Paycheck Protection Program – Revisions to the Third and Sixth Interim Final Rules
Summary
Interim final rule of the Small Business Administration, Docket No SBA-2020-0037, revising the Third and Sixth Interim Final Rules of the Paycheck Protection Program to conform to the Paycheck Protection Program Flexibility Act of 2020, signed June 5, 2020. It reflects the extension of the covered period for issuing and using loans from June 30, 2020 to December 31, 2020, and the minimum maturity of five years for loans made on or after June 5, 2020, with earlier loans extendable to five years by mutual agreement of borrower and lender. Provisions on loan forgiveness are effective March 27, 2020, because the Flexibility Act made those amendments retroactive to the CARES Act.
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket No. SBA-2020-0037]
RIN 3245-AH51
Business Loan Program Temporary Changes; Paycheck Protection Program – Revisions to
the Third and Sixth Interim Final Rules
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 SBA’s 7(a) Loan Program. Subsequently, SBA and
Treasury issued additional interim final rules implementing the Paycheck Protection Program.
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 website on April 14, 2020 (published in the Federal Register on April 20, 2020)
and April 28, 2020 (published in the Federal Register on May 4, 2020), by changing provisions
to conform to the Flexibility Act. Several of these amendments are retroactive to the date of
enactment of the CARES Act, as required by section 3(d) of the Flexibility Act.
DATES: Effective Dates: The provisions in this interim final rule related to loan forgiveness for
PPP loans are effective March 27, 2020. The provision in this interim final rule relating to the
maturity date of PPP loans is effective June 5, 2020. The remaining 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 number SBA-2020-0037, 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.
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 changes key provisions of the Paycheck
Protection Program, including provisions relating to the maturity of PPP loans, the deferral of
PPP loan payments, and the forgiveness of PPP loans. Section 3(d) of the Flexibility Act
provides that the amendments relating to PPP loan forgiveness and extension of the deferral
period for PPP loans shall be effective as if included in the CARES Act, which means that they
are retroactive to March 27, 2020. Section 2 of the Flexibility Act provides that the amendment
relating to the extension of the maturity date for PPP loans shall take effect on the date of
enactment (June 5, 2020). Under the Flexibility Act, the extension of the maturity date for PPP
loans is applicable to PPP loans made on or after that date, and lenders and borrowers may
mutually agree to modify PPP loans made before such date to reflect the longer maturity.
II. Comments and Retroactive/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 expires
on June 30, 2020, and that many PPP borrowers can now apply for loan forgiveness following
the end of their eight-week covered period. Providing borrowers and lenders with certainty on
both loan requirements and loan forgiveness requirements following the enactment of the
Flexibility Act will enhance the ability of lenders to make loans and process loan forgiveness
applications, particularly in light of the fact that most of the Flexibility Act’s provisions are
retroactive to March 27, 2020. Specifically, small businesses that have yet to apply for and
receive a PPP loan need to be informed of the terms of PPP loans as soon as possible, because
the last day on which a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.
Borrowers who already have applied for and received a PPP loan need certainty regarding how
loan proceeds must be used during the covered period, as amended by the Flexibility Act, so that
they can maximize the amount of loan forgiveness. These same reasons provide good cause for
SBA to dispense with the 30-day delayed effective date provided in the Administrative
Procedure Act. 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 rules amended by this interim
final rule, which were posted on April 14 and April 28, 2020 (and published in the Federal
Register on April 20, 2020 and May 4, 2020, respectively), and the need for making any
revisions as a result of these comments.
III. Paycheck Protection Program – Revisions to Third and Sixth Interim Final Rules
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 Flexibility Act amends the CARES Act,
including its provisions relating to loan terms and loan forgiveness. The purpose of this interim
final rule is to update the Interim Final Rule on Additional Eligibility Criteria and Requirements
for Certain Pledges of Loans (Third Interim Final Rule), posted on SBA’s website on April 14,
2020 and published in the Federal Register on April 20, 2020 (85 FR 21747), and the Interim
Final Rule on Disbursements (Sixth Interim Final Rule), posted on SBA’s website on April 28,
2020 and published in the Federal Register on May 4, 2020 (85 FR 26321), in light of the
amendments under the Flexibility Act. The Third Interim Final Rule and the Sixth Interim Final
Rule, each as amended by this interim final rule, should be interpreted 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 Third Interim Final Rule
a. Use of PPP Loan Proceeds
Under section 1102 of the CARES Act, certain provisions regarding the issuance and use of
PPP loans are limited to the “covered period.” “Covered period,” as that term is used in
section 1102 of the CARES Act, was originally defined as the period from February 15,
2020, to June 30, 2020. However, section 3(a) of the Flexibility Act extended the “covered
period” as defined in section 1102 until December 31, 2020. Therefore, Part III.1.d.(iii.) of
the Third Interim Final Rule (85 FR 21747, 21749) is revised by striking “during the eight-
week period following the first disbursement of the loan (the “covered period”)” and “during
the covered period”.
Section 2(a) of the Flexibility Act provides a minimum maturity of five years for all PPP
loans made on or after the date of enactment of the Flexibility Act (June 5, 2020), and
permits lenders and borrowers to extend the maturity date of earlier PPP loans by mutual
agreement. Therefore, Part III.1.d.v. of the Third Interim Final Rule (85 FR 21747, 21749) is
revised by striking “PPP’s maturity of two years” and replacing it with “PPP’s maturity of
two years for PPP loans made before June 5, 2020 unless the borrower and lender mutually
agree to extend the maturity of such loans to five years, or PPP’s maturity of five years for
PPP loans made on or after June 5”.
