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S B A I N S P E C T O R G E N E R A L
FLASH REPORT
SMALL BUSINESS ADMINISTRATION’S
IMPLEMENTATION OF THE PAYCHECK PROTECTION
PROGRAM REQUIREMENTS
May 8, 2020
EXECUTIVE SUMMARY Report
No. 20-14
SMALL BUSINESS ADMINISTRATION’S
May 8,
IMPLEMENTATION OF THE PAYCHECK PROTECTION 2020
PROGRAM REQUIREMENTS
Why We Did This published in SBA’s Interim Final Rules and FAQs
issued as of April 30, 2020. We also assessed the
On April 24, 2020, the Office of Inspector General PPP borrower application and additional public
(OIG) initiated its planned review of the Small documents issued by SBA and the U.S. Department
Business Administration’s (SBA’s) implementation of the Treasury.
of the Paycheck Protection Program (PPP). Based
on this ongoing work, we produced a flash report What We Found
to meet the information needs of Senators
Schumer, Cardin, and Brown. We analyzed key We found that SBA’s Interim Final Rules for
provisions of Section 1102 of the Coronavirus Aid, implementing the PPP and SBA’s FAQs mostly
Relief, and Economic Security (CARES) Act, which aligned with the Act. We identified the following
was signed into law by the President on March 27, areas, however, that did not fully align with the
2020, to provide economic relief to our Nation, and Act’s provisions:
SBA’s Interim Final Rules and public guidance
intended to further inform stakeholders of SBA’s • Prioritizing Underserved and Rural
implementation of the PPP. Section1102, created Markets
the PPP under section 7(a) of the Small Business • Loan Proceeds Eligible for Forgiveness
Act, and the PPP provided for $349 billion in fully • Guidance on Loan Deferments
guaranteed SBA loans, which can be forgiven if • Registration of Loans
used in accordance with the Act.
SBA launched the program on April 3, 2020, and Suggested Actions for SBA
just 14 days later, by April 16, PPP lenders
approved more than 1,661,000 loans totaling To better align PPP requirements with the
nearly $342.3 billion. On April 24, 2020, the provisions of the CARES Act, we suggest SBA:
President signed the Paycheck Protection Program
and Health Care Enhancement Act to provide an • Issue guidance to lenders requiring the
additional $310 billion to the PPP. SBA initiated lenders to prioritize borrowers in
this cycle of additional funding on April 27, 2020. underserved markets and revise the
As of May 6, PPP lenders approved an additional borrower application to include collection
2,441,369 loans, totaling about $183.5 billion. The of optional demographic information for
Paycheck Protection Program and Health Care the principals for the remaining available
Enhancement Act set aside portions of the lending authority and any future lending
additional funding for smaller lenders, but there under the program.
were no other significant differences regarding • For loans that are already disbursed,
requirements for the PPP than in the CARES Act. include optional demographic information
on forms used to request loan forgiveness.
The Senators also asked that by May 8, 2020, we • Evaluate the potential negative impact to
provide recommendations on SBA’s current rules, borrowers regarding the specified
regulations, policies, and procedures to ensure percentage of loan proceeds eligible for
small businesses get the money they need and are forgiveness and update the requirements,
treated fairly by PPP lenders. as deemed necessary.
• Issue guidance to lenders on the
What We Reviewed deferment process for PPP loans.
• Register PPP loans by Taxpayer
Identification Number.
To conduct our comparative analysis, we reviewed
and assessed the regulations for the PPP and for the
Paycheck Protection Program and Health Care
Enhancement Act, in addition to guidance
Office of Inspector General
U.S. Small Business Administration
DATE: May 8, 2020
TO: Jovita Carranza
Administrator
FROM: Hannibal “Mike” Ware
Inspector General
SUBJECT: Small Business Administration’s Implementation of the Paycheck Protection
Program Requirements
On April 24, 2020, the Office of Inspector General (OIG) initiated its planned review of the Small
Business Administration’s (SBA’s) implementation of the Paycheck Protection Program (PPP).
Based on this ongoing work, we produced a flash report to meet the information needs of Senators
Schumer, Cardin, and Brown. We analyzed key provisions of the legislation, in addition to SBA’s
Interim Final Rules and public guidance intended to further inform stakeholders of SBA’s
implementation of the PPP. The Senators also asked that by May 8, 2020, we provide
recommendations on SBA’s current rules, regulations, policies, and procedures to ensure small
businesses get the money they need and are treated fairly by any PPP lender. This report presents
the results of our analysis of key provisions of Section 1102 of the CARES Act and SBA’s Interim
Final Rules and public guidance intended to further inform stakeholders of SBA’s implementation of
the Paycheck Protection Program.
Background
The President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on
March 27, 2020, to provide economic relief to our Nation. One of the Act’s largest provisions,
Section 1102, created the PPP under section 7(a) of the Small Business Act. This program provides
$349 billion in fully guaranteed SBA loans—which can be forgiven if used in accordance with the
Act—for certain eligible small businesses, individuals and non-profit organizations to cover payroll,
rent, utility payments, and other limited uses. Between March 27 and April 30, 2020, SBA published
seven Interim Final Rules and issued further guidance in 39 FAQs.
SBA was tasked with expediting the implementation of this unprecedented program to mitigate the
economic impact of social distancing efforts put forth to curb the infection rate of the COVID-19
outbreak. SBA launched the program on April 3, 2020, only 1 week after the Act was passed.
Demand for the program was extraordinary: by April 16, just 14 days after SBA launched the
program, PPP lenders approved more than 1,661,000 loans totaling nearly $342.3 billion.
Table 1 provides more specific loan information.
Table 1: Summary of Paycheck Protection Program Loans From Round 1
(Data as of 12:00 p.m., Thursday, April 16, 2020)
Loan Count Net Approved Dollars Lender Count
1,661,367 $342,277,999,103 4,975
Source: SBA PPP website.
On April 24, 2020, the President signed the Paycheck Protection Program and Health Care
Enhancement Act to provide an additional $310 billion to the PPP. SBA initiated this cycle of
additional funding on April 27. As of May 6, PPP lenders approved an additional 2,441,369 loans
totaling more than $183.5 billion. Table 2 provides more specific loan information.
Table 2: Summary of Paycheck Protection Program Round 2
(Data as of 5:00 p.m., Wednesday, May 6, 2020) 1
Lender Size Approved Loans Total Amount
>$50 B in Assets 1,147,890 $97,324,262,313
$10 B to $50 B in Assets 347,368 $28,032,705,351
<$10 B in Assets 946,111 $58,168,884,165
Total 2,441,369 $183,525,851,829
Before the PPP, SBA’s largest single year in 7(a) lending volume was approximately $25.4 billion, in
fiscal year 2017. Between April 3 and May 6, 2020, SBA lenders participating in the PPP approved
4,102,736 loans totaling more than $525.8 billion, an amount representing more than 20 times the
largest year in SBA’s history in just 33 days.
Paycheck Protection Program Statutory Authority, Formal Guidance, and
Other Guidance
Statutory Authority
The PPP provides guaranteed loans to assist certain businesses, individuals, and organizations with
getting back to work and outlines provisions for lending and forgiveness of these loans. The
Paycheck Protection Program and Healthcare Enhancement Act on April 24, 2020, provided
additional funding to the PPP. The Enhancement Act also included a set aside for insured
depository institutions, credit unions, and community financial institutions.
Formal Guidance
SBA also issued Interim Final Rules for the execution of these provisions consistent with the CARES
Act. As of April 30, 2020, SBA issued seven Interim Final Rules. Appendix I includes the Interim
Final Rules issued as of April 30, 2020.
1 The information was retrieved from SBA’s PPP Website.
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Other Guidance
Additional guidance for the PPP is contained in FAQs and specific loan program forms. As of April
30, 2020, SBA responded to 39 FAQs that addressed various aspects of program implementation.
These areas primarily related to program eligibility, loan size calculations, and loan sales on the
secondary market.
