SBA Issues Interim Final Rule: Additional Guidance for Paycheck Protection Program

April 5, 2020Alerts

On April 2, 2020, the Small Business Administration (SBA) issued an Interim Final Rule with respect to the Paycheck Protection Program (PPP) contained in The CARES Act, which authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis.

The Interim Final Rule adds to the guidance that was issued previously for lenders and borrowers.

The newly issued Interim Final Rule and guidance confirm that:

  • Loan terms will be the same for all borrowers.
  • All businesses — including 501(c)(3) nonprofits, veterans organizations, Tribal Business concerns, sole proprietorships, self-employed individuals and independent contractors with 500 or fewer employees that were in operation on Feb. 15, 2020 can apply.
  • The lender will calculate the eligible loan amount using the tax documents submitted
  • Loans carry a 1% fixed rate.
  • Loans have a two-year term and no prepayment penalty.
  • No collateral is required. 
  • No personal guarantee is required.
  • Loan amounts will be forgiven as long as: 
    • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent and utility costs over the eight-week period after the loan is made*; and
    • Employee and compensation levels are maintained. 
  • Payroll costs are capped at $100,000 on an annualized basis for each employee.
  • Loan payments will be deferred for six months, but interest will accrue during the six-month period.
  • The SBA’s affiliation standards are waived for small businesses that:
    • are in the hotel and food services industries which fall under NAICS code 72;
    • are franchises in the SBA’s Franchise Directory; or
    • receive financial assistance from small business investment companies licensed by the SBA.
  • Lenders may not collect any fees from the applicants.
  • One loan per borrower. For more information, view the SBA's "Affiliation Rules for the PPP" and "PPP Affiliation Interim Final Rule."

Beginning April 3, 2020, small businesses, including 501(c)(3) nonprofits and sole proprietorships, can apply for and receive loans to cover their payroll and certain other expenses through existing SBA lenders. 

Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. 

*Due to likely high subscription, not more than 25% of the forgiven amount may be for non-payroll costs. The PPP program is open until June 30, 2020, so businesses are encouraged to apply as quickly as possible as there is a funding cap and lenders will need time to process the loans.

Application Process

Borrowers can apply through any existing SBA lender or through any participating federally insured depository institution, federally insured credit union or Farm Credit System institution. Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program. Interested businesses and individuals should consult with your local lender as to whether it is participating. Visit for a list of SBA lenders. 

Applicants will need to complete the Paycheck Protection Program loan application, which is available here on the SBA website, and submit the application with the required documentation to an approved lender that is available to process their application by June 30, 2020. View the list of required documentation. E-signatures and e-consents are permitted.

Applicants will need to provide lenders with payroll and tax documentation. There is no requirement that applicants try to obtain some or all of the loan funds from other sources. The sample form requires Applicant Ownership information for any individual owners of a business with greater than 20% ownership stakes, including questions regarding such individuals' criminal history.

The following applicants are ineligible for loans:

  • Engaged in illegal activity
  • Household employers of domestic help such as nannies and housekeepers
  • An owner of more than 20% of the entity is in prison
  • Any business owned or controlled by the applicant, or any of its owners, has had a delinquent SBA loan within the last seven years.

Use of Proceeds

Loan proceeds can be used for:

  • Payroll costs**, including benefits; (At least 75 percent of the loan must be used for payroll costs)
  • Interest on mortgage obligations, and interest on other debt obligations incurred before Feb. 15, 2020
  • Rent, under lease agreements in force before Feb. 15, 2020; and  
  • Utilities, for which service began before Feb. 15, 2020.
  • Refinance of an SBA EIDL loan made between Jan. 31, 2020 and April 3, 2020.

 **Payroll costs include:

  • Salary, wages, commissions or tips to employees (not independent contractors) whose principal residence is in the United States (capped at $100,000 on an annualized basis for each employee); 
  • Employee benefits including costs for vacation, parental, family, medical or sick leave; allowance for separation or dismissal; payments required for the provision of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and 
  • For a sole proprietor or independent contractor: wages, commissions, income or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
  • Excludes federal employment taxes imposed or withheld between Feb. 15, 2020 and June 30, 2020, and qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Relief Act.

Borrowers that use proceeds for unauthorized purposes will be directed by the SBA to repay those amounts and may be subject to liability for fraud. 

Loans can be for up to two months of average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. Most applicants will use the average monthly payroll for 2019. For a seasonal or new businesses you may elect to instead use average monthly payroll for the time period between Feb. 15, 2019 and June 30, 2019. For new businesses, average monthly payroll may be calculated using the time period from Jan. 1, 2020 to Feb. 29, 2020.

Borrowers will owe money when their loan is due if they use the loan amount for anything other than payroll costs, mortgage interest, rent and utilities payments over the eight weeks after getting the loan. As noted above, due to likely high subscription, not more than 25% of the forgiven amount may be for non-payroll costs.   

Loan Forgiveness

Borrowers can submit a request to the lender that is servicing the loan. The request must include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments made on eligible mortgage, debt, lease and utility obligations during the eight weeks after receiving the loan. Borrowers must certify that the documents are true and that the forgiveness amount was used to keep employees and make eligible mortgage interest, rent and utility payments. The lender must make a decision on the forgiveness within 60 days.

It is possible for the full principal amount of the loan and any accrued interest to be forgiven if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained.

Reduction of Loan Forgiveness

Loan forgiveness will be reduced if:

  • Full-time employee headcount is decreased
  • Salaries and wages are decreased by more than 25% for any employee who made less than $100,000 annualized in 2019.

Re-Hiring — Borrowers have until June 30, 2020 to restore full-time employment and salary levels for any changes made between Feb. 15, 2020 and April 26, 2020.    

Required Certifications in the Application:

  • Borrower was in operation on Feb. 15, 2020 and had paid employees or, if applying as an independent contractor, had non-employee compensation, as reported on Form(s) 1099-MISC.
  • Current economic uncertainty makes the loan necessary to support your ongoing operations.
  • Funds will be used to retain workers and maintain payroll or to make mortgage, lease and utility payments.
  • Borrower has not and will not receive another loan under this program.
  • If funds are knowingly used for unauthorized purposes, borrower may be charged with fraud.
  • Not more than 25% of the loan proceeds may be used for non-payroll costs.

Affiliation Rules

The SBA has issued detailed guidance on this issue. View "Affiliation Rules for the PPP" and "PPP Affiliation Interim Final Rule."

Additional Information