Business Loan Program Temporary Changes; Paycheck Protection Program – Loan Increases
Summary
Interim final rule of the Small Business Administration, Docket Number SBA-2020-2028, on loan increases under the Paycheck Protection Program. Some loans to partnerships and seasonal employers were approved before guidance issued on April 14, 2020 and April 28, 2020, so those borrowers may not have received the maximum amount for which they are eligible. The rule authorizes all lenders to increase existing loans to partnerships to cover partner compensation, up to $100,000 annualized per general active partner, or to let seasonal employers recalculate their maximum loan amount using the alternative criterion. It applies to applications submitted through June 30, 2020, or until funds are exhausted.
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
Docket Number SBA-2020-2028
RIN 3245-AH42
Business Loan Program Temporary Changes; Paycheck Protection Program – Loan
Increases
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 announcing the implementation of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act). The CARES Act temporarily adds a new
program, titled the “Paycheck Protection Program,” to the SBA’s 7(a) Loan Program.
The CARES Act also 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). SBA posted additional interim final rules
on April 3, 2020, April 14, 2020, April 24, 2020, April 28, 2020, April 30, 2020, May 5,
2020, and May 8, 2020, and the Department of the Treasury posted an additional interim
final rule on April 28, 2020. This interim final rule supplements the previously posted
interim final rules by providing guidance on the ability to increase certain PPP loans, and
requests public comment.
DATES: Effective date: This rule is effective [INSERT DATE OF PUBLICATION IN
THE FEDERAL REGISTER].
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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 [INSERT DATE 30 DAYS
AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].
ADDRESSES: You may submit comments, identified by number SBA-2020-2028
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
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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 stay-at-home orders, are
being implemented, resulting in a dramatic decrease in economic activity as the public
limits activity at 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.
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
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date provided in the Administrative Procedure Act. Specifically, it is critical to meet
lenders’ and borrowers’ need for clarity concerning program requirements as rapidly as
possible because the last day eligible borrowers can apply for and receive a loan is June
30, 2020.
This interim final rule supplements previous regulations and guidance on an
important, discrete issue. The immediate effective date of this interim final rule will
benefit lenders so that they can swiftly close and disburse loans to small businesses. 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. In addition, SBA has determined that there is
good cause for dispensing with advance public notice and comment on the ground that it
would be contrary to the public interest. Specifically, SBA has determined that advance
public notice and comment would delay the ability of certain businesses to obtain
increases in their PPP loan amounts in order to ensure they obtain the maximum amount
that they are eligible for under current guidance (guidance that was not available at the
time their PPP loans were approved). 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 [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE
FEDERAL REGISTER]. SBA will consider these comments and the need for making
any revisions as a result of these comments.
III. Paycheck Protection Program Requirements for Loan Increases
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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 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 interim final rules
published by SBA and the Department of the Treasury in the Federal Register (85 FR
20811, 85 FR 20817, 85 FR 21747, 85 FR 23450, 85 FR 23917, 85 FR 26321, 85 FR
26324, 85 FR 27287), and an additional SBA interim final rule posted on May 8, 2020
(collectively, the PPP Interim Final Rules).
On April 14, 2020, SBA posted an interim final rule that, among other things,
provided guidance for individuals with self-employment income (85 FR 21747). The
interim final rule stated, “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.”
On April 28, 2020, the Department of the Treasury posted an interim final rule that
provided an alternative criterion for calculating the maximum loan amount for PPP loans
issued to seasonal employers (85 FR 23917).
Some PPP loans were approved to partnerships or seasonal employers before the
additional guidance was issued and, as a result, those businesses may not have received
PPP loans in the maximum amount for which they are eligible. This interim final rule
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authorizes all PPP lenders to increase existing PPP loans to partnerships or seasonal
employers to include appropriate amounts to cover partner compensation in accordance
with the interim final rule posted on April 14, 2020, or to permit the seasonal employer to
calculate its maximum loan amount using the alternative criterion posted on April 28,
2020.
In addition, although the interim final rule on disbursements posted on April 28,
2020, requires PPP loans to be disbursed in a single disbursement, if a PPP loan that is
increased has already been disbursed, this interim final rule authorizes the lender to make
an additional disbursement of the increased loan proceeds prior to submission of the
initial SBA Form 1502 that includes that loan. SBA Form 1502 is required to be
submitted within 20 calendar days after a PPP loan is approved or, for loans approved
before availability of the updated SBA Form 1502 reporting process, by May 22, 2020.1
1. Loan Increases
a. If a partnership received a PPP loan that did not include any compensation for its
partners, can the loan amount be increased to include partner compensation?
