Business Loan Program Temporary Changes; Paycheck Protection Program – Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules
Summary
Interim final rule of the U.S. Small Business Administration and the Department of the Treasury, Business Loan Program Temporary Changes; Paycheck Protection Program – Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules, 13 CFR Part 120, Docket Number SBA-2020-0052, RIN 3245-AH59 and RIN 1505-AC71. It revises the interim final rules posted on May 22, 2020 and June 22, 2020, following the Paycheck Protection Program Flexibility Act of 2020 signed on June 5, 2020. The rule gives additional guidance on the forgiveness and loan review processes for PPP loans of $50,000 or less. For PPP loans of all sizes, it addresses lender responsibilities for reviewing borrower documentation of eligible costs in excess of the loan amount.
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket Number SBA-2020-0052]
RIN 3245-AH59
DEPARTMENT OF THE TREASURY
RIN 1505-AC71
Business Loan Program Temporary Changes; Paycheck Protection Program – Additional
Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules
AGENCY: U.S. Small Business Administration; Department of the Treasury.
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 and the Department of the Treasury (Treasury) issued
additional interim final rules implementing the Paycheck Protection Program (PPP). On June 5,
2020, the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) was signed into
law, amending the CARES Act. This interim final rule revises interim final rules posted on
SBA’s and the Department of the Treasury’s websites on May 22, 2020 (published on June 1,
2020, in the Federal Register) and June 22, 2020 (published on June 26, 2020, in the Federal
Register), by providing additional guidance concerning the forgiveness and loan review
processes for PPP loans of $50,000 or less and, for PPP loans of all sizes, lender responsibilities
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with respect to the review of borrower documentation of eligible costs for forgiveness in excess
of a borrower’s PPP loan amount.
DATES: Effective Date: 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].
ADDRESSES: You may submit comments, identified by docket number SBA-2020-0052,
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 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
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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 (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).
As described below, this interim final rule provides additional guidance concerning the
forgiveness and loan review processes for PPP loans of $50,000 or less and, for PPP loans of all
sizes, lender responsibilities with respect to the review of borrower documentation of eligible
costs for forgiveness in excess of a borrower’s PPP loan amount.
Two provisions of this interim final rule are an exercise of rulemaking authority by SBA
jointly with Treasury: (1) the de minimis exemption from the full-time equivalent (FTE)
employee reduction penalty for PPP loans of $50,000 or less, and (2) the de minimis exemption
from the employee salary and wages reduction penalty for PPP loans of $50,000 or less.
Otherwise, all provisions in this rule are an exercise of rulemaking authority by SBA alone.
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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 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 comments must be submitted on or before [INSERT
DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. The
SBA and Treasury will consider these comments; comments received on the two interim final
rules amended by this interim final rule that were posted on SBA’s website on May 22, 2020 and
published on June 1, 2020, in the Federal Register; and the interim final rule amended by this
interim final rule that was posted on SBA’s website on June 22, 2020 and published on June 26,
2020.
III. Paycheck Protection Program – Additional Revisions to Loan Forgiveness Interim
Final Rule and SBA Loan Review Procedures and Related Borrower and Lender
Responsibilities Interim Final Rule
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
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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.
SBA has previously issued comprehensive regulations and guidance on the loan forgiveness
provisions in the CARES Act. As relevant here, on May 22, 2020, SBA and Treasury jointly
posted an additional interim final rule on loan forgiveness (85 FR 33004) (First Loan
Forgiveness Rule). The SBA also posted an interim final rule on May 22, 2020 on SBA loan
review procedures and related borrower and lender responsibilities (85 FR 33010) (First Loan
Review Rule). On June 22, 2020, SBA and Treasury jointly posted an interim final rule,
Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules (85 FR 38304),
revising the First Loan Forgiveness Rule and the First Loan Review Rule to incorporate
Flexibility Act amendments. On August 4 and 11, 2020, SBA posted Frequently Asked
Questions on PPP Loan Forgiveness.
The purpose of this interim final rule is to simplify further (i) the forgiveness and loan review
processes for PPP loans of $50,000 or less, and (ii) for PPP loans of all sizes, lender
responsibilities with respect to the review of borrower documentation of eligible costs for
forgiveness in excess of a borrower’s PPP loan amount.