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.
Section 3(b) of the Flexibility Act amended the requirements regarding forgiveness of PPP
loans to reduce, from 75 percent to 60 percent, the portion of PPP loan proceeds that must be
used for payroll costs for the full amount of the PPP loan to be eligible for forgiveness.
Consistent with this change, SBA’s interim final rule posted on June 11, 2020, decreased
from 75 percent to 60 percent the portion of loan proceeds that must be used for payroll
costs. Therefore, Part III.1.e. of the Third Interim Final Rule (85 FR 21747, 21750) is
revised to read as follows:
e. Are there any other restrictions on how I can use PPP loan proceeds?
Yes. At least 60 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 60 percent floor is contained in the First PPP
Interim Final Rule and SBA’s interim final rule posted on June 11, 2020.
b. Loan Forgiveness
Under section 1106 of the CARES Act, certain provisions regarding the forgiveness of PPP
loans are limited to the “covered period.” “Covered period,” as that term is used in section
1106 of the CARES Act, was originally defined as the eight-week period beginning on the
date of the origination of a covered loan. However, section 3(b) of the Flexibility Act
extended the length of the covered period as defined in section 1106 of the CARES Act from
eight to 24 weeks, while allowing borrowers that received PPP loans before June 5, 2020 to
elect to use the original eight-week covered period. As noted above, section 3(b) of the
Flexibility Act also amended the requirements regarding forgiveness of PPP loans to reduce,
from 75 percent to 60 percent, the amount of PPP loan proceeds that must be used for payroll
costs for the full amount of the PPP loan to be eligible for forgiveness. Therefore, Part
III.1.f. of the Third Interim Final Rule (85 FR 21747, 21750) is revised to read as follows:
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 24-week period beginning on the date your PPP
loan is disbursed3 (“covered period”) on:
i. payroll costs including salary, wages, and tips, up to $100,000 of
annualized pay per employee (for 24 weeks, a maximum of $46,154 per
individual,4 or 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 (up to $15,385) for
an eight-week covered period or 2.5 months’ worth (2.5/12) of 2019 net
profit (up to $20,833) for a 24-week covered period, but excluding any
qualified sick leave equivalent amount for which a credit is claimed under
3 If your PPP loan was made before June 5, 2020, you may elect to have your covered period be the eight-week
period beginning on the date your PPP loan was disbursed. In addition, under section 3(b)(1) of the Paycheck
Protection Program Flexibility Act of 2020 (Flexibility Act), the covered period of any borrower will end no later
than December 31, 2020.
4 Given the 2.5 multiplier in the calculation of maximum PPP loan amount in SBA Form 2483, this per-individual
maximum would only be reached if the borrower had reduced its FTEs but was eligible for an exemption (safe
harbor) from the resulting reduction in forgiveness.
section 7002 of the Families First Coronavirus Response Act (FFCRA)
(Public Law 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 or F to either eight
weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered
period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week
covered period per owner in total across all businesses. This approach is consistent
with the structure of the CARES Act and its overarching focus on keeping workers
paid, and will prevent windfalls that Congress did not intend. Specifically, Congress
determined that the maximum loan amount is generally based on 2.5 months of the
borrower’s average total monthly payroll costs during the one-year period preceding
the loan. 15 U.S.C. 636(a)(36)(E). For example, a borrower with one other employee
would receive a maximum loan amount equal to five months of payroll (2.5 months
of payroll for the owner plus 2.5 months of payroll for the employee). If the owner
laid off the employee and availed itself of the safe harbor in the Flexibility Act from
reductions in loan forgiveness for a borrower that is unable to return to the same level
of business activity the business was operating at before February 15, 2020, the
owner could treat the entire amount of the PPP loan as payroll, with the entire loan
being forgiven. This would not only result in a windfall for the owner, by providing
the owner with five months of payroll instead of 2.5 months, but also defeat the
purpose of the CARES Act of protecting the paycheck of the employee. For
borrowers with no employees, this limitation will have no effect, because the
maximum loan amount for such borrowers already includes only 2.5 months of their
payroll. Finally, at least 60 percent of the amount forgiven must be attributable to
payroll costs, for the reasons specified in the First PPP Interim Final Rule and SBA’s
interim final rule posted on June 11, 2020.
In addition, Part III.1.g. of the Third Interim Final Rule (85 FR 21747, 21750) is
revised by striking “eight-week”.
2. Changes to the Sixth Interim Final Rule
As described above, section 3(b) of the Flexibility Act extended the length of the covered
period as defined in section 1106 of the CARES Act from eight to 24 weeks, while allowing
borrowers that received PPP loans before June 5, 2020 to elect to use the original eight-week
covered period. Therefore, Part III.1.a. of the Sixth Interim Final Rule (85 FR 26321, 26322-
23) is revised by striking both references to “eight-week covered period” and replacing them
with “covered period”.
3. 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
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 not 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. 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); Paycheck Protection Program Flexibility Act of 2020, Pub. L.
No. 116-142; Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, Section
1114.
Jovita Carranza,
Administrator
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