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Breaking down the SBA's Interim Final Rule on the CARES Act Paycheck Protection Program (PPP)

The U.S. Small Business Administration (SBA) recently released its Interim Final Rule to provide guidance on the Paycheck Protection Program (PPP) of the CARES Act. The Interim Final Rule provides guidance for both borrowers and lenders. Among the highlights are:

- Eligible entities are small businesses or 501(c)(3) nonprofits with 500 or fewer employees and whose principal places of residence are in the U.S. Also eligible are businesses that operate in specific industries and meet the SBA employee-based sized standards for their industries. To be eligible, the applicant must have been in business on February 15, 2020, and paying either employees or independent contractors.

- Sole proprietors, independent contractors, or self-employed individuals who were in business on February 15, 2020, also are eligible.

- To prove eligibility, applicants may submit documents such as payroll processor records, payroll tax findings, or Form 1099-MISC. Sole proprietors may submit income and expense records. If applicants have no such documentation, they may provide bank records or other documents to show qualifying payroll amounts.

- Applicants must certify in good faith that: they were in business prior to February 15, 2020, and paying either employees or independent contractors; the current economic situation makes the loan request necessary to support the applicants' businesses; the loans will be used to to maintain employee and compensation levels or to pay mortgage interest, rent, or utilities; documents verifying the number of full-time equivalent employees on payroll plus other required costs will be provided to the lender; and other PPP loans were not, and will not be, received between February 15, 2020, and December 31, 2020.

- The maximum amount an applicant may borrow is the lesser of (a) $10 million or (b) the average monthly payroll cost multiplied by 2.5 plus any outstanding amount, if any, of an Economic Injury Disaster Loan (EIDL). Average monthly payroll cost can be calculated by determining the aggregate payroll costs of the last 12 months (for employees whose principal place of residence is the U.S.), subtracting portions of employee salaries in excess of $100,000 and/or compensation to independent contractors or sole proprietors greater than $100,000, and dividing by 12.

- Payroll costs include: payroll; cash tips; vacation, family, medical, sick, or parental leave; employee benefits, such as insurance premiums and retirement contributions; state and local tax payments; and separation or dismissal allowance. For sole proprietors and independent contractors, included costs are wages, commissions, income, or net earnings.

- Payroll costs do not include: compensation for employees whose principal place of residence is outside the U.S. or that is greater than $100,000; federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020; and qualified sick and family leave wages for which credits are allowed. Additionally, independent contractors do not count as employees for loan calculation purposes.

- Loan interest rates will be 100 basis points or one-percent. The maturity date for loans will be two years, despite the CARES Act providing that loans shall have a maximum maturity of up to 10 years.

- Applicants may not apply for multiple PPP loans.

- PPP loans are "first-come, first-served."

- Electronic signatures and consents are allowed.

- Payments need not be made for the first six months of the loan, despite the CARES Act providing that payments may be deferred for up to the first year. Interest will accrue during the first sixth months regardless of deferment.

- PPP loans can be forgiven up to the full loan amount plus interest, depending on, among other factors, whether the borrower uses the loans for forgivable purposes and maintains employee and compensation levels.

- PPP loans may be used for: payroll costs; healthcare benefits such as paid sick, medical, or family leave and insurance premiums; mortgage interest payments and rent; utilities; interest payments on other debt prior to February 15, 2020; and refinancing an SBA EIDL made between January 31, 2020, and April 3, 2020.

- At least 75-percent of the PPP loan must be used for payroll costs (which will include the amount of any EIDL refinanced).

- If a PPP loan is misused, the borrower will be required to repay the amount and may be subject to further liability.

To download the borrower application form, please follow the link below.

"This interim final rule applies to applications submitted under the Paycheck Protection Program through June 30, 2020, or until funds made available for this purpose are exhausted."


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