Appendix II provides a detailed comparison of the CARES Act requirements, the Interim Final Rules,
and the 39 FAQs.
Scope
The scope of our review included an assessment of the following:
• Statutory authority for the PPP (Section 1102 of the CARES Act)
• Statutory authority for the Paycheck Protection Program and Health Care Enhancement Act
• Regulations published in SBA’s seven Interim Final Rules issued as of April 30, 2020
• SBA’s guidance published as 39 FAQs issued as of April 30, 2020
• SBA’s PPP Borrower Application
• Additional public documents issued by SBA and the U.S. Department of the Treasury
Results
We found that SBA’s formal guidance, issued as its seven Interim Final Rules, for implementing the
PPP and its FAQs mostly aligned with the Act. We identified the following areas, however, that did
not fully align with the Act’s provisions:
• Prioritizing Underserved and Rural Markets
• Loan Proceeds Eligible for Forgiveness
• Guidance on Loan Deferments
• Registration of Loans
Prioritizing Underserved and Rural Markets
We did not find any evidence that SBA issued guidance to lenders to prioritize the markets
indicated by the Act. Further, SBA did not include the optional standard demographic information
for principals on its PPP loan application. Section 1102 of the CARES Act states that the
Administrator should issue guidance to lenders and agents to ensure that the processing and
disbursement of covered loans prioritizes small business concerns and entities in underserved and
rural markets, including veterans and members of the military community, small business concerns
owned and controlled by socially and economically disadvantaged individuals (as defined in section
15 U.S.C. 637(d)(3)(C)), women, and businesses in operation for under 2 years.
Because SBA did not provide guidance to lenders about prioritizing borrowers in underserved and
rural markets, these borrowers, including rural, minority and women-owned businesses may not
have received the loans as intended. In addition, because SBA did not require demographic data to
identify PPP borrowers in underserved markets, it is unlikely that SBA will be able to determine the
loan volume to the intended prioritized markets.
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Loan Proceeds Eligible for Forgiveness
We found the formal guidance in SBA’s Interim Final Rule did not align with the allowable use
requirements for PPP loans. The CARES Act details the allowable uses for PPP loans, including
payroll costs, payments of interest on any mortgage obligation (which shall not include any
prepayment of or payment of principal on a mortgage obligation), rent (including rent under a lease
agreement), utilities, and interest on any other debt obligations incurred before the covered period.
While the Act did not create any restrictions on the portion of the loan that needed to be used for
payroll, SBA added a requirement in its Interim Final Rule, that at least 75 percent of the loan
proceeds must be used for payroll. SBA, in coordination with the Secretary of the Treasury,
provided the following explanation:
While the Act provides that borrowers are eligible for forgiveness in an amount
equal to the sum of payroll costs and any payments of mortgage interest, rent, and
utilities, the Administrator has determined that the non-payroll portion of the
forgivable loan amount should be limited to effectuate the core purpose of the
statute and ensure finite program resources are devoted primarily to payroll. The
Administrator has determined in consultation with the Secretary that 75 percent is
an appropriate percentage in light of the Act’s overarching focus on keeping
workers paid and employed. Further, the Administrator and the Secretary believe
that applying this threshold to loan forgiveness is consistent with the structure of
the Act, which provides a loan amount 75 percent of which is equivalent to eight
weeks of payroll (8 weeks/2.5 months = 56 days/76 days = 74 percent rounded up
to 75 percent). Limiting non-payroll costs to 25 percent of the forgiveness amount
will align these elements of the program and will also help to ensure that the finite
appropriations available for PPP loan forgiveness are directed toward payroll
protection.
In addition to the 75-percent payroll criteria, the maturity term established by the Administrator
and the Secretary would require the borrowers to repay any amount not eligible for forgiveness
within the remainder of the initial 2-year term. The Act, however, allowed for a maximum maturity
of up to 10 years. SBA’s requirements could result in an unintended burden to the borrowers. For
example, PPP borrowers who do not use at least 75 percent of the loan for payroll (therefore use
more than 25 percent of their loan proceeds for nonpayroll expenses) may not be able to have all of
their loan forgiven. It may be important to consider that many small businesses have more
operational expenses than employee expenses. Our review of data from round one found that tens
of thousands of borrowers would not meet the 75-percent payroll cost threshold and would
therefore have to repay the amount of nonpayroll costs in excess of 25 percent in less than2 years.
Guidance on Loan Deferments
We found that SBA did not issue guidance on the deferment process for PPP loans to lenders within
30 days as required. Specifically, the Act requires SBA to provide guidance to lenders on the
deferment process within 30 days of enactment (March 27, 2020). Section 1102 of the CARES Act
requires lenders to provide complete payment deferment relief for impacted borrowers with
covered loans for a period of not less than 6 months (including payment of principal, interest, and
fees) and not more than 1 year. As of May 5, 2020, we found no evidence that SBA issued this
guidance.
Without proper and timely guidance for loan deferments, lenders and borrowers may be uncertain
about program requirements for servicing and loan repayments for PPP loans with balances
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remaining after forgiveness. Specifically, lenders may not be adequately prepared to service PPP
loans that carry balances, and borrowers may not know what is required to repay outstanding loan
balances.
Registration of Loans
We found no evidence that SBA registered the loans as required by the Act. While SBA collects the
applicant’s Taxpayer Identification Number (TIN), we did not find it registered this information.
Section 1102 states that not later than 15 days after the date on which a loan is made, SBA shall
register the loan using the TIN assigned to the borrower.
Suggested Actions for SBA
To better align PPP requirements with the provisions of the CARES Act we suggest that SBA:
• Issue guidance to lenders requiring the lenders to prioritize borrowers in underserved
markets and revise the PPP borrower application to include the collection of optional
demographic information for principals for the remaining available lending authority and
any future lending under the program.
• For loans that are already disbursed, include optional demographic information on forms
used to request loan forgiveness.
• Evaluate the potential negative impact to borrowers regarding the specified percentage of
loan proceeds eligible for forgiveness and update the requirements, as deemed necessary.
• Issue guidance to lenders on the deferment process for PPP loans.
• Register PPP loans by TIN.
Disclaimer
This report compares and contrasts key provisions of Section 1102of the CARES Act to SBA’s
Interim Final Rules and other public guidance to further inform stakeholders of SBA’s
implementation of the PPP. We are performing our ongoing review of SBA’s implementation of the
PPP under the Council of the Inspectors General for Integrity and Efficiency’s Quality Standards for
Inspection and Evaluation, but we have not prepared this flash report to meet this standard.
If you have any questions, please contact me at 202-205-6586 or Andrea Deadwyler, Assistant
Inspector General for Audits, at 202-205-6616.
cc: William Manger, Chief of Staff and Associate Administrator, Office of Capital Access
Brittany Biles, General Counsel
John Miller, Deputy Associate Administrator, Office of Capital Access
William Briggs, Deputy Associate Administrator, Office of Capital Access
Dianna Seaborn, Director, Office of Financial Assistance
Jihoon Kim, Director, Office of Financial Program Operations
Susan Streich, Director, Office of Credit Risk Management
Martin Conrey, Attorney Advisor, Legislation and Appropriations
Tami Perriello, Chief Financial Officer
Tonia Butler, Director, Office of Internal Controls
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Appendix I: Interim Final Rules
Interim Final Rule
Number Subject Date Issued
1 Paycheck Protection Program April 2, 2020
2 Affiliation Rules April 3, 2020
Additional Eligibility Criteria and Requirements for
Certain Pledges of Loans for the Paycheck Protection
3 Program April 14, 2020
Promissory Notes, Authorizations, Affiliation, and
4 Eligibility April 24, 2020
5 Seasonal Employers April 27, 2020
6 Disbursements April 28, 2020
Requirements – Corporate Groups and Non-Bank and Non-
7 Insured Depository Institution Lenders April 30, 2020
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Appendix II: Detailed Comparison
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(A)(viii) The term 'payroll Interim Final Rule 1, Issued April 2, 2020, (IFR1) FAQ # 7: The CARES Act excludes from the
costs’- Section III(2)(f). What qualifies as ‘‘payroll costs?’’ definition of payroll costs any employee
(I) means compensation in excess of an annual salary of
(aa) the sum of payments of any Payroll costs consist of compensation to $100,000. Does that exclusion apply to all
compensation with respect to employees that is employees (whose principal place of residence is employee benefits of monetary value?
