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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 120 and 121
Docket Number SBA-2020-0029
RIN 3245-AH43
Business Loan Program Temporary Changes; Paycheck Protection Program – Eligibility of
Certain Electric Cooperatives
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 additional eligibility requirements
for certain electric cooperatives, 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-2020-0029 through the
Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting
comments. SBA will post all comments on www.regulations.gov. If you wish to submit
confidential business information (CBI) as defined in the User Notice at www.regulations.gov,
please send an email to ppp-ifr@sba.gov. Highlight the information that you consider to be CBI
and explain why you believe SBA should hold this information as confidential. SBA will review
the information and make the final determination whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-572-0502,
or the local SBA Field Office; the list of offices can be found at https://www.sba.gov/tools/local-
assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019
(COVID-19) pandemic of sufficient severity and magnitude to warrant an emergency declaration
for all States, territories, and the District of Columbia. With the COVID-19 emergency, many
small businesses nationwide are experiencing economic hardship as a direct result of the Federal,
State, tribal, and local public health measures that are being taken to minimize the public’s
exposure to the virus. These measures, some of which are government-mandated, are being
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implemented nationwide and include the closures of restaurants, bars, and gyms. In addition,
based on the advice of public health officials, other measures, such as keeping a safe distance
from others or even stay-at-home orders, are being implemented, resulting in a dramatic decrease
in economic activity as the public avoids malls, retail stores, and other businesses.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic
Security Act (the CARES Act) (Pub. L. 116-136) to provide emergency assistance and health
care response for individuals, families, and businesses affected by the coronavirus pandemic.
The Small Business Administration (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.
Among the categories of entities that are eligible PPP borrowers are business concerns and
certain nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code (the
Code). This interim final rule addresses the eligibility of electric cooperatives as PPP borrowers.
Existing SBA regulations define a “business concern” as “a business entity organized for profit,”
subject to certain limitations. 13 CFR 121.105(a)(1). Generally, electric cooperatives are
organizations that are owned and controlled by members who receive services from the
cooperative. Electric cooperatives periodically return any excess of net operating revenues over
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their cost of operations – generally referred to as “savings” – to their member-owners. In
addition, electric cooperatives meeting the description of section 501(c)(12) of the Code may be
exempt from federal income taxation under section 501(a) of the Code. To qualify for the
exemption, an electric cooperative must receive at least 85 percent of its income each year from
its members. The 85 percent member income test is computed annually. An electric cooperative
may be exempt in one year, lose exemption in another year if it does not derive at least 85
percent of its income from members, and become exempt in a third year. Because of their
potential tax exemption under section 501(c)(12) of the Code, electric cooperatives have faced
uncertainty about their eligibility to receive PPP loans.
The Administrator, in consultation with the Secretary, understands that electric cooperatives
are unusual in that they may be exempt from taxation or organized under state nonprofit statutes
in certain jurisdictions, while they operate as businesses. For example, electric cooperatives
provide utility services and distribute savings to their member-owners. Accordingly, as
described below, to provide certainty to potential PPP loan applicants, this interim final rule
provides that, for purposes of the PPP, an electric cooperative that is exempt from federal income
taxation under section 501(c)(12) of the Code will be considered to be “a business entity
organized for profit” under 13 CFR 121.105(a)(1). As a result, such electric cooperatives are
eligible PPP borrowers, as long as other eligibility requirements are met.
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 date provided in the Administrative
Procedure Act. Specifically, it is critical to meet lenders’ and borrowers’ need for clarity
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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. 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 Additional Eligibility Criteria
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
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23917, 85 FR 26321, 85 FR 26324, and 85 FR 27287) and posted on May 8, 2020 (collectively,
the PPP Interim Final Rules).
1. Eligibility of Certain Electric Cooperatives
Are electric cooperatives that are exempt from federal income taxation under section
501(c)(12) of the Internal Revenue Code eligible for a PPP loan?
