[Federal Register Volume 85, Number 73 (Wednesday, April 15, 2020)]
[Rules and Regulations]
[Pages 20811-20817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07672]



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 Rules and Regulations
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  Federal Register / Vol. 85, No. 73 / Wednesday, April 15, 2020 / 
Rules and Regulations  

[[Page 20811]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

[Docket No. SBA-2020-0015]
RIN 3245-AH34


Business Loan Program Temporary Changes; Paycheck Protection 
Program

AGENCY: U.S. Small Business Administration.

ACTION: Interim final rule.

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SUMMARY: This interim final rule announces the implementation of 
sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic 
Security Act (CARES Act or the Act). Section 1102 of the Act 
temporarily adds a new product, titled the ``Paycheck Protection 
Program,'' to the U.S. Small Business Administration's (SBA's) 7(a) 
Loan Program. Section 1106