a— the United States) in the form of salary, wages,
(AA) salary, wage, commission, or similar commissions, or similar compensation; cash tips Answer: No. The exclusion of compensation in
compensation; or the equivalent (based on employer records of excess of $100,000 annually applies only to cash
(BB) payment of cash tip or equivalent; past tips or, in the absence of such records, a compensation, not to non-cash benefits, including:
(CC) payment for vacation, parental, family reasonable, good-faith employer estimate of such - employer contributions to defined-benefit or
medical, or sick leave; tips); payment for vacation, parental, family, defined-contribution retirement plans;
(DD) allowance for dismissal or separation; medical, or sick leave; allowance for separation or - payment for the provision of employee benefits
(EE) payment required for the provisions dismissal; payment for the provision of employee consisting of group health care coverage, including
of group health care benefits, including benefits consisting of group health care coverage, insurance premiums; and
insurance premiums; including insurance premiums, and retirement; - payment of state and local taxes assessed on
(FF) payment of any retirement benefit; or payment of state and local taxes assessed on compensation of employees.
(GG) payment of State or local tax assessed compensation of employees; and for an
on the compensation of employees independent contractor or sole proprietor, wages, FAQ # 8: Do PPP loans cover paid sick leave?
‘‘(bb) the sum of payments of any commissions, income, or net earnings from self-
compensation to or income of a sole proprietor employment, or similar compensation. Answer: Yes. PPP loans covers payroll costs,
or independent contractor that is a wage, including costs for employee vacation, parental,
commission, income, net earnings from self family, medical, and sick leave. However, the
employment, or similar compensation and that CARES Act excludes qualified sick and family leave
is in an amount that is not more than $100,000 wages for which a credit is allowed under sections
in 1 year, as prorated for the covered period; 7001 and 7003 of the Families First Coronavirus
And Response Act (Public Law 116–127). Learn more
about the Paid Sick Leave Refundable Credit here.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(A)(viii) The term 'payroll IFR1 Section III(2)(f). What qualifies as ‘‘payroll FAQ # 7: The CARES Act excludes from the
costs’- costs?’’ definition of payroll costs any employee
‘‘(II) shall not include— compensation in excess of an annual salary of
‘‘(aa) the compensation of an individual Payroll costs consist of compensation to $100,000. Does that exclusion apply to all
employee in excess of an annual salary of employees (whose principal place of residence is employee benefits of monetary value?
$100,000, as prorated for the covered period; the United States) in the form of salary, wages,
‘‘(bb) taxes imposed or withheld under commissions, or similar compensation; cash tips Answer: No. The exclusion of compensation in
chapters 21, 22, or 24 of the Internal Revenue or the equivalent (based on employer records of excess of $100,000 annually applies only to cash
Code of 1986 during the covered period; past tips or, in the absence of such records, a compensation, not to non-cash benefits, including:
‘‘(cc) any compensation of an employee whose reasonable, good-faith employer estimate of such - employer contributions to defined-benefit or
principal place of residence is outside of the tips); payment for vacation, parental, family, defined-contribution retirement plans;
United States; medical, or sick leave; allowance for separation or - payment for the provision of employee benefits
‘‘(dd) qualified sick leave wages for which a dismissal; payment for the provision of employee consisting of group health care coverage, including
credit is allowed under section 7001 of the benefits consisting of group health care coverage, insurance premiums; and
Families First Coronavirus Response Act including insurance premiums, and retirement; - payment of state and local taxes assessed on
(Public Law 116–127); or payment of state and local taxes assessed on compensation of employees.
‘‘(ee) qualified family leave wages for which a compensation of employees; and for an
credit is allowed under section 7003 of the independent contractor or sole proprietor, wages,
Families First Coronavirus Response Act commissions, income, or net earnings from self-
(Public Law 116–127); employment, or similar compensation.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(B) PAYCHECK PROTECTION IFR1 Section III(4)a. What are the loan terms and We did not identify any FAQ that related directly
LOANS.— conditions? to this requirement.
Except as otherwise provided in this paragraph,
the Administrator may guarantee covered loans Loans will be guaranteed under the PPP under the
under the same terms, conditions, and processes same terms, conditions and processes as other
as a loan made under this subsection. 7(a) loans, with certain changes including but not
limited to:
i. The guarantee percentage is 100 percent.
ii. No collateral will be required.
iii. No personal guarantees will be required.
iv. The interest rate will be 100 basis points or
one percent.
v. All loans will be processed by all lenders under
delegated authority and lenders will be
permitted to rely on certifications of the
borrower in order to determine eligibility of the
borrower and the use of loan proceeds.
Section 1102(a)(2)(C) REGISTRATION OF We did not identify any requirements in the We did not identify any FAQ that related directly
LOANS.— Interim Final Rules as of April 30, 2020 that to this requirement.
Not later than 15 days after the date on which a related directly to this requirement.
loan is made under this paragraph, the
Administration shall register the loan using
the TIN (as defined in section 7701 of the Internal
Revenue Code of 1986) assigned to the borrower.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D) INCREASED ELIGIBILITY IFR1 Section III(2)(a) Am I eligible? FAQ # 2: Are small business concerns (as defined
FOR CERTAIN SMALL BUSINESSES AND in section 3 of the Small Business Act, 15 U.S.C.
ORGANIZATIONS.— You are eligible for a PPP loan if you have 500 or 632) required to have 500 or fewer employees to
‘‘(i) IN GENERAL.—During the covered period, in fewer employees whose principal place of be eligible borrowers in the PPP?
addition to small business concerns, any residence is in the United States, or are a business
business concern, nonprofit organization, that operates in a certain industry and meet the Answer: No. Small business concerns can be
veterans organization, or Tribal business applicable SBA employee-based size standards for eligible borrowers even if they have more than
concern described in section 31(b)(2)(C) shall be that industry, and: 500 employees, as long as they satisfy the existing
eligible to receive a covered loan if the business i. You are: statutory and regulatory definition of a “small
concern, nonprofit organization, veterans A. A small business concern as defined in business concern” under section 3 of the Small
organization, or Tribal business concern employs section 3 of the Small Business Act (15 USC Business Act, 15 U.S.C. 632. A business can qualify
not more than the greater of— 632), and subject to SBA’s affiliation rules if it meets the SBA employee-based or revenue-
‘‘(I) 500 employees; or under 13 CFR 121.301(f) unless specifically based size standard corresponding to its primary
‘‘(II) if applicable, the size standard in number waived in the Act; industry. Go to www.sba.gov/size for the industry
of employees established by the Administration B. A tax-exempt nonprofit organization size standards.
for the industry in which the business concern, described in section 501(c)(3) of the Internal
nonprofit organization, veterans organization, Revenue Code (IRC), a tax-exempt veterans Additionally, a business can qualify for the
or Tribal business concern operates. organization described in section 501(c)(19) of Paycheck Protection Program as a small business
the IRC, Tribal business concern described in concern if it met both tests in SBA’s “alternative
section 31(b)(2)(C) of the Small Business Act, size standard” as of March 27, 2020: (1) maximum
or any other business; and tangible net worth of the business is not more
ii. You were in operation on February 15, 2020 than $15 million; and (2) the average net income
and either had employees for whom you paid after Federal income taxes (excluding any carry-
salaries and payroll taxes or paid independent over losses) of the business for the two full fiscal
contractors, as reported on a Form 1099-MISC. years before the date of the application is not
You are also eligible for a PPP loan if you are an more than $5 million.
individual who operates under a sole
proprietorship or as an independent contractor A business that qualifies as a small business
or eligible self-employed individual, you were in concern under section 3 of the Small Business Act,
operation on February 15, 2020. 15 U.S.C. 632, may truthfully attest to its eligibility
for PPP loans on the Borrower Application Form,
unless otherwise ineligible.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(ii) INCLUSION OF SOLE IFR1 Section III(2)(a) Am I eligible? FAQ # 15: Should payments that an eligible
PROPRIETORS, INDEPENDENT borrower made to an independent contractor or
CONTRACTORS, AND ELIGIBLE SELF-EMPLOYED You are also eligible for a PPP loan if you are an sole proprietor be included in calculations of the
INDIVIDUALS.— individual who operates under a sole eligible borrower’s payroll costs?
