On the evening of April 2, 2020, the Small Business Administration (SBA) released an Interim Final Rule (IFR) implementing the Paycheck Protection Program (PPP) provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will run from April 3, 2020, through June 30, 2020.
The release of the IFR follows the March 31, 2020, issuance of the informal U.S. Department of the Treasury (the Treasury) guidance on PPP and the enactment of the CARES Act on March 27, 2020. The IFR Rule provides further guidance to lenders and borrowers regarding the PPP application, loan terms, and loan forgiveness provisions.
The rule also provides clarification regarding the SBA’s interpretation of several aspects of the PPP, including the following:
- While the CARES Act allowed a maximum interest rate of 4%, initial guidance from the Treasury guidance provided for 0.5%. The Treasury and the SBA have raised the interest rate slightly to 1%.
- Independent contractors may themselves apply for their own PPP loan and therefore do not count as employees of a business applicant for purposes of the PPP
- Borrowers may only apply for one PPP loan between now and June 30, 2020. The IFR encourages borrowers to consider applying for the maximum amount for which they are eligible.
- The CARES Act authorizes payment of principal and interest to be deferred for up to one year. The SBA and the Treasury have determined a six-month deferral is more appropriate due to the 1% interest rate and loan forgiveness provisions of the CARES Act.
- The SBA and the Treasury have confirmed that no more than 25% of the loan forgiveness amount may be attributable to non-payroll costs although not required by the CARES ACT
- Applicants must submit SBA Form 2483 (Paycheck Protection Program Application Form) and supporting payroll documentation described in the Interim Final Rule directly to their lender.
- E-signatures and e-consents may be used for completing the application.
- Lenders must submit SBA Form 2484 (Paycheck Protection Program Lender’s Application for 7(a) Loan Guaranty) electronically to the SBA and maintain the forms and supporting documentation provided by the borrower in its files.
- While the maximum maturity for PPP loans under the CARES Act is 10 years from the date the borrower applies for loan forgiveness, the SBA and the Treasury have determined that a two-year loan term is appropriate.
- Borrowers who received a loan through the SBA Economic Injury Disaster Loan (EIDL) program from January 31, 2020, through April 3, 2020, are eligible to apply for a PPP loan.
- If the EIDL loan was not used for payroll costs, it does not affect eligibility for PPP.
- If the EIDL loan was used for payroll costs, the PPP loan must be used to refinance the EIDL loan.
- Proceeds from any advance of up to $10,000 on the EIDL loan will not also be eligible for forgiveness under the PPP.
- Lenders do not need to conduct any independent verification of the documentation and attestation provided by borrowers in support of their requests for loan forgiveness.
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