In connection with this rule, SBA is issuing an alternative Loan Forgiveness Application,
SBA Form 3508S, for use by PPP borrowers applying for loan forgiveness on PPP loans with a
total loan amount of $50,000 or less, except for those borrowers that together with their
affiliates1 received loans totaling $2 million or greater. The Administrator of SBA
1
See 85 FR 20817 (April 15, 2020) regarding application of SBA’s affiliation rules and the exemption of otherwise
qualified faith-based organizations from SBA’s affiliation rules.
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(Administrator) and the Secretary of the Treasury (Secretary) have concluded that this form
strikes an appropriate balance between the need for simplification in the forgiveness process with
the responsibility to protect the integrity of the program and safeguard taxpayer funds.
1. Changes to the Loan Forgiveness Rules
a. Alternative Loan Forgiveness Application
Because SBA is issuing an alternative Loan Forgiveness Application, SBA Form 3508S,
the first parenthetical in the first sentence of Part III.2.a and the parenthetical in the first
sentence of Part III.6 of the First Loan Forgiveness Rule, as revised by Revisions to Loan
Forgiveness and Loan Review Procedures Interim Final Rules, are revised to read as
follows: “(SBA Form 3508, 3508EZ, 3508S, as applicable, or lender equivalent)”.
b. Reductions to Loan Forgiveness Amount
A borrower of a PPP loan of $50,000 or less, other than any borrower that together with
its affiliates received loans totaling $2 million or greater, may use SBA Form 3508S (or
lender’s equivalent form) to apply for loan forgiveness. A borrower that uses SBA Form
3508S (or lender’s equivalent form) is exempt from any reductions in the borrower’s loan
forgiveness amount based on reductions in full-time equivalent (FTE) employees (section
1106(d)(2) of the CARES Act) or reductions in employee salary or wages (section
1106(d)(3) of the CARES Act) that would otherwise apply. As such, Part III.5 of the
First Loan Forgiveness Rule, as revised by Revisions to Loan Forgiveness and Loan
Review Procedures Interim Final Rules, does not apply to borrowers of loans of $50,000
or less that use SBA Form 3508S (or lender’s equivalent form) to apply for loan
forgiveness.
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The Administrator and the Secretary determined that these exemptions are an appropriate
exercise of their joint rulemaking authority to grant de minimis exemptions under section
1106(d)(6) of the CARES Act. The Administrator and the Secretary believe that the
additional exemptions set forth above are consistent with the purposes of the CARES
Act, including to provide much-needed financial assistance to a broad range of small
businesses, and provide borrowers appropriate flexibility in the current economic climate.
The Administrator and the Secretary have determined that these exemptions are de
minimis. The purpose of the PPP is to provide financial assistance to small businesses
and their employees, and the requirements of section 1106(d) focus on the number of
employees and compensation. Consequently, in this context, both the aggregate dollar
amount of affected loans relative to the aggregate dollar amount of all PPP loans and the
number of affected employees are reasonable considerations in assessing whether an
exemption is de minimis. There are approximately 3.57 million outstanding PPP loans of
$50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans.
Approximately 1.71 million PPP loans of $50,000 or less were made to businesses that
reported having zero employees (presumably not counting the owner as an employee) or
one employee. To the extent that these businesses have no employees other than the
owner (i.e., all businesses that reported having zero employees and, in SBA’s judgment,
the majority of businesses that reported having one employee), they are not affected by
these exemptions. As a result, based on available data, we estimate that the outstanding
PPP loans of the relevant set of potentially affected borrowers (businesses with at least
one employee other than the owner) total approximately $49 billion, or 9 percent of the
overall PPP loan amount. Within this population of potentially affected loans, SBA
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believes that most borrowers would not be affected by the loan forgiveness reduction
requirements because (1) the borrowers did not reduce FTE employees or reduce
employee salaries or wages, or (2) the borrowers would qualify for one of the existing
exemptions from loan forgiveness amount reductions.2 Excluding such borrowers, the
aggregate dollar amount of PPP funds affected by these exemptions relative to the
aggregate dollar amount of all PPP funds is de minimis.
2. Changes to the Loan Review Rules
a. Alternative Loan Forgiveness Application
Because SBA is issuing another alternative Loan Forgiveness Application, SBA Form
3508S, each reference to “SBA Form 3508, 3508EZ, or lender’s equivalent form” in Part
III.1 of the First Loan Review Rule, as revised by the Revisions to Loan Forgiveness and
Loan Review Procedures Interim Final Rules, is replaced with “SBA Form 3508,
3508EZ, 3508S, or lender’s equivalent form”.
b. The Loan Forgiveness Process for Lenders
As noted above, SBA is issuing another alternative Loan Forgiveness Application, SBA
Form 3508S. This necessitates several revisions to Part III.2 of the First Loan Review
Rule, as revised by the Revisions to Loan Forgiveness and Loan Review Procedures
Interim Final Rules.
