SBA Issues Clarifying "Interim Final Rule" on Paycheck Protection Program (PPP)

Late on Thursday April 2, the Small Business Administration (SBA) issued an interim final rule for the Paycheck Protection Program (PPP), clarifying several important points. The PPP provides loans for small businesses to use chiefly for employment and related expenses, which can then be forgiven if the funds are used for employment-related purposes. We previously wrote about the PPP here and Anthony Law attorneys, Mike Anthony and Chisa Chervenick hosted a Facebook Live event on the PPP, which can be viewed here.

The rules are labeled as “interim” and with requests for public comments over a 30-day period. However, it is likely that once lenders move forward with accepting applications, they will do so in compliance with the SBA interim final rule.

The important clarifications include the following:

• The interest rate on the loans will be 1.0%, not .5% as initially reported.

• Two-year maturity on the loan.

• There is a six-month payment deferral, not twelve months as initially reported.

• Interestingly, the SBA is allowing for interest accrual during the deferment period for this loan even though the deferrals for the other 7a loans under the CARES Act are to have all principal, interest, and fees paid by the Administrator for 6 months to avoid balloon payments at the end.

• The rule confirms that the 500-employee test applies only to U.S. resident employees.

• No more than 25% of the loan proceeds may be utilized for non-payroll costs. There was some belief that the 25% cap was related to the forgiveness portion of the loan, but it now seems clear that it applies to any usage of the loan funds.

• An accountability provision has been added. Now, in addition to triggering a repayment obligation, failure to follow the usage rules may also expose companies, shareholders, members, or partners to additional liability including charges for fraud.

• Independent contractors are not part of  the payroll costs when calculating loan amount. The rule notes that independent contractors can apply for PPP themselves.

• The loan amount is determined based on the “last twelve months” as opposed to the 2019 calendar year. 

• Confirms the exclusion of payroll tax withholding is only for amounts withheld between February 15, 2020 and June 30, 2020. 

• Payments for group term life, short term disability and long-term disability benefits are not to be included in the calculation of average monthly payroll.

Read the interim final rule here.