‘‘(I) IN GENERAL.—During the covered period, proprietorship or as an independent contractor or
individuals who operate under a sole eligible self-employed individual, you were in Answer: No. Any amounts that an eligible
proprietorship or as an independent contractor operation on February 15, 2020. borrower has paid to an independent contractor
and eligible self-employed individuals shall be or sole proprietor should be excluded from the
eligible to receive a covered loan. You must also submit such documentation as is eligible business’s payroll costs. However, an
‘‘(II) DOCUMENTATION.—An eligible self- necessary to establish eligibility such as payroll independent contractor or sole proprietor will
employed individual, independent contractor, or processor records, payroll tax filings, or Form itself be eligible for a loan under the PPP, if it
sole proprietorship seeking a covered loan shall 1099-MISC, or income and expenses from a sole satisfies the applicable requirements.
submit such documentation as is necessary to proprietorship. For borrowers that do not have
establish such individual as eligible, including any such documentation, the borrower must
payroll tax filings reported to the Internal provide other supporting documentation, such as
Revenue Service, Forms 1099–MISC, and income bank records, sufficient to demonstrate the
and expenses from the sole proprietorship, as qualifying payroll amount. SBA intends to
determined by the Administrator and the promptly issue additional guidance with regard to
Secretary. the applicability of affiliation rules at 13 CFR §§
121.103 and 121.301 to PPP loans
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(iii) BUSINESS CONCERNS Interim Final Rule on Applicable Affiliation Rules, FAQ # 24: How do the $10 million cap and
WITH MORE THAN 1 PHYSICAL LOCATION.— Issued April 3, 2020, (IFR2) Section III(1) affiliation rules work for hotels and restaurants
During the covered period, any business concern (and any business assigned a North American
that employs not more than 500 employees per How do SBA’s affiliation rules affect my eligibility Industry Classification System (NAICS) code
physical location of the business concern and that and apply to me under the PPP? beginning with 72)?
is assigned a North American Industry
Classification System code beginning with 72 at An entity generally is eligible for the PPP if it, Answer: Under the CARES Act, any single business
the time of disbursal shall be eligible to receive a combined with its affiliates, is a small business as entity that is assigned a NAICS code beginning
covered loan. defined in section 3 of the Small Business Act (15 with 72 (including hotels and restaurants) and
U.S.C. 632), or (1) has 500 or fewer employees that employs not more than 500 employees per
whose principal place of residence is in the United physical location is eligible to receive a PPP loan.
States or is a business that operates in a certain
industry and meets applicable SBA employee- In addition, SBA’s affiliation rules (13 CFR 121.103
based size standards for that industry, and (2) is a and 13 CFR 121.301) do not apply to any business
tax-exempt nonprofit organization described in entity that is assigned a NAICS code beginning
section 501(c)(3) of the Internal Revenue Code with 72 and that employs not more than a total of
(IRC), a tax-exempt veterans organization 500 employees. As a result, if each hotel or
described in section 501(c)(19) of the IRC, a Tribal restaurant location owned by a parent business is
business concern described in section 31(b)(2)(C) a separate legal business entity, each hotel or
of the Small Business Act, or any other business restaurant location that employs not more than
concern. Prior to the Act, the nonprofit 500 employees is permitted to apply for a
organizations listed above were not eligible for separate PPP loan provided it uses its unique EIN.
SBA Business Loan Programs under section 7(a) of
the Small Business Act; only for-profit small The $10 million maximum loan amount limitation
business concerns were eligible. *For brevity, we applies to each eligible business entity, because
excluded additional text from the Interim Final individual business entities cannot apply for more
Rule. than one loan. The following examples illustrate
how these principles apply.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(iv) WAIVER OF IFR2 Section III. Affiliate Rules for Paycheck FAQ # 23: How do the $10 million cap and
AFFILIATION RULES.—During the covered period, Protection Program affiliation rules work for franchises?
the provisions applicable to affiliations under
section 121.103 of title 13, Code of Federal 1. Affiliation Rules Generally Answer: If a franchise brand is listed on the SBA
Regulations, or any successor regulation, are Franchise Directory, each of its franchisees that
waived with respect to eligibility for a covered Are affiliates considered together for purposes of meets the applicable size standard can apply for a
loan for— determining eligibility? PPP loan. (The franchisor does not apply on behalf
‘‘(I) any business concern with not more than of its franchisees.) The $10 million cap on PPP
500 employees that, as of the date on which the In most cases, a borrower will be considered loans is a limit per franchisee entity, and each
covered loan is disbursed, is assigned a North together with its affiliates for purposes of franchisee is limited to one PPP loan.
American Industry Classification System code determining eligibility for the PPP.
beginning with 72; Franchise brands that have been denied listing on
‘‘(II) any business concern operating as a Section 7(a)(36)(D)(iv) of the Small Business Act the Directory because of affiliation between
franchise that is assigned a franchise identifier (15 U.S.C. 636(a)(36)(D)(iv), as added by the Act, franchisor and franchisee may request listing to
code by the Administration; and waives the affiliation rules contained in § 121.103 receive PPP loans. SBA will not apply affiliation
‘‘(III) any business concern that receives for (1) any business concern with not more than rules to a franchise brand requesting listing on the
financial assistance from a company licensed 500 employees that, as of the date on which the Directory to participate in the PPP, but SBA will
under section 301 of the Small Business loan is disbursed, is assigned a North American confirm that the brand is otherwise eligible for
Investment Act of 1958 (15 U.S.C. 681). Industry Classification System code beginning listing on the Directory.
with 72; (2) any business concern operating as a
franchise that is assigned a franchise identifier
code by the Administration; and (3) any business
concern that receives financial assistance from a
company licensed under section 301 of the Small
Business Investment Act of 1958 (15 U.S.C. 681).
This Interim Final Rule has no effect on these
statutory waivers, which remain in full force and
effect. As a result, the affiliation rules contained in
section 121.301 also do not apply to these types of
entities.
14
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(v) EMPLOYEE.—For IFR2 Section III(3) § 121.103 How does SBA FAQ 36: To determine borrower eligibility under
purposes of determining whether a business determine affiliation?” the 500-employee or other applicable threshold
concern, nonprofit organization, veterans established by the CARES Act, must a borrower
organization, or Tribal business concern described In addition, the eligibility criteria set forth in 15 count all employees or only full-time equivalent
in section 31(b)(2)(C) employs not more than 500 U.S.C. 636(a)(36)(D) are satisfied for any faith employees?
employees under clause (i)(I), the term ‘employee’ based organization having not more than 500
includes individuals employed on a full-time, part- employees (including individuals employed on a Answer: For purposes of loan eligibility, the
time, or other basis. full-time, part-time, or other basis) that pays CARES Act defines the term employee to include
federal payroll taxes using its own Internal “individuals employed on a full-time, part-time, or
Revenue Service Employer Identification Number other basis.” A borrower must therefore calculate
(EIN) or that would be eligible for a deduction the total number of employees, including part-
under the second sentence of 26 U.S.C. 512(b)(12) time employees, when determining their
if the organization earned unrelated business employee headcount for purposes of the eligibility
taxable income. threshold. For example, if a borrower has 200 full-
time employees and 50 part-time employees each
working 10 hours per week, the borrower has a
total of 250 employees. By contrast, for purposes
of loan forgiveness, the CARES Act uses the
standard of “fulltime equivalent employees” to
determine the extent to which the loan forgiveness
amount will be reduced in the event of workforce
reductions.