2
See 85 FR 38304, 38308 (“Borrowers are exempted from the loan forgiveness reduction arising from a
proportional reduction in FTE employees during the covered period if the borrower is able to document in good faith
the following: (1) an inability to rehire individuals who were employees of the borrower on February 15, 2020; and
(2) an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020. . . .
Borrowers are also exempted from the loan forgiveness reduction arising from a reduction in the number of FTE
employees during the covered period if the borrower is able to document in good faith an inability to return to the
same level of business activity as the borrower was operating at before February 15, 2020, due to compliance with
requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of
Health and Human Services, the Director of the Centers for Disease Control and Prevention (CDC), or the
Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social
distancing, or any other worker or customer safety requirement related to COVID-19 . . . .”).
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The following text is added as a new paragraph at the end of Part III.2.a (“What should a
lender review?”):
When a borrower submits SBA Form 3508S or lender’s equivalent form, the
lender shall:
i. Confirm receipt of the borrower certifications contained in the SBA
Form 3508S or lender’s equivalent form.
ii. Confirm receipt of the documentation the borrower must submit to aid
in verifying payroll and nonpayroll costs, as specified in the
instructions to the SBA Form 3508S or lender’s equivalent form.
Providing an accurate calculation of the loan forgiveness amount is the
responsibility of the borrower, and the borrower attests to the accuracy of its
reported information and calculations on the Loan Forgiveness Application.
The borrower shall not receive forgiveness without submitting all required
documentation to the lender.
As the First Interim Final Rule3 indicates, lenders may rely on borrower
representations. As stated in paragraph III.3.c of the First Interim Final Rule, the
lender does not need to independently verify the borrower’s reported information
if the borrower submits documentation supporting its request for loan forgiveness
and attests that it accurately verified the payments for eligible costs.
In Part III.2.b., each reference to “SBA Form 3508EZ or lender’s equivalent form” is
replaced with “SBA Form 3508EZ, 3508S, or lender’s equivalent form.”
3
85 FR 20811, 20815-20816 (April 15, 2020).
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In Part III.2.c., each reference to “SBA Form 3508, 3508EZ or lender’s equivalent form”
is replaced with “SBA Form 3508, 3508EZ, 3508S, or lender’s equivalent form.”
c. Borrower Submission of Excess Costs
In some cases, a borrower may submit to a lender documentation of eligible payroll and
nonpayroll costs that exceed the amount of the borrower’s PPP loan. To address this
situation, the following text is added as a new paragraph d. at the end of Part III.2:
d. What should a lender do if a borrower submits documentation of eligible costs
that exceed a borrower’s PPP Loan Amount?
The amount of loan forgiveness that a borrower may receive cannot exceed the
principal amount of the PPP loan. Whether a borrower submits SBA Form 3508,
3508EZ, 3508S, or lender’s equivalent form, a lender should confirm receipt of
the documentation the borrower is required to submit to aid in verifying payroll
and nonpayroll costs, and, if applicable (for SBA Form 3508, 3508EZ, or lender’s
equivalent form), confirm the borrower’s calculations on the borrower’s Loan
Forgiveness Application, up to the amount required to reach the requested
Forgiveness Amount.
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.
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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 and Treasury have 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 and Treasury have determined that this rule modifies an existing information collection.
This rule reduces the burden associated with lender review of borrower documentation of
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eligible costs for forgiveness. Additionally, SBA has developed a second streamlined Paycheck
Protection Program – PPP Loan Forgiveness Application Form 3508S (SBA Form 3508S),
which is available for borrowers meeting criteria described in the instructions accompanying the
form. SBA has obtained Office of Management and Budget (OMB) approval of the modification
to the existing information collection, which is currently approved as an emergency request
under OMB Control Number 3245-0407 until October 31, 2020.
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 small
government jurisdictions with a population of less than 50,000, neither State nor local
governments are “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
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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. Since this rule is exempt from notice and comment, SBA is not
required to conduct a regulatory flexibility analysis.
Jovita Carranza,
Administrator
Small Business Administration.
Michael Faulkender,
Assistant Secretary for Economic Policy
Department of the Treasury.
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