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20 April 2020
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On April 2, 2020, the U.S. Small Business Administration (the "SBA") issued a new interim final rule that provides implementation guidelines for interpreting its Paycheck Protection Program ("PPP").
United States Employment and HR
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On April 2, 2020, the U.S. Small Business Administration (the"SBA") issued a new interim final rule that providesimplementation guidelines for interpreting its Paycheck ProtectionProgram ("PPP"). As discussed in our main alert, PPP loans (the "PPPLoans") authorize up to $349 billion in forgivable loans tosmall businesses to pay their employees during the COVID-19 crisis,facilitated through lenders enrolled in the SBA's 7(a) loanprogram, pursuant to the PPP under the Keeping American WorkersEmployed and Paid Act (the "Act"), which is part of theCorona Aid, Relief, and Economic Security Act (the "CARESAct") enacted on March 27, 2020.
Highlights of the SBA's Interim Final Rules:
1. Affiliation.The rules do not provideany additional guidance on the applicability of the SBA'saffiliation rules for the purposes of PPP Loans, though theregulations indicate that the SBA intends to promptly issue suchadditional guidance.
2. Interest Rate.The rules increase theinterest rate on PPP Loans to 1%; prior guidance indicated that theinterest rate would be 0.5%.
3.Maximum Borrowing AmountMethodology.The rules add changes to the methodologyfor calculating the maximum amount that can borrowed:
a. The regulations apply average monthly payroll costs foremployees for the trailing 12 months from the date of the loanapplication, while the statute and the actual application use the2019 calendar year.
b. In excluding compensation paid over $100,000 to an employee,the rules refer only to salary over $100,000, suggesting thathealth and retirement benefits can be included above thatamount.
4. Employees.The rules clarify that the500 or fewer employee eligibility requirement only counts employeeswhose principal place of residence is in the United States. This isa change from the general SBA rule which counts employeesregardless of domicile.
5.IndependentContractors.The rules clarify that independentcontractors are not counted as employees for purposes ofcalculating payroll costs to determine a borrower's PPP Loanamount. However, the rules specify that independent contractorswill be eligible to apply for a PPP Loan on their own.
6. Use of Proceeds.The rules provide thatat least 75% of the PPP Loan proceeds must be used for payrollcosts (while the rule still limits forgiveness of non-payroll coststo 25% of the loan amount, there is now a new affirmativerequirement that 75% of proceeds be used for payroll costs).
7.EffectiveDate.The rules are effective immediately and are notsubject to the 30-day delayed effective date requirement providedfor in the Administrative Procedure Act for notice and commentprior to implementation.
8. Deadline.The rules provide that thelast day to apply for and receive a loan is June 30, 2020.
9. Electronic Signatures.The rulesclarify that the SBA will accept e-signatures or e-consents ondocuments required as part of the PPP Loan process.
10. Loan Forgiveness.The rules indicatethat the SBA will issue additional guidance on the loan forgivenessprocess. Notably, the rules specify the expenditures used tocalculate the loan forgiveness amount is limited to interest onmortgage debt incurred prior to February 15, not any debt incurredprior to February 15 (such as bank loans or convertible debt).However, the payment of interest on non-mortgage debt is still apermissible use of proceeds.
PPP Loan Application:
11. Application Process.The rules statethat to apply, borrowers must submit the Paycheck ProtectionProgram Application Form (SBA Form 2483) (the"Application") and supporting payroll documentation toverify eligibility. Borrowers will also need to maintain the formsand supporting documentation in their files. The application formfor borrowers may be found on the SBA's websitehere.
12. Updated Application.The updatedversion of the Application makes the following changes:
a. Eliminates the requirement for certifications by or about 20%shareholders of the borrower, though all 20% shareholders must belisted.
b. Eliminates the requirement that the borrower or a 20%shareholder of the borrower be U.S. citizens or lawful permanentresidents.
c. Clarifies that questions in the application about whether an"owner" of the applicant is debarred from federalprograms, involved in bankruptcy, defaulted on a federal loan,etc., apply only to 20% shareholders.
d. Requires the borrower to certify that it's eligible toreceive a loan under the existing CARES Act rules.
The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.