15
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(D)(vi) AFFILIATION.—The IFR2 Section III(1) How do SBA’s affiliation rules FAQ 3: Does my business have to qualify as a small
provisions applicable to affiliations under section affect my eligibility and apply to me under the business concern (as defined in section 3 of the
121.103 of title 13, Code of Federal Regulations, or PPP? Small Business Act, 15 U.S.C. 632) in order to
any successor thereto, shall apply with respect to a participate in the PPP?
nonprofit organization and a veterans The Act made such nonprofit organizations not
organization in the same manner as with respect only eligible for the PPP, but also subjected them Answer: In addition to small business concerns, a
to a small business concern. to SBA’s affiliation rules. Specifically, section 1102 business is eligible for a PPP loan if the business
of the Act provides that the provisions applicable has 500 or fewer employees whose principal place
to affiliations under 13 CFR 121.103 apply with of residence is in the United States, or the business
respect to nonprofit organizations and veterans meets the SBA employee-based size standards for
organizations in the same manner as with respect the industry in which it operates (if applicable).
to small business concerns. However, the detailed Similarly, PPP loans are also available for
affiliation standards contained in section 121.103 qualifying tax-exempt nonprofit organizations
currently do not apply to PPP borrowers, because described in section 501(c)(3) of the Internal
section 121.103(a)(8) provides that applicants in Revenue Code (IRC), tax-exempt veterans
SBA’s Business Loan Programs (which include the organization described in section 501(c)(19) of
PPP) are subject to the affiliation rule contained in the IRC, and Tribal business concerns described in
13 CFR 121.301. section 31(b)(2)(C) of the Small Business Act that
have 500 or fewer employees whose principal
place of residence is in the United States, or meet
the SBA employee-based size standards for the
industry in which they operate.
16
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(E) MAXIMUM LOAN IFR1 Section III(2)d. I have determined that I am FAQ 9: My small business is a seasonal business
AMOUNT.—During the covered period, with eligible. How much can I borrow? whose activity increases from April to June.
respect to a covered loan, the maximum loan Considering activity from that period would be a
amount shall be the lesser of— Under the PPP, the maximum loan amount is the more accurate reflection of my business’s
‘‘(i)(I) the sum of— lesser of $10 million or an amount that you will operations. However, my small business was not
‘‘(aa) the product obtained by multiplying— calculate using a payroll-based formula specified fully ramped up on February 15, 2020. Am I still
‘‘(AA) the average total monthly payments by in the Act, as explained below. eligible?
the applicant for payroll costs incurred during
the 1-year period before the date on which the Section III(2)e. How do I calculate the maximum Answer: In evaluating a borrower’s eligibility, a
loan is made, except that, in the case of an amount I can borrow? lender may consider whether a seasonal borrower
applicant that is seasonal employer, as was in operation on February 15, 2020 or for an 8-
determined by the Administrator, the average The following methodology, which is one of the week period between February 15, 2019 and June
total monthly payments for payroll shall be for methodologies contained in the Act, will be most 30, 2019.
the 12-week period beginning February 15, useful for many applicants.
2019, or at the election of the eligible recipient, i. Step 1: Aggregate payroll costs (defined in
March 1, 2019, and ending June 30, 2019; by detail below in f.) from the last twelve months
‘‘(BB) 2.5; and for employees whose principal place of residence
‘‘(bb) the outstanding amount of a loan under is the United States.
subsection (b)(2) that was made during the ii. Step 2: Subtract any compensation paid to an
period beginning on January 31, 2020 and employee in excess of an annual salary of
ending on the date on which covered loans are $100,000 and/or any amounts paid to an
made available to be refinanced under the independent contractor or sole proprietor in
covered loan; or excess of $100,000 per year.
iii. Step 3: Calculate average monthly payroll
costs (divide the amount from Step 2 by 12).
iv. Step 4: Multiply the average monthly payroll
costs from Step 3 by 2.5.
v. Step 5: Add the outstanding amount of an
Economic Injury Disaster Loan (EIDL) made
between January 31, 2020 and April 3, 2020, less
the amount of any ‘‘advance’’ under an EIDL
COVID–19 loan (because it does not have to be
repaid).
17
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
(II) if requested by an otherwise eligible (Continued from previous page) FAQ 14: What time period should borrowers use
recipient that was not in business during the to determine their number of employees and
period beginning on February 15, 2019 and payroll costs to calculate their maximum loan
ending on June 30, 2019, the sum of— amounts?
‘‘(aa) the product obtained by multiplying—
‘‘(AA) the average total monthly payments by Answer: In general, borrowers can calculate their
the applicant for payroll costs incurred during aggregate payroll costs using data either from the
the period beginning on January 1, 2020 and previous 12 months or from calendar year 2019.
ending on February 29, 2020; by For seasonal businesses, the applicant may use
‘‘(BB) 2.5; and average monthly payroll for the period between
‘‘(bb) the outstanding amount of a loan under February 15, 2019, or March 1, 2019, and June 30,
subsection (b)(2) that was made during the 2019. An applicant that was not in business from
period beginning on January 31, 2020 and February 15, 2019 to June 30, 2019 may use the
ending on the date on which covered loans are average monthly payroll costs for the period
made available to be refinanced under the January 1, 2020 through February 29, 2020.
covered loan; or
‘‘(ii) $10,000,000. Borrowers may use their average employment
over the same time periods to determine their
number of employees, for the purposes of
applying an employee-based size standard.
Alternatively, borrowers may elect to use SBA’s
usual calculation: the average number of
employees per pay period in the 12 completed
calendar months prior to the date of the loan
application (or the average number of employees
for each of the pay periods that the business has
been operational, if it has not been operational for
12 months).
18
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F) ALLOWABLE USES OF IFR1 Section III(2)r. FAQ 7: The CARES Act excludes from the definition
COVERED LOANS.— of payroll costs any employee compensation in
‘‘(i) IN GENERAL.—During the covered period, The proceeds of a PPP loan are to be used for: excess of an annual salary of $100,000. Does that
an eligible recipient may, in addition to the exclusion apply to all employee benefits of
allowable uses of a loan made under this i. payroll costs (as defined in the Act and in 2.f.); monetary value?
subsection, use the proceeds of the covered loan ii. costs related to the continuation of group
for— health care benefits during periods of paid sick, Answer: No. The exclusion of compensation in
‘‘(I) payroll costs; medical, or family leave, and insurance excess of $100,000 annually applies only to cash
‘‘(II) costs related to the continuation of group premiums; compensation, not to non-cash benefits, including:
health care benefits during periods of paid sick, iii. mortgage interest payments (but not - employer contributions to defined-benefit or
medical, or family leave, and insurance mortgage prepayments or principal payments); defined-contribution retirement plans;
premiums; iv. rent payments; - payment for the provision of employee benefits
‘‘(III) employee salaries, commissions, or v. utility payments; consisting of group health care coverage, including
similar compensations; vi. interest payments on any other debt insurance premiums; and
‘‘(IV) payments of interest on any mortgage obligations that were incurred before February - payment of state and local taxes assessed on
obligation (which shall not include any 15, 2020; and/or compensation of employees.
prepayment of or payment of principal on a vii. refinancing an SBA EIDL loan made between
mortgage obligation); January 31, 2020 and April 3, 2020. If you FAQ 8: Do PPP loans cover paid sick leave?
