Tarlow Update: Small Business Administration Issues Interim Final Rule for the Paycheck Protection Program

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.

Tarlow Coronavirus Loan & Capital Assistance – Helping small business owners impacted by the spread of Coronavirus

Tarlow’s Coronavirus Disaster Loan and Capital Assistance team is committed to serving small business owners who are being impacted by the public policy measures to contain the spread of the Coronavirus. Learn more.


Tarlow is Here to Help — Contact Us with Questions

At Tarlow, our Partners and staff members are closely monitoring tax-related legislation and regulations. We will continue to update you by sending communications about relevant news and changing guidelines.  If you have any questions, please contact your Tarlow advisor.

COVID-19 Update: Paycheck Protection Program – Initial Guidance Issued

On Tuesday evening, March 31, 2020, the U.S. Treasury and Small Business Administration (“SBA”) released their initial Information Sheet (“Fact Sheet”) as well as the Application Form for the Paycheck Protection Program (the “PPP”).   As mentioned in previous email alerts, the PPP is part of The CARES Act, which appropriated $349 billion to enable eligible businesses to apply for loans from approved lenders, which are guaranteed by the SBA.  Proceeds from these loans are intended to be used to cover operational costs such as payroll, benefits, rent, utilities, and mortgage interest payments.

The Fact Sheet provides important guidance for the PPP, including the dates that applicants can begin to apply for PPP loans through participating SBA Lenders:

  • Business and sole proprietors as soon as April 3, 2020; and
  • Independent contractors and self-employed individuals as soon as April 10, 2020.

The guidance issued and the Fact Sheet are similar to the provisions in the CARES Act; however, there are some important differences to the initial guidance issued, which we have highlighted below.  We should note that it is still possible the SBA issues additional rules and regulations regarding the PPP, and we will keep you informed immediately if that occurs.

Maximum Loan Amount 

The CARES Act provides that the maximum PPP loan a borrower can receive is equal to the lesser of (i) 2.5x TTM average monthly payroll costs and (ii) $10 million.   The sample application indicates that (non-seasonal) business applicants will use the average monthly payroll for 2019 (rather than include January or February 2020 in the calculation).

Loan Forgiveness

The CARES Act provided that loans will be eligible for forgiveness in an amount not to exceed the sum of payments for permitted payroll costs, interest payments on mortgages, rent, and utilities paid within 8 weeks from the origination of the PPP Loan.  The Fact Sheet indicates that “due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.” This factor needs to be considered if you were planning on applying for PPP loans to cover non-approved costs as a portion of such costs may not be subject to loan forgiveness.

Payroll Costs

In addition to employee compensation, certain paid vacation and leave, cash tips, severance payments, group healthcare benefits, retirement benefits, and payroll taxes, the CARES Act also seemed to define “payroll costs” to include payments to independent contractors as noted in our previous correspondences.  The description of payroll costs in the Fact Sheet suggests that compensation to independent contractors will be considered “payroll costs” (i.e., for purposes of calculating PPP loan size and loan forgiveness amounts) if the applicant is the independent contractor.  This could imply that businesses that pay independent contractors will not be able to include such compensation in the calculation of payroll costs.  We will be reviewing this in-depth to get additional guidance for you.


Interest Rate, Maturity Date and Payment Deferral Provisions

Initial guidance was that the interest rate on the PPP loans would be set at 4% and have a 10-year term.  Additionally, it was widely believed there would be no payments on PPP loans due for one year from origination.  Based on the Fact sheet, the interest rate will be set at 0.5%, and the term of the loan will be 2 years from maturity. Additionally, payments will be deferred for six months from origination; however, interest will accrue during these six months.

Foreign Ownership

It was widely believed that foreign ownership would not be an issue for eligibility for a PPP loan.  The application form indicates that if any 20% or greater owner answers no to whether or not they are “a U.S. Citizen” OR “have Lawful Permanent Resident status, “the application will be denied indicating that businesses with foreign ownership may be ineligible for the PPP loan.” We are still reviewing this and will have additional guidance shortly.

The application also makes it clear that for businesses seeking PPP loans each greater than 20% owner will need to complete an application and make certain certifications including: (i) that current economic uncertainty makes the loan request necessary to support the ongoing operations of the applicant business; and (ii) that the loan proceeds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.

COVID-19 Webinar on April 2, 2020 at 3:00 PM (ET) – Get Your SBA Loan Questions Answered

Tarlow Invites You: COVID-19 Webinar
Get Your SBA Loan Questions Answered

On Thursday, April 2, 2020, at 3:00 PM to 4:00 PM (ET), our CPA channel affiliate partner, Aprio, will host a complimentary webinar to address your most pressing questions related to SBA loans amid the COVID-19 crisis and the steps you can take to get your refunds faster.

Panelists will discuss:

  • SBA Disaster Relief Loans vs. Payroll Protection Program vs. traditional SBA loans;
  • Eligibility for each loan type and how/if you can benefit from each;
  • How funds from each loan type can be used; and
  • How we can help you get your money faster.

Experts on the panel include:

  • Tommy Lee, Partner-In-Charge of Retail, Franchise, and Hospitality at Aprio
  • Saeed Moghadam, Partner, Aprio Strategic Partners, LLC

Register here