Paycheck Protection Program Interim Rule Issued

The Small Business Administration has issued an interim final rule that provides additional implementation guidelines and requirements for its Paycheck Protection Program (PPP) to aid small businesses hit hard by the COVID-19 crisis.


$349 billion in forgivable loans are available to small businesses to cover payroll costs and certain operating expenses. The program takes effect immediately. June 30, 2020 is the last day to apply for and receive a PPP loan.

The new rule provides clarity on several issues:

Who is eligible to lend?
All SBA 7(a) lenders are automatically approved to make PPP loans on a delegated basis. The authority to make PPP loans can be extended to additional lenders determined by the Administrator and the Secretary to have the necessary qualifications to process, close, disburse, and service loans made with the SBA guarantee. View Lender Agreement here.

Who is eligible to borrow?
Eligible borrowers must have 500 or fewer employees and satisfy SBA definitions of “small business concern” or are a tax-exempt non-profit organization described in section 501(c)(3) or 501(c)(19) of the Internal Revenue Code, or are a Tribal business concern, and were in operation with employees or independent contractors on Feb 15, 2020. Sole proprietors or independent contractors or eligible self-employed individuals may also be eligible if in operation on Feb 15, 2020.

Can credit unions apply as borrowers for 7(a) loans?
Unlikely. 

Credit unions may be eligible under III(2)(a)(i)(B):

"A. A small business concern as defined in section 3 of the Small Business Act (15 USC 632), and subject to SBA’s affiliation rules under 13 CFR 121.301(f) unless specifically waived in the Act;

B. A tax-exempt nonprofit organization described in section 501(c)(3) of the Internal Revenue Code (IRC), a tax-exempt veterans organization described in section 501(c)(19) of the IRC, Tribal business concern described in section 31(b)(2)(C) of the Small Business Act, or any other business; and

ii. You were in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC"

However, this is unlikely without further clarification because the interim rule later specifies that businesses that are ineligible under 13 CFR § 120.110 (b), which includes businesses primarily engaged in the business of lending, and are not otherwise included in the interim rule (credit unions are not) are still ineligible.

What qualifies as “payroll costs?”
A small business is eligible to borrow the lesser of $10 million or an amount that is calculated using a formula in the CARES Act. Payroll costs consist of:
• Compensation to employees in the form of salary, wages, commissions, or similar compensation; The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary is expressly excluded.
• Payment for vacation, parental, family, medical, or sick leave;
• Allowance for separation or dismissal;
• Payment for the provision of employee benefits consisting of group health care coverage
• Payment of state and local taxes assessed on compensation of employees; and
• Certain other costs including mortgage interest payments, rent, utilities, interest on other debt obligations incurred before Feb. 15, 2020, and refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.

However, at least 75 percent of the PPP loan proceeds shall be used for payroll costs in keeping with Congress’ overarching goal of keeping workers paid and employed. For purposes of loan forgiveness, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.

What are the underwriting expectations?
SBA will allow lenders to rely on certifications of the borrower, to include a demonstration that a borrower had employees for whom the borrower paid salaries and payroll taxes on or around February 15, 2020 and confirming the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll documentation submitted with the borrower’s application in order to determine eligibility of the borrower. Lenders must comply with the applicable lender obligations set forth in this interim final rule, and with applicable BSA requirements, but will be held harmless for borrowers’ failure to comply with program criteria.

What is the interest rate on a PPP loan?
The interest rate will be 100 basis points or one percent.

What fees will lenders be paid?
SBA will pay lenders fees for processing PPP loans in the following amounts:
• Five (5) percent for loans of not more than $350,000;
• Three (3) percent for loans of more than $350,000 and less than $2,000,000; and
• One (1) percent for loans of at least $2,000,000.

What will be the maturity date on a PPP loan?
The maturity is two years. While the Act provides that a loan will have a maximum maturity of up to ten years from the date the borrower applies for loan forgiveness the Administrator, in consultation with the Secretary, determined that a two-year loan term is sufficient in light of the temporary economic dislocations caused by the coronavirus.

When do payments need to made on PPP loans?
Payments do not need to be made for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment. The Act authorizes the Administrator to defer loan payments for up to one year.

What forms do I need and how do I submit an application?
The applicant must submit SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation, as described above. The lender must submit SBA Form 2484 (Paycheck Protection Program Lender’s Application for 7(a) Loan Guaranty) electronically in accordance with program requirements and maintain the forms and supporting documentation in its files. E- signatures or e-consents can be used regardless of the number of owners.

Is the PPP “first-come, first-served?”
Yes.

Questions on the Paycheck Protection Program 7(a) Loans 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.