‘‘(V) rent (including rent under a lease received an SBA EIDL loan from January 31,
agreement); 2020 through April 3, 2020, you can apply for a Answer: Yes. PPP loans covers payroll costs,
‘‘(VI) utilities; and PPP loan. If your EIDL loan was not used for including costs for employee vacation, parental,
‘‘(VII) interest on any other debt obligations payroll costs, it does not affect your eligibility for family, medical, and sick leave. However, the
that were incurred before the covered period. a PPP loan. If your EIDL loan was used for CARES Act excludes qualified sick and family leave
payroll costs, your PPP loan must be used to wages for which a credit is allowed under sections
refinance your EIDL loan. Proceeds from any 7001 and 7003 of the Families First Coronavirus
advance up to $10,000 on the EIDL loan will be Response Act (Public Law 116–127). Learn more
deducted from the loan forgiveness amount on about the Paid Sick Leave Refundable Credit here.
the PPP loan.
However, at least 75 percent of the PPP loan
proceeds shall be used for payroll costs.
19
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
(Continued from previous page) (Continued from previous page) FAQ 15: Should payments that an eligible
borrower made to an independent contractor or
sole proprietor be included in calculations of the
eligible borrower’s payroll costs?
Answer: No. Any amounts that an eligible
borrower has paid to an independent contractor
or sole proprietor should be excluded from the
eligible business’s payroll costs. However, an
independent contractor or sole proprietor will
itself be eligible for a loan under the PPP, if it
satisfies the applicable requirements.
FAQ 32: Does the cost of a housing stipend or
allowance provided to an employee as part of
compensation count toward payroll costs?
Answer: Yes. Payroll costs includes all cash
compensation paid to employees, subject to the
$100,000 annual compensation per employee
limitation.
20
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F)(ii) DELEGATED IFR1 Section III(3)a. Who is eligible to make PPP We did not identify any FAQ that related directly
AUTHORITY.— loans? to this requirement.
‘‘(I) IN GENERAL.—For purposes of making
covered loans for the purposes described in i. All SBA 7(a) lenders are automatically
clause (i), a lender approved to make loans approved to make PPP loans on a delegated
under this subsection shall be deemed to have basis.
been delegated authority by the Administrator to ii. The Act provides that the authority to make
make and approve covered loans, subject to the PPP loans can be extended to additional lenders
provisions of this paragraph. determined by the Administrator and the
‘‘(II) CONSIDERATIONS.—In evaluating the Secretary to have the necessary qualifications to
eligibility of a borrower for a covered loan with process, close, disburse, and service loans made
the terms described in this paragraph, a lender with the SBA guarantee. Since SBA is authorized
shall consider whether the borrower— to make PPP loans up to $349 billion by June 30,
‘‘(aa) was in operation on February 15, 2020; 2020, the Administrator and the Secretary have
and jointly determined that authorizing additional
‘‘(bb)(AA) had employees for whom the lenders is necessary to achieve the purpose of
borrower paid salaries and payroll taxes; or allowing as many eligible borrowers as possible
‘‘(BB) paid independent contractors, as to receive loans by the June 30, 2020 deadline.
reported on a Form 1099–MISC.
21
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F)(iii) ADDITIONAL IFR1 Section III(3)(a)(iii). The following types of FAQ 22: I am a non-bank lender that meets all
LENDERS.—The authority to make loans under lenders have been determined to meet the criteria applicable criteria of the PPP Interim Final Rule.
this paragraph shall be extended to additional and are eligible to make PPP loans unless they Will I be automatically enrolled as a PPP lender?
lenders determined by the Administrator and the currently are designated in Troubled Condition by What criteria will SBA and the Treasury
Secretary of the Treasury to have the necessary their primary Federal regulator or are subject to a Department use to assess whether to approve my
qualifications to process, close, disburse and formal enforcement action with their primary application to participate as a PPP lender?
service loans made with the guarantee of the Federal regulator that addresses unsafe or
Administration. unsound lending practices: Answer: We encourage lenders that are not
I. Any federally insured depository institution or currently 7(a) lenders to apply in order to
any federally insured credit union; increase the scope of PPP lending options and the
II. Any Farm Credit System institution (other speed with which PPP loans can be disbursed to
than the Federal Agricultural Mortgage help small businesses across America. We
Corporation) as defined in 12 U.S.C. 2002(a) that recognize that financial technology solutions can
applies the requirements under the Bank Secrecy promote efficiency and financial inclusion in
Act and its implementing regulations (collectively, implementing the PPP. Applicants should submit
BSA) as a federally regulated financial institution, SBA Form 3507 and the relevant attachments to
or functionally equivalent requirements that are NFRLApplicationForPPP@sba.gov. Submission of
not altered by this rule; and the SBA Form 3507 does not result in automatic
III. Any depository or non-depository financing enrollment in the PPP. SBA and the Treasury
provider that originates, maintains, and services Department will evaluate each application from a
business loans or other commercial financial non-bank or non-insured depository institution
receivables and participation interests; has a lender and determine whether the applicant has
formalized compliance program; applies the the necessary qualifications to process, close,
requirements under the BSA as a federally disburse, and service PPP loans made with SBA’s
regulated financial institution, or the BSA guarantee. SBA may request additional
requirements of an equivalent federally regulated information from the applicant before making a
financial institution; has been operating since at determination.
least February 15, 2019, and has originated,
maintained, and serviced more than $50 million in
business loans or other commercial financial
receivables during a consecutive 12 month period
in the past 36 months, or is a service provider to
any insured depository institution that has a
22
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
(Continued from previous page) contract to support such institution’s lending (Continued from previous page)
activities in accordance with 12 U.S.C. 1867(c) and
is in good standing with the appropriate Federal
banking agency.
23
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F)(iv) REFINANCE.—A loan IFR1 Section III(2)(r)vii. Refinancing an SBA EIDL We did not identify any FAQ that related directly
made under subsection (b)(2) during the period loan made between January 31, 2020 and April 3, to this requirement.
beginning on January 31, 2020 and ending on the 2020. If you received an SBA EIDL loan from
date on which covered loans are made available January 31, 2020 through April 3, 2020, you can
may be refinanced as part of a covered loan. apply for a PPP loan. If your EIDL loan was not
used for payroll costs, it does not affect your
eligibility for a PPP loan. If your EIDL loan was
used for payroll costs, your PPP loan must be used
to refinance your EIDL loan. Proceeds from any
advance up to $10,000 on the EIDL loan will be
deducted from the loan forgiveness amount on the
PPP loan.
24
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(F)(v) NONRECOURSE.— IFR1 Section III(2)s. What happens if PPP loan We did not identify any FAQ that related directly
Notwithstanding the waiver of the personal funds are misused? to this requirement.
guarantee requirement or collateral under
subparagraph (J), the Administrator shall have no If you use PPP funds for unauthorized purposes,
recourse against any individual shareholder, SBA will direct you to repay those amounts. If you
member, or partner of an eligible recipient of a knowingly use the funds for unauthorized
covered loan for nonpayment of any covered loan, purposes, you will be subject to additional liability
except to the extent that such shareholder, such as charges for fraud. If one of your
member, or partner uses the covered loan shareholders, members, or partners uses PPP
proceeds for a purpose not authorized under funds for unauthorized purposes, SBA will have
clause (i). recourse against the shareholder, member, or
partner for the unauthorized use.
