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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
Docket No. SBA-2020-0039
RIN 3245-AH53
Business Loan Program Temporary Changes; Paycheck Protection Program – Additional
Eligibility Revisions to First Interim Final Rule
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. On June 12, 2020, SBA posted on its website an interim final rule
revising the interim final rule published in the Federal Register on April 15, 2020 by changing
the eligibility requirement related to felony convictions of applicants or owners of the applicant.
This interim final rule further revises SBA’s interim final rule published in the Federal Register
on April 15, 2020 by further changing that eligibility requirement.
DATES: Effective Dates: The provisions in this interim final rule are effective [INSERT DATE
OF FILING AT THE OFFICE OF THE FEDERAL REGISTER].
Comment Date: Comments must be received on or before [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN THE FEDERAL REGISTER].
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ADDRESSES: You may submit comments, identified by number SBA-2020-0039, 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, 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.
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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.
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.
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 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 expires
on June 30, 2020. These same reasons provide good cause for SBA to dispense with the 30-day
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delayed effective date provided in the Administrative Procedure Act (APA). 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
comments must be submitted on or before [INSERT DATE 30 DAYS AFTER DATE OF
PUBLICATION IN THE FEDERAL REGISTER]. The SBA will consider these comments,
comments received on the interim final rule posted on SBA’s website April 2, 2020 (the First
Interim Final Rule) and published in the Federal Register on April 15, 2020, comments received
on the interim final rule posted on SBA’s website June 12, 2020 and published in the Federal
Register on June 18, 2010, and the need for making any revisions as a result of these comments.
III.
Paycheck Protection Program – Additional Eligibility Revisions to First Interim Final
Rule (85 FR 20811)
Overview
The CARES Act was enacted to provide immediate assistance to individuals, families, and
businesses 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 make
further changes to the First Interim Final Rule, posted on SBA’s website on April 2, 2020, and
published in the Federal Register on April 15, 2020 (85 FR 20811), as amended by the interim
final rule posted on SBA’s website on June 12, 2020 and published in the Federal Register on
June 18, 2020 (85 FR 36717). The First Interim Final Rule, as amended, should be interpreted
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consistent with the frequently asked questions (FAQs) regarding the PPP that are posted on
SBA’s website1 and the other interim final rules issued regarding the PPP.2
1. Changes to the First Interim Final Rule
Eligibility Requirements
The First Interim Final Rule provided, among other things, that a PPP loan will not be
approved if an owner of 20 percent or more of the equity of the applicant has been convicted
of a felony within the last five years. On June 12, 2020, the First Interim Final Rule was
amended after the Administrator, in consultation with the Secretary of the Treasury (the
Secretary), determined that a shorter timeframe for felonies that do not involve fraud,
bribery, embezzlement, or a false statement in a loan application or an application for federal
financial assistance is more consistent with Congressional intent to provide relief to small
businesses and also promotes the important policies underlying the First Step Act of 2018
(Pub. L. 115-391).
Upon further consideration, and in consultation with the Secretary, the Administrator has
determined that two additional modifications to the First Interim Final Rule are appropriate
to ensure a consistent approach to applicants with criminal histories. First, the First Interim
Final Rule provided that an applicant is ineligible for a PPP loan if an owner of 20 percent or
more of the equity of the applicant is presently subject to an indictment, criminal
information, arraignment, or other means by which formal criminal charges are brought in
any jurisdiction. The Administrator has determined that this restriction should be limited to
pending criminal charges for felony offenses, which aligns with the Administrator’s prior
determination that only felony convictions (but not convictions for other types of offenses)
1 See https://www.sba.gov/document/support--faq-lenders-borrowers.
2 See https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.
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will limit an applicant’s eligibility for the PPP, subject to the time periods specified above.
Second, the First Interim Final Rule provided that an applicant was ineligible for a PPP loan
if an owner of 20 percent or more of the equity of the applicant is on probation or on parole.
The Administrator has determined that this restriction should be limited to individuals whose
probation or parole commenced within the time periods specified above—i.e., within the last
five years for any felony involving fraud, bribery, embezzlement, or a false statement in a
loan application or an application for federal financial assistance, and within the last one year
for other felonies. Applying these time limitations to the probation and parole restriction
aligns with the Administrator’s prior determination to apply the identical time limitations to
felony convictions. Moreover, aligning the time limitations applicable to these restrictions is
consistent with Congressional intent to provide relief to small businesses and also promotes
the important policies underlying the First Step Act of 2018 (Pub. L. 115-391). This
amendment does not affect the rule regarding applicants that are presently suspended,
debarred, or proposed for debarment, which remains effective. Therefore, Part III.2.b.iii. of
the First Interim Final Rule (85 FR 20811, 20812) is revised to read as follows:
b. Could I be ineligible even if I meet the eligibility requirements in (a) above?
You are ineligible for a PPP loan if, for example:
* * * * *
iii. An owner of 20 percent or more of the equity of the applicant is presently
incarcerated or, for any felony, presently subject to an indictment, criminal
information, arraignment, or other means by which formal criminal charges are
brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo
contendere to, or commenced any form of parole or probation (including
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probation before judgment) for, a felony involving fraud, bribery, embezzlement,
or a false statement in a loan application or an application for federal financial
assistance within the last five years or any other felony within the last year; or
* * * * *
Under the First Interim Final Rule, as amended, an applicant is ineligible if an owner of 20
percent or more of its equity is presently incarcerated. In considering this amended Interim
Final Rule the Administrator, in consultation with the Secretary, has determined that this
restriction on eligibility remains appropriate because the operations of small business
concerns present a greater danger of becoming impaired when their owners are incarcerated.
As a result, they may have greater difficulty repaying their loans and present a greater credit
risk. Although PPP loans may be forgiven under section 1106 of the CARES Act, PPP loans
may only be forgiven in cases where borrowers can document that the proceeds were
expended in accordance with the requirements of section 1106. In situations where the
proceeds have not been used appropriately, and the loans, accordingly, cannot be forgiven,
the borrowers’ ability to repay the loans remains an important consideration. In addition,
ineligibility for businesses whose owners are currently incarcerated will help prevent misuse
of PPP loan funds, irrespective of loan forgiveness considerations.
Under the First Interim Final Rule, as amended, an applicant is also ineligible if an owner of
20 percent or more of its equity is, for any felony, subject to an indictment, criminal
information, arraignment, or other means by which formal criminal charges are brought in
any jurisdiction. Individuals charged with felonies are at risk of imprisonment, which, as
discussed above, could place the creditworthiness of their businesses in question. Therefore,
the Administrator, in consultation with the Secretary, has determined that this limitation also
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remains appropriate to ensure that PPP funds are not allocated to an applicant for which a
recent felony charge may impair its ongoing business operations and therefore its ability to
repay a PPP loan for reasons unrelated to the COVID-19 pandemic.
Finally, under the First Interim Final Rule, as amended, an applicant is ineligible if an owner
of 20 percent or more of its equity has been convicted of, pleaded guilty or nolo contendere
to, or commenced any form of parole or probation (including probation before judgment) for,
a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or
an application for federal financial assistance within the last five years or any other felony
within the last year. The Administrator, in consultation with the Secretary, has determined
that, in order to ensure program integrity and safeguard against misuse of PPP funds, it
remains appropriate to require that applicants whose owners previously were convicted of or
pleaded guilty or nolo contendere to a felony offense have avoided a further felony charge
following conviction or incarceration for a period of at least one year before obtaining a PPP
loan. This interval provides a reasonable level of assurance that such applicants do not
present unacceptable risks of re-incarceration that could, as discussed above, undermine the
ability of their businesses to repay their PPP loans. The Administrator, in consultation with
the Secretary, has determined that a longer five-year limitation is appropriate for felonies
involving fraud, bribery, embezzlement, or a false statement in a loan application or an
application for federal financial assistance because such felonies are most relevant to the
applicant’s business integrity and responsibility, and may indicate a greater risk of potential
misuse of PPP loan funds.
Each of the ineligible applicant categories described above has been formulated to reduce the
risk of default and fraud in the PPP and to ensure that PPP loan funds are provided for small
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businesses that will be able to support jobs, consistent with Congressional intent in the
CARES Act. These measures are particularly necessary in light of the structure of the PPP,
in which lenders are subject to relatively few underwriting obligations before issuing loans
that are 100 percent guaranteed by SBA and that may be subject to full forgiveness based on
documentation provided by the borrower. While neither lenders nor SBA are conducting
typical analysis of the characteristics of PPP applicants, the measures described above are
intended to mitigate the risk of default, fraud, or misuse of PPP loan funds intended to benefit
small business employees and at the same time balance that need with the need to assist in
the rehabilitation of felons, who are working to become responsible and productive members
of society.
2. Additional Information
SBA may provide further guidance, if needed, through SBA notices which 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
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arising from the COVID–19 emergency. This rule’s designation under Executive Order 13771
will be informed by public comment.
This rule is necessary to implement Sections 1102 and 1106 of the CARES Act and the
Flexibility Act in order to provide economic relief to small businesses nationwide adversely
impacted under the COVID-19 Emergency Declaration. We anticipate that this rule will result in
substantial benefits to small businesses, their employees, and the communities they
serve. However, we lack data to estimate the effects of this rule.
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 effect but does have a limited
retroactive effect consistent with section 3(d) of the Flexibility Act.
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 require modification to the existing PPP
information collection that is approved under OMB Control Number 3245-0407 as an emergency
request until October 31, 2020. As discussed above, this rule amends the PPP eligibility
requirements regarding certain criminal activity. As a result of these amendments, conforming
changes will be made to Questions 5 and 6 of Form 2483, Borrower Application Form, and
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Section H of Form 2484, Lender Application Form. SBA will submit the revisions to these
forms to the Office of Management and Budget for approval.
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
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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. Small Business Administration’s 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.
Authority: 15 U.S.C. 636(a)(36); Coronavirus Aid, Relief, and Economic Security Act, Pub. L.
116-136, Section 1114.
Jovita Carranza,
Administrator
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