Yes. If a partnership received a PPP loan that only included amounts necessary
for payroll costs of the partnership’s employees and other eligible operating
expenses, but did not include any amount for partner compensation,2 the lender
may electronically submit a request through SBA’s E-Tran Servicing site to
increase the PPP loan amount to include appropriate partner compensation, even
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SBA extended the deadline for submission of the initial SBA Form 1502 for such loans from May 18,
2020 to May 22, 2020, in its interim final rule posted on May 8, 2020.
2
As set forth in the interim final rule posted on April 14, 2020, a partner in a partnership may not submit a
separate PPP loan application 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.
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if the loan has been fully disbursed, provided that the lender’s first SBA Form
1502 report to SBA on the PPP loan has not been submitted. After the initial
SBA Form 1502 report on the PPP loan has been submitted to SBA, or after the
date the first SBA Form 1502 was required to be submitted to SBA, the loan
cannot be increased. In no event can the increased loan amount exceed the
maximum loan amount allowed under the PPP Program, which is $10 million for
an individual borrower or $20 million for a corporate group. Additionally, the
borrower must provide the lender with required documentation to support the
calculation of the increase.
The interim final rule posted on April 14, 2020, describes how partnerships, rather
than individual partners are eligible for a PPP loan. The interim final rule further
explained that the self-employment income of general active partners could be
reported as a payroll cost, up to $100,000 annualized, on a PPP loan application
filed by or on behalf of the partnership. Guidance describing how to calculate
partnership PPP loan amounts and defining the self-employment income of
partners was posted on April 24, 2020 (see How to Calculate Maximum Loan
Amounts, Question 4 at https://www.sba.gov/sites/default/files/2020-04/How-to-
Calculate-Loan-Amounts.pdf).
b. If a seasonal employer received a PPP loan before the alternative criterion for
determining the maximum loan amount for seasonal employers became available,
can the loan amount be increased based on a revised calculation using the
alternative criterion?
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Yes. If a seasonal employer received a PPP loan before the alternative criterion
for such employers was posted on April 28, 2020, and would be eligible for a
higher maximum loan amount under the alternative criterion, the lender may
electronically submit a request through SBA’s E-Tran Servicing site to increase
the PPP loan amount, even if the loan has been fully disbursed, provided that the
lender’s first SBA Form 1502 report to SBA on the PPP loan has not been
submitted. After the initial SBA Form 1502 report has been submitted to SBA, or
after the date the initial SBA Form 1502 report was required to be submitted to
SBA, the loan cannot be increased. In no event can the increased loan amount
exceed the maximum loan amount allowed under the PPP Program, which is $10
million for an individual borrower or $20 million for a corporate group.
Additionally, the borrower must provide the lender with required documentation
to support the calculation of the increase.
2. Disbursements and 1502 Reporting on Increased PPP Loans
a. If a borrower’s PPP loan has already been fully disbursed, can the lender make
an additional disbursement for the increased loan proceeds?
Yes. Notwithstanding the requirement set forth in paragraph 1.a. of the interim
final rule on disbursements posted on April 28, 2020, i.e., that lenders make a
one-time, full disbursement of the PPP loan within ten calendar days of loan
approval, if a PPP loan is increased under paragraphs 1.a. or b. above, the lender
may make a single additional disbursement of the increased loan proceeds prior to
submission of the initial SBA Form 1502 report for that loan.
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b. How do lenders report disbursements on PPP loans that are increased and does
the increase in the loan delay the timeframe to report the loan on the SBA Form
1502?
SBA set forth in the interim final rule on disbursements and 1502 reporting posted
on April 28, 2020, the process lenders must follow to electronically upload SBA
Form 1502 information on PPP loans. The interim final rule provided that lenders
must submit the SBA Form 1502 information within 20 calendar days after a PPP
loan is approved or, for loans approved before availability of the updated SBA
Form 1502 reporting process, by May 18, 2020. In its interim final rule posted on
May 8, 2020, SBA revised that date from May 18, 2020 to May 22, 2020.
Lenders must comply with the initial 1502 reporting deadline. SBA may review
at any time an increase submitted by the lender to confirm that the increase was
submitted within the required timeframe; increases submitted outside the required
timeframe will not be forgiven and no processing fee will be earned on such
amounts. Additionally, lenders are not entitled to processing fees on increases
submitted outside of the required timeframe.
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 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.
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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
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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.
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