25
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(G) BORROWER IFR1 Section III(2)t. What certifications need to be FAQ 31: Do businesses owned by large companies
REQUIREMENTS.— made? with adequate sources of liquidity to support the
‘‘(i) CERTIFICATION.—An eligible recipient On the Paycheck Protection Program application, business’s ongoing operations qualify for a PPP
applying for a covered loan shall make a good an authorized representative of the applicant must loan?
faith certification— certify in good faith to all of the below:
‘‘(I) that the uncertainty of current economic i. The applicant was in operation on February Answer: In addition to reviewing applicable
conditions makes necessary the loan request to 15, 2020 and had employees for whom it paid affiliation rules to determine eligibility, all
support the ongoing operations of the eligible salaries and payroll taxes or paid independent borrowers must assess their economic need for a
recipient; contractors, as reported on a Form 1099–MISC. PPP loan under the standard established by the
‘‘(II) acknowledging that funds will be used to ii. Current economic uncertainty makes this CARES Act and the PPP regulations at the time of
retain workers and maintain payroll or make loan request necessary to support the ongoing the loan application. Although the CARES Act
mortgage payments, lease payments, and utility operations of the Applicant. suspends the ordinary requirement that
payments; iii. The funds will be used to retain workers borrowers must be unable to obtain credit
‘‘(III) that the eligible recipient does not have and maintain payroll or make mortgage interest elsewhere (as defined in section 3(h) of the Small
an application pending for a loan under this payments, lease payments, and utility payments; Business Act), borrowers still must certify in good
subsection for the same purpose and I understand that if the funds are knowingly used faith that their PPP loan request is necessary.
duplicative of amounts applied for or received for unauthorized purposes, the Federal Specifically, before submitting a PPP application,
under a covered loan; and Government may hold me legally liable such as all borrowers should review carefully the required
‘‘(IV) during the period beginning on February for charges of fraud. As explained above, not certification that “[c]urrent economic uncertainty
15, 2020 and ending on December 31, 2020, more than 25 percent of loan proceeds may be makes this loan request necessary to support the
that the eligible recipient has not received used for non-payroll costs. ongoing operations of the Applicant.” Borrowers
amounts under this subsection for the same vi. During the period beginning on February must make this certification in good faith, taking
purpose and duplicative of amounts applied for 15, 2020 and ending on December 31, 2020, the into account their current business activity and
or received under a covered loan. applicant has not and will not receive another their ability to access other sources of liquidity
loan under this program. sufficient to support their ongoing operations in a
manner that is not significantly detrimental to the
Note: For brevity, we excluded certifications iv, v, business.
vii, and viii from the Interim Final Rule.
Note: For brevity, we limited the text above to
sections of the answer to FAQ 31 related to this
topic.
26
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(H) FEE WAIVER.—During the IFR1 Section III(4)b. Are there any fee waivers? We did not identify any FAQ that related directly
covered period, with respect to a covered loan— to this requirement.
‘‘(i) in lieu of the fee otherwise applicable under i. There will be no up-front guarantee fee
paragraph (23)(A), the Administrator shall payable to SBA by the Borrower;
collect no fee; and ii. There will be no lender’s annual service fee
‘‘(ii) in lieu of the fee otherwise applicable (‘‘on-going guaranty fee’’) payable to SBA;
under paragraph (18)(A), the Administrator iii. There will be no subsidy recoupment fee;
shall collect no fee. and
iv. There will be no fee payable to SBA for any
guarantee sold into the secondary market.
Section 1102(a)(2)(I) CREDIT ELSEWHERE.— Section III(3)e. Do lenders have to apply the FAQ 31: Do businesses owned by large companies
During the covered period, the requirement that a ‘‘credit elsewhere test’’? with adequate sources of liquidity to support the
small business concern is unable to obtain credit business’s ongoing operations qualify for a PPP
elsewhere, as defined in section 3(h), shall not No. When evaluating an applicant’s eligibility loan?
apply to a covered loan. lenders will not be required to apply the ‘‘credit
elsewhere test’’ (as set forth in section 7(a)(1)(A) Answer: Although the CARES Act suspends the
of the Small Business Act (15 U.S.C. 636) and SBA ordinary requirement that borrowers must be
regulations at 13 CFR 120.101)). unable to obtain credit elsewhere (as defined in
section 3(h) of the Small Business Act), borrowers
still must certify in good faith that their PPP loan
request is necessary.
Note: For of brevity, we limited the text above to
sections of the answer to FAQ 31 related to this
topic.
27
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(J) WAIVER OF PERSONAL IFR1 Section III(4)a. What are the loan terms and We did not identify any FAQ that related directly
GUARANTEE REQUIREMENT.— During the conditions? to this requirement.
covered period, with respect to a covered loan—
‘‘(i) no personal guarantee shall be required for Loans will be guaranteed under the PPP under
the covered loan; and the same terms, conditions and processes as other
‘‘(ii) no collateral shall be required for the 7(a) loans, with certain changes including but not
covered loan. limited to:
i. The guarantee percentage is 100 percent.
ii. No collateral will be required.
iii. No personal guarantees will be required.
iv. The interest rate will be 100 basis points or
one percent.
v. All loans will be processed by all lenders
under delegated authority and lenders will be
permitted to rely on certifications of the
borrower in order to determine eligibility of the
borrower and the use of loan proceeds.
28
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(K) MATURITY FOR LOANS IFR1 Section III(2)j. What will be the maturity date We did not identify any FAQ that related directly
WITH REMAINING BALANCE AFTER on a PPP loan? to this requirement.
APPLICATION OF FORGIVENESS.—With respect to
a covered loan that has a remaining balance after The maturity is two years. While the Act
reduction based on the loan forgiveness amount provides that a loan will have a maximum
under section 1106 of the CARES Act— maturity of up to ten years from the date the
‘‘(i) the remaining balance shall continue to be borrower applies for loan forgiveness (described
guaranteed by the Administration under this below), the Administrator, in consultation with the
subsection; and Secretary, determined that a two year loan term is
‘‘(ii) the covered loan shall have a maximum sufficient in light of the temporary economic
maturity of 10 years from the date on which the dislocations caused by the coronavirus.
borrower applies for loan forgiveness under that Specifically, the considerable economic disruption
section. caused by the coronavirus is expected to abate
well before the two year maturity date such that
borrowers will be able to re-commence business
operations and pay off any outstanding balances
on their PPP loans.
29
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(L) INTEREST RATE IFR1 Section III(2)i. What is the interest rate on a We did not identify any FAQ that related directly
REQUIREMENTS.—A covered loan shall bear an PPP loan? to this requirement.
interest rate not to exceed 4 percent. The interest rate will be 100 basis points or one
percent.
The Administrator, in consultation with the
Secretary, determined that a one percent interest
rate is appropriate. First, it provides low cost
funds to borrowers to meet eligible payroll costs
and other eligible expenses during this temporary
period of economic dislocation caused by the
coronavirus. Second, for lenders, the 100 basis
points offers an attractive interest rate relative to
the cost of funding for comparable maturities. For
example, the FDIC’s weekly national average rate
for a 24-month CD deposit product for the week of
March 30, 2020 is 42 basis points for non-jumbo
and 44 basis points for jumbo
(https://www.fdic.gov/regulations/resources/rat
es/). Third, the interest rate is higher than the
yield on Treasury securities of comparable
maturity. For example, the yield on the Treasury
two-year note is approximately 23 basis points.
This higher yield combined with the fact that the
loans are 100 percent guaranteed by the SBA and
the fact that lenders will receive a substantial
processing fee from the SBA provide ample
inducement for lenders to participate in the PPP.
30
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(M) LOAN DEFERMENT.— IFR1 Section III(2)n. When will I have to begin We did not identify any FAQ that related directly
‘‘(i) DEFINITION OF IMPACTED BORROWER.— paying principal and interest on my PPP loan? to this requirement.
‘‘(I) IN GENERAL.—In this subparagraph, the
term ‘impacted borrower’ means an eligible You will not have to make any payments for six
recipient that— months following the date of disbursement of the
‘‘(aa) is in operation on February 15, 2020; loan. However, interest will continue to accrue on
and PPP loans during this six-month deferment. The
‘‘(bb) has an application for a covered loan Act authorizes the Administrator to defer loan
that is approved or pending approval on or payments for up to one year. The Administrator
after the date of enactment of this paragraph. determined, in consultation with the Secretary,
‘‘(II) PRESUMPTION.—For purposes of this that a six-month deferment period is appropriate
subparagraph, an impacted borrower is in light of the modest interest rate (one percent)
presumed to have been adversely impacted by on PPP loans and the loan forgiveness provisions
COVID–19. contained in the Act.
‘‘(ii) DEFERRAL.—During the covered period,
the Administrator shall—
‘‘(I) consider each eligible recipient that
applies for a covered loan to be an impacted
borrower; and
‘‘(II) require lenders under this subsection to
provide complete payment deferment relief for
impacted borrowers with covered loans for a
period of not less than 6 months, including
payment of principal, interest, and fees, and not
more than 1 year.
31
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(M)(iii) SECONDARY We did not identify any requirements in the We did not identify any FAQ that related directly
MARKET.—During the covered period, with Interim Final Rules issued to date that related to this requirement.
respect to a covered loan that is sold on the directly to this requirement.
secondary market, if an investor declines to
approve a deferral requested by a lender under
clause (ii), the Administrator shall exercise the
authority to purchase the loan so that the
impacted borrower may receive a deferral for a
period of not less than 6 months, including
payment of principal, interest, and fees, and not
more than 1 year.
Section 1102(a)(2)(M)(iv) GUIDANCE.—Not later We did not identify any requirements in the We did not identify any FAQ that related directly
than 30 days after the date of enactment of this Interim Final Rules issued to date that related to this requirement.
paragraph, the Administrator shall provide directly to this requirement.
guidance to lenders under this paragraph on the
deferment process described in this
subparagraph.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(N) SECONDARY MARKET IFR1 Section III(4)b. Are there any fee waivers? FAQ 30: Can a lender sell a PPP loan into the
SALES.—A covered loan shall be eligible to be sold secondary market?
in the secondary market consistent with this iv. There will be no fee payable to SBA for any
subsection. The Administrator may not collect any guarantee sold into the secondary market. Answer: Yes. A PPP loan may be sold into the
fee for any guarantee sold into the secondary secondary market at any time after the loan is fully
market under this subparagraph. IFR1 Section III(4)d. Can PPP loans be sold into disbursed. A secondary market sale of a PPP loan
the secondary market? does not require SBA approval. A PPP loan sold
into the secondary market is 100% SBA
Yes. A PPP loan may be sold on the secondary guaranteed. A PPP loan may be sold on the
market after the loan is fully disbursed. A PPP loan secondary market at a premium or a discount to
may be sold on the secondary market at a par value.
premium or a discount to par value. SBA will issue
guidance regarding any advance purchase for
loans sold in the secondary market.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(O) REGULATORY CAPITAL We did not identify any requirements in the We did not identify any FAQ that related directly
REQUIREMENTS.— Interim Final Rules issued to date that related to this requirement.
‘‘(i) RISK WEIGHT.—With respect to the directly to this requirement.
appropriate Federal banking agencies or the
National Credit Union Administration Board
applying capital requirements under their
respective risk-based capital requirements, a
covered loan shall receive a risk weight of zero
percent.
‘‘(ii) TEMPORARY RELIEF FROM TDR
DISCLOSURES.—Notwithstanding any other
provision of law, an insured depository
institution or an insured credit union that
modifies a covered loan in relation to COVID–19-
related difficulties in a troubled debt
restructuring on or after March 13, 2020, shall
not be required to comply with the Financial
Accounting Standards Board Accounting
Standards Codification Subtopic 310–40
(‘Receivables – Troubled Debt Restructurings by
Creditors’) for purposes of compliance with the
requirements of the Federal Deposit Insurance
Act (12 U.S.C. 1811 et seq.), until such time and
under such circumstances as the appropriate
Federal banking agency or the National Credit
Union Administration Board, as applicable,
determines appropriate.
34
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(P) REIMBURSEMENT FOR IFR1 Section III(3)d. What fees will lenders be We did not identify any FAQ that related directly
PROCESSING.— paid? to this requirement.
‘‘(i) IN GENERAL.—The Administrator shall
reimburse a lender authorized to make a covered SBA will pay lenders fees for processing PPP loans
loan at a rate, based on the balance of the in the following amounts:
financing outstanding at the time of i. Five (5) percent for loans of not more than
disbursement of the covered loan, of— $350,000;
‘‘(I) 5 percent for loans of not more than ii. Three (3) percent for loans of more than
$350,000; $350,000 and less than $2,000,000; and
‘‘(II) 3 percent for loans of more than iii. One (1) percent for loans of at least
$350,000 and less than $2,000,000; and $2,000,000.
‘‘(III) 1 percent for loans of not less than
$2,000,000. IFR1 Section III(4)c. Who pays the fee to an agent
‘‘(ii) FEE LIMITS.—An agent that assists an who assists a borrower?
eligible recipient to prepare an application for a
covered loan may not collect a fee in excess of Agent fees will be paid by the lender out of the
the limits established by the Administrator. fees the lender receives from SBA. Agents may not
‘‘(iii) TIMING.—A reimbursement described in collect fees from the borrower or be paid out of
clause (i) shall be made not later than 5 days the PPP loan proceeds. The total amount that an
after the disbursement of the covered loan. agent may collect from the lender for assistance in
preparing an application for a PPP loan (including
referral to the lender) may not exceed:
i. One (1) percent for loans of not more than
$350,000;
ii. 0.50 percent for loans of more than $350,000
and less than $2 million; and
iii. 0.25 percent for loans of at least $2 million.
The Act authorizes the Administrator to establish
limits on agent fees. The Administrator, in
consultation with the Secretary, determined that
the agent fee limits set forth above are reasonable
35
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
(Continued from previous page) based upon the application requirements and the (Continued from previous page)
fees that lenders receive for making PPP loans.
36
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(P)(iv) SENSE OF THE IFR1 Section III(2)m. Is the PPP “first-come, first- We did not identify any FAQ that related directly
SENATE.—It is the sense of the Senate that the served?” to this requirement.
Administrator should issue guidance to lenders
and agents to ensure that the processing and Yes.
disbursement of covered loans prioritizes small
business concerns and entities in underserved and
rural markets, including veterans and members of
the military community, small business concerns
owned and controlled by socially and
economically disadvantaged individuals (as
defined in section 8(d)(3)(C)), women, and
businesses in operation for less than 2 years.
Note: This citation is the same as 637(d)(3)( C).
37
CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(a)(2)(Q) DUPLICATION.—Nothing in IFR1 Section III(2)(r)vii. How can PPP loans be We did not identify any FAQ that related directly
this paragraph shall prohibit a recipient of an used? to this requirement.
economic injury disaster loan made under
subsection (b)(2) during the period beginning on Refinancing an SBA EIDL loan made between
January 31, 2020 and ending on the date on which January 31, 2020 and April 3, 2020. If you received
covered loans are made available that is for a an SBA EIDL loan from January 31, 2020 through
purpose other than paying payroll costs and other April 3, 2020, you can apply for a PPP loan. If your
obligations described in subparagraph (F) from EIDL loan was not used for payroll costs, it does
receiving assistance under this paragraph. not affect your eligibility for a PPP loan. If your
EIDL loan was used for payroll costs, your PPP
loan must be used to refinance your EIDL loan.
Section 1102(a)(2)(R) WAIVER OF PREPAYMENT
PENALTY.—Notwithstanding any other provision
of law, there shall be no prepayment penalty for
any payment made on a covered loan.’’.
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CARES Act Requirement Interim Final Rule Related Frequently Asked Questions
Section 1102(b) COMMITMENTS FOR 7(A) IFR1 Section III.(1) General- SBA is authorized to We did not identify any FAQ that related directly
LOANS.—During the period beginning on guarantee loans under the PPP through June 30, to this requirement.
February 15, 2020 and ending on June 30, 2020— 2020. Congress authorized a program level of
(1) the amount authorized for commitments for $349,000,000,000 to provide guaranteed loans
general business loans authorized under section under this new 7(a) program.
7(a) of the Small Business Act (15 U.S.C. 636(a)),
including loans made under paragraph (36) of
such section, as added by subsection (a), shall be
$349,000,000,000; and
39