On Thursday, April 2, 2020, the U.S. Small Business Administration (SBA) issued an Interim Final Rule (IRF), which constitutes the much-anticipated “Regulations” called for in the CARES Act on implementation of the Paycheck Protection Program (PPP). While the IRF is considered “interim” and requests public comments over a 30-day period, it is anticipated that lenders will rely on it once they begin accepting and processing applications for those small businesses seeking PPP loans. We previously explained the program in our blog post found here.
Among other key changes in the IRF are the following clarifications:
Independent Contractors. Contrary to the belief of many in the industry, the IRF clarifies that independent contractors do not count as employees for purposes of PPP loan calculations since they have the ability to apply for their own loans.
Interest. The interest rate on the portion of the loan that is not forgiven will be 100 basis points (1%) contrary to the .5% previously published.
High Income Employees. The rule does not clarify whether the $100,000 cap per individual employee applies to benefits as well as salary. This remains a source of confusion for some borrowers.
Percent of Proceeds Eligible for Forgiveness. Consistent with the IRF from earlier this week, the SBA has clarified that not more than 25% of loan forgiveness may be attributable to non-payroll costs.
Possible Penalty for Fraud. The IRF provides that if funds are knowingly used for unauthorized purposes, a borrower could be subjected to additional liability such as “charges for fraud.” The SBA further warns that it could have recourse against shareholders, members, or partners of a business for unauthorized use.
First Come, First Served. As if borrowers are not stressed enough by the PPP process, the SBA expressly confirmed that the PPP is “first-come, first-served.” Given this statement, borrowers are encouraged to get their applications in as quickly as possible, even though it is anticipated that many banks will not be ready to process them.
Contributing attorneys:
David P. Pierce
J. Stephen Herbert
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