Last Day of New PPP Loans Approaching and SBA Releases More Guidance
In April, many worried that the second round of funding for the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) would run out. That does not appear to be the case, with the program still holding over $100 billion in funds and the last day to apply for a PPP loan only days away. In a recent Letter from the SBA Administrator, the SBA requested lenders to “redouble [their] efforts to assist eligible borrowers in underserved and disadvantaged communities” to obtain a PPP loan. While a current PPP borrower cannot apply for a second PPP loan, eligible businesses that have not yet taken advantage of the program may want to evaluate whether to do so by June 30, 2020, which is the last day that the SBA will take applications for new loans.
Along with the application deadline approach, the SBA continues to release new guidance on an almost daily basis. The SBA has not yet updated its FAQs, which are still dated May 27. Accordingly, borrowers should review the Interim Final Rules (“IFRs”) for the most current guidance.
- Twentieth Interim Final Rule (Loan Forgiveness and Loan Review). On June 22, the SBA published its 20th IFR, which updated previous guidance to conform with the PPP Flexibility Act. The 20th IFR clarified the loan forgiveness application process, established the scope of the deferral period, expanded on the eligibility of payroll and nonpayroll costs, and limited the cap on the amount of loan forgiveness available to owner-employees and self-employed individuals.
The 20th IFR clarified the loan forgiveness application process. If the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness, the borrower may submit a loan forgiveness application any time on or before the maturity date of the loan. After submission, the lender has 60 days to review the borrower’s submitted application before sending the application to the SBA, which has 90 days to review. If the borrower does not apply for loan forgiveness within 10 months after the last day of the covered period, or if the SBA has determined the loan is ineligible for forgiveness, the loan is no longer deferred and the borrower must begin paying principal and interest.
The IFR also limits the cap on the amount of loan forgiveness available to owner-employees and self-employed individuals based on payroll costs. If an 8-week cover period is elected, the cap is the lesser of $15,835 or 8-weeks’ worth of 2019 compensation. If a 24-week cover period is elected, the cap is the lesser of $20,833 or 2.5 months’ worth of 2019 compensation. Finally, for S-Corporation owner-employees, employers’ health insurance contributions made on their behalf are not included as an additional forgivable cost, as such costs are already included in compensation.
- Twenty-First Interim Final Rule (Additional Eligibility Revisions to First Interim Final Rule). On June 23, 2020, the SBA published its 21st IFR. The 21st IFR relaxed the SBA’s requirements for applicants with criminal histories. Only pending criminal charges for felony offenses disqualifies applicants, rather than pending criminal charges for other types of offenses, such as misdemeanors. Parole or probation no longer disqualifies applicants either, unless the parole or probation was commenced within the last year for any felony, or within the last 5 years “for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance.”
- Twenty-Second Interim Final Rule (Interim Final Rule on Eligible Payroll Costs (Fishing Boat Owners)). On June 25, the SBA published its 22nd IFR related to eligibility for fishing boat owners, specifically including compensation paid to members of a fishing boat crew as eligible payroll costs even if such members are independent contractors.
When analyzing eligibility, compliance, or other issues related to the PPP loans, both lenders and borrowers should ensure they have consulted the proper sources. If you have any questions regarding the SBA PPP loans, or other aspects of the CARES Act, please contact a Baird Holm LLP attorney.