Yes. Electric cooperatives provide utility services and distribute savings to their
member-owners. Accordingly, for purposes of the PPP, the Administrator, in
consultation with the Secretary, has determined that an electric cooperative that is exempt
from federal income taxation under section 501(c)(12) of the Internal Revenue Code will
be considered to be “a business entity organized for profit” for purposes of 13 CFR
121.105(a)(1). As a result, such entities are eligible PPP borrowers, as long as other
eligibility requirements are met. To be eligible, an electric cooperative must satisfy the
employee-based size standard established in the CARES Act, SBA’s employee-based
size standard corresponding to its primary industry, if higher, or both tests in SBA’s
“alternative size standard.” 1 The Administrator, in consultation with the Secretary, has
determined that this treatment is appropriate to effectuate the purposes of the CARES Act
to provide assistance to eligible PPP borrowers, including business concerns, affected by
the COVID-19 emergency.
2. Additional Information
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Under the alternative size standard, a business concern, including an electric cooperative, can qualify for the PPP
as a small business concern if, as of March 27, 2020: (1) the maximum tangible net worth of the business was not
more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses)
of the business for the two full fiscal years before the date of the application is not more than $5 million. For an
electric cooperative that does not have net income, the cooperative’s savings distributed to its owner-members will
be considered its net income.
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SBA may provide further guidance, if needed, through SBA notices that will be posted on
SBA’s website at www.sba.gov. Questions on the Paycheck Protection Program may be directed
to the Lender Relations Specialist in the local SBA Field Office. The local SBA Field Office
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance with Executive Orders 12866, 12988, 13132, 13563, and 13771, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C.
601-612).
Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the purposes of Executive Orders
12866 and 13563, and is considered a major rule under the Congressional Review Act. SBA,
however, is proceeding under the emergency provision at Executive Order 12866 Section
6(a)(3)(D) based on the need to move expeditiously to mitigate the current economic conditions
arising from the COVID-19 emergency. This rule’s designation under Executive Order 13771
will be informed by public comment.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance with the standards set forth
in section 3(a) and 3(b)(2) of Executive Order 12988, to minimize litigation, eliminate
ambiguity, and reduce burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
SBA has determined that this rule will not have substantial direct effects on the States, on the
relationship between the National Government and 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.
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Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA has determined that this rule will not impose new or modify existing recordkeeping or
reporting requirements under the Paperwork Reduction Act.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when an agency issues a
proposed rule, or a final rule pursuant to section 553(b) of the APA or another law, the agency
must prepare a regulatory flexibility analysis that meets the requirements of the RFA and publish
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically, the RFA normally
requires agencies to describe the impact of a rulemaking on small entities by providing a
regulatory impact analysis. Such analysis must address the consideration of regulatory options
that would lessen the economic effect of the rule on small entities. The RFA defines a “small
entity” as (1) a proprietary firm meeting the size standards of the Small Business Administration
(SBA); (2) a nonprofit organization that is not dominant in its field; or (3) a small government
jurisdiction with a population of less than 50,000. 5 U.S.C. 601(3)–(6). Except for such small
government jurisdictions, neither State nor local governments are “small entities.” Similarly, for
purposes of the RFA, individual persons are not small entities. The requirement to conduct a
regulatory impact analysis does not apply if the head of the agency “certifies that the rule will
not, if promulgated, have a significant economic impact on a substantial number of small
entities.” 5 U.S.C. 605(b). The agency must, however, publish the certification in the Federal
Register at the time of publication of the rule, “along with a statement providing the factual basis
for such certification.” If the agency head has not waived the requirements for a regulatory
flexibility analysis in accordance with the RFA’s waiver provision, and no other RFA exception
applies, the agency must prepare the regulatory flexibility analysis and publish it in the Federal
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Register at the time of promulgation or, if the rule is promulgated in response to an emergency
that makes timely compliance impracticable, within 180 days of publication of the final rule. 5
U.S.C. 604(a), 608(b). Rules that are exempt from notice and comment are also exempt from the
RFA requirements, including conducting a regulatory flexibility analysis, when among other
things the agency for good cause finds that notice and public procedure are impracticable,
unnecessary, or contrary to the public interest. SBA Office of Advocacy guide: How to Comply
with the Regulatory Flexibility Act, Ch.1. p.9. Accordingly, SBA is not required to conduct a
regulatory flexibility analysis.
Jovita Carranza,
Administrator.
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