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SBA Publishes Interim Final Rules for Payroll Protection Program

On April 2, 2020, the Small Business Administration (“SBA“) issued the Interim Final Rules (the “Rules”) for the Payroll Protection Program (the “PPP”), which are found at 13 CFR Part 120, to outline Sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Although there is a possibility the SBA may make revisions to the Rules, pertinent provisions of the Rules for lenders are as follows:


  1. The PPP will accept applications and fund loans through June 30, 2020, unless funds are exhausted prior to that date. Only one PPP loan per borrower is allowed.
  2. The SBA will guarantee 100% of the PPP loans, with no collateral and no personal guarantee required.
  3. No “credit-elsewhere” requirement.
  4. No upfront or on-going guaranty costs paid to the SBA, and no SBA fee paid upon sale in the secondary market. No subsidy recoupment fee.
  5. Agents are to be paid by the lender and cannot be paid by the borrower from the loan proceeds or otherwise. A schedule of agent fees is established where the agent assists the borrower in preparing its application, which provides a fee of (a) 1% for loans of not more than $350,000, (b) .5% for loans of $350,000 and above but less than $2 million, and (c) .25% for loans of $2 million or higher.
  6. Up to 100% forgiveness of the PPP loans if the proceeds are used for qualifying purposes. Qualifying purposes are payroll costs (as discussed below), as well as mortgage interest, rent payments and utility charges to the extent the mortgage, lease and utility charges are obligations the borrower had prior to February 15, 2020, and which are paid within 8 weeks from the loan date. Non-payroll costs cannot exceed 25% of the forgivable amount. More guidance of loan forgiveness is anticipated to be forthcoming.
  7. PPP loans will bear interest at 1%, and a term of 2 years from the date of the application is the maximum. Payments of interest and principal are deferred for a period of 6 months.


  1. Borrowers qualify for the program if they are a small business employing no more than 500 employees who live in the US, certain non-profits and businesses in certain industries, in each case that/who were in business on February 15, 2020 and paid salaries and payroll taxes or 1099 independent contractors reported under a Form 1099-MISC, as of that date, as well as self-employed individuals, sole proprietorships and independent contractors. Affiliate rules are still in process of being finalized.
  2. Non-qualifying businesses include illegal enterprises, household employers, an entity that has an owner of 20% or more equity interest who is incarcerated, on probation or parole, under indictment or similarly criminal charged, or was within the last 5 years convicted of a felony, as well as any entity that is (or has owners who are) in default under any SBA direct or guaranteed loan or other federal loan, or has (or has owners who have) defaulted on such a loan in the past 7 years.
  3. Borrowers must produce documentation to substantiate eligibility, such as evidence of 1099-MISC forms, payroll tax filings, payroll processor records, or income and expense statements for sole proprietorships. If a borrower lacks the foregoing, bank records/statements could be substituted if they evidencing qualifying payroll amounts.
  4. Loan amounts are available up to $10 million based on a calculation of the average monthly salary of employees (not including amounts of $100,000 per year for any given employee) multiplied by 2.5, plus any Economic Injury Disaster Loan balances for loans obtained between January 31, 2020 and April 3, 2020 (but excluding the amount that does not need to be repaid).
  5. Eligible payroll costs are salaries, wages, commissions and other compensation to US resident employees, tips or equivalent (substantiated by records or a good faith estimate by the employer), paid vacation, paid leave (parental, family, sick or medical), separation/dismissal pay, employee benefits such as insurance premiums or retirement contributions, state and local taxes payable on the foregoing, or in the case of self-employed persons or independent contractors, evidence of wages, commissions and income. Since independent contractors can file for their own PPP loan, someone who has paid independent contractors in the qualifying period of time cannot include those persons in their calculations.
  6. Borrowers must submit a SBA Form 2483 PPP Application, along with a good faith certification that:
    1. Borrower was in business as of February 15, 2020 and paid salaries and payroll taxes for employees or paid independent contractors,
    2. the loan is needed to continue operations due to the current uncertain economic situation,
    3. funds will be used for authorized purposes and borrower authorizes the government will hold it liable if it does not abide by the PPP criteria,
    4. it will provide evidence after the 8 week period of how the funds were used,
    5. loan forgiveness will be based on approved use of the funds and subject to a cap on non-payroll uses of 25%,
    6. from February 15, 2020 and December 31, 2020 the borrower has not/will not receive another loan under the program,
    7. all information and documentation provided is accurate and complete and that false statements made are punishable by fines and/or imprisonment, and
    8. lender is relying on the tax documents provided, which borrower agrees are identical to those filed with the taxing authority, and authorizing lender to share such information with the SBA.
  7. If a borrower uses the proceeds for an unauthorized purpose, those amounts are not able to be forgiven and must be repaid. If it is determined that the entity or its principals (members, shareholders, etc.) misused the funds knowingly, then fraud charges may be pursued by the SBA.


  1. A lender’s obligation is limited to the following actions:
    1. Review the application.
    2. Confirm the certification is attached.
    3. Confirm the documentation the borrower submitted substantiates that the borrower was in business as of February 15, 2020 and was paying salaries and payroll taxes.
    4. Confirm the documentation submitted with the application supports the average monthly payroll amount for the preceding year.
    5. Follow applicable BSA requirements. Existing customers need not be recertified unless the lender’s risk-based analysis for compliance. Those that are not subject to BSA should have anti-money laundering protocols, such as a customer identification program (date of birth, tax id number, address, beneficial ownership forms). Lenders should develop a customer risk profile and report suspicious activity to the Financial Crimes Enforcement Network of the Treasury.
  2. The lender is specifically relieved from the obligation to independently verify the documentation submitted by the borrower or attest that the payments were verified by it to be eligible.
  3. Lenders are allowed to rely on the Borrower’s certification and documentation provided to determine if the Borrower qualifies for the loan, the amount the Borrower qualifies to borrow, and the use to be made of the loan proceeds, as well as the amount of loan forgiveness the Borrower is eligible to receive.
  4. The SBA will hold the lenders harmless from the lender’s reliance on the documentation submitted by the borrower and borrower’s certification.
  5. Lenders who follow the lending criteria stated above will also be held harmless by the SBA if the Borrower fails to satisfy compliance with the program criteria.
  6. The lender must submit a SBA Form 2484 Application for 7(a) Loan Guaranty electronically and keep a file with the forms and supporting documents pertaining to each loan.
  7. The SBA fee schedule for lender payments is 5% for loans less than $350,000, 3% for loans from $350,000 but less than $2 million, and 1% for loans of $2 million and up.
  8. The Rules address what types of lenders can be approved in addition to the lenders otherwise authorized to make 7(a) loans.
  9. The Rules are anticipated to be supplemented to account for religious liberty protections.
  10. The lender may request that the SBA purchase the loan or a package of loans at week seven of the loan period for the anticipated forgiveness amount by submitting a report that contains for each loan the anticipated forgiveness amount (with a detailed explanation of how it was calculated, assumptions made in regard thereto, alternate assumptions and why they were disregarded, any information received from the borrower in regard to same (which should be the same documentation used to apply for the loan) and such other information as the SBA may request), the application (SBA Form 2483) and supporting documentation the borrower submitted, and the lender request for loan guaranty (SBA FORM 2484) and supporting documents. The forgiveness amount cannot be greater than the principal amount of the loan(s) in question. A decision will be made within 15 days after receiving the completed request.

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.