of a tenant or sub- 
tenant of the PPP borrower or, for home- 
based businesses, household expenses. 
The examples below illustrate this rule. 
Example 1: A borrower rents an office 
building for $10,000 per month and sub- 
leases out a portion of the space to other 
businesses for $2,500 per month. Only 
$7,500 per month is eligible for loan 
forgiveness. 
Example 2: A borrower has a 
mortgage on an office building it 
operates out of, and it leases out a 
portion of the space to other businesses. 
The portion of mortgage interest that is 
eligible for loan forgiveness is limited to 
the percent share of the fair market 
value of the space that is not leased out 
to other businesses. As an illustration, if 
the leased space represents 25% of the 
fair market value of the office building, 
then the borrower may only claim 
forgiveness on 75% of the mortgage 
interest. 
Example 3: A borrower shares a 
rented space with another business. 
When determining the amount that is 
eligible for loan forgiveness, the 
borrower must prorate rent and utility 
payments in the same manner as on the 
borrower’s 2019 tax filings, or if a new 
business, the borrower’s expected 2020 
tax filings. 
Example 4: A borrower works out of 
his or her home. When determining the 
amount of nonpayroll costs that are 
eligible for loan forgiveness, the 
borrower may include only the share of 
covered expenses that were deductible 
on the borrower’s 2019 tax filings, or if 
a new business, the borrower’s expected 
2020 tax filings. 
b. Are rent payments to a related party 
eligible for loan forgiveness? 
Yes, as long as (1) the amount of loan 
forgiveness requested for rent or lease 
payments to a related party is no more 
than the amount of mortgage interest 
owed on the property during the 
Covered Period that is attributable to the 
space being rented by the business, and 
(2) the lease and the mortgage were 
entered into prior to February 15, 2020.1 
Any ownership in common between the 
business and the property owner is a 
related party for these purposes. The 
borrower must provide its lender with 
mortgage interest documentation to 
substantiate these payments. While rent 
or lease payments to a related party may 
be eligible for forgiveness, mortgage 
interest payments to a related party are 
not eligible for forgiveness. PPP loans 
are intended to help businesses cover 
certain non-payroll obligations that are 
owed to third parties, not payments to 
a business’s owner that occur because of 
how the business is structured. This 
will maintain equitable treatment 
between a business owner that holds 
property in a separate entity and one 
that holds the property in the same 
entity as its business operations. 
3. 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 
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52883 
Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Rules and Regulations 
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 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. 
Jovita Carranza, 
Administrator. 
[FR Doc. 2020–18940 Filed 8–25–20; 1:00 pm] 
BILLING CODE P 
SMALL BUSINESS ADMINISTRATION 
13 CFR Part 134 
[Docket Number SBA–2020–0042] 
RIN 3245–AH55 
Appeals of SBA Loan Review 
Decisions Under the Paycheck 
Protection Program 
AGENCY: U.S. Small Business 
Administration. 
ACTION: Interim final rule. 
SUMMARY: On April 2, 2020, the U.S. 
Small Business Administration (SBA) 
posted on its website an interim final 
rule relating to the implementation of 
sections 1102 and 1106 of the 
Coronavirus Aid, Relief, and Economic 
Security Act (CARES Act or the Act) 
(published in the Federal Register on 
April 15, 2020). Section 1102 of the Act 
temporarily adds a new product, titled 
the ‘‘Paycheck Protection Program,’’ to 
the U.S. Small Business 
Administration’s (SBA’s) 7(a) Loan 
Program. Subsequently, SBA issued a 
number of interim final rules 
implementing the Paycheck Protection 
Program (PPP). This interim final rule 
supplements the interim final rule on 
Loan Review Procedures and Related 
Borrower and Lender Responsibilities 
posted on SBA’s website on May 22, 
2020 (published on June 1, 2020, in the 
Federal Register), as revised by the 
interim final rule posted on SBA’s 
website on June 22, 2020, in order to 
inform PPP borrowers and lenders of the 
process for a PPP borrower to appeal 
certain SBA loan review decisions 
under the PPP to the SBA Office of 
Hearings and Appeals, and requests 
public comment. 
DATES: 
Effective date: This rule is effective 
August 25, 2020. 
Applicability date: This interim final 
rule applies to certain loan review 
decisions made by SBA under the 
Paycheck Protection Program. 
Comment date: Comments must be 
received on or before September 28, 
2020. 
ADDRESSES: You may submit comments, 
identified by number SBA–2020–0042 
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. 
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/localassistance/ 
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 have been taken to 
minimize the public’s exposure to the 
virus. These measures, some of which 
are government-mandated, have been 
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) 
(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 
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