SBA Releases Regulations Interpreting New PPP Rules

On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021 (“CCA”), a $2.3 trillion spending bill that includes $900 billion in stimulus relief.  The Act, among other things, allows borrowers to take a second PPP loan, resolves income tax deduction issues, and expands eligibility to Section 501(c)(6) organizations. For a summary of the CCA, see our December 22 article here. On January 6, 2021, the Small Business Administration (“SBA”) released two interim final rules implementing the CCA. 

One interim final rule, Business Loan Program Temporary Changes; PPP as Amended by Economic Aid Act (the “First Draw IFR”), restates substantially all of the rules of the PPP, as amended by the CCA, relating to the first draw. This IFR operates as a catch-all resource, addressing most topics that have arisen since the inception of the PPP in one document.

In addition to reiterating current PPP rules, the First Draw IFR expands the CCA by allowing all new borrowers to use 2019 or 2020 for purposes of calculating their maximum loan amount, thus putting 2021 borrowers on the same playing field as 2020 borrowers. The First Draw IFR also provides calculations and examples in calculating the maximum loan amount for which the applicant is eligible, specific to seasonal businesses, partnerships, self-employed individuals, and farmers and ranchers. The First Draw IFR also includes a specific section of questions and answers directed at lenders. 

The other interim final rule, Business Loan Program Temporary Changes; PPP Second Draw Loans (the “Second Draw IFR”), describes the parameters around which a borrower can receive a second PPP loan. Expanding on the CCA, to be eligible for a Second Draw Loan, the borrower must have received a First Draw Loan and used, or plan to use, the full amount. In addition, when calculating the 300-employee limit for Second Draw Loans, the borrower cannot use the alternative size test or business test, as were available for First Draw Loans. 

The Second Draw IFR also provides specific instructions on calculating the borrower’s revenue reduction, specifying that forgiveness of a First Draw Loan is not included in the gross receipt calculation. Similar to the First Draw IFR, the Second Draw IFR provides specific calculations for seasonal businesses, partnerships, self-employed individuals, and farmers and ranchers. The Second Draw IFR also announces the new loan application form – SBA Form 2483-SD, although the form has not yet been released. 

Both the First Draw and Second Draw Loan programs are set to open the week of January 11. The SBA has added reference summaries for First Draw Loans and Second Draw Loans on their website. These one-page summaries provide a snapshot of the requirements for each program.

When analyzing eligibility, compliance, or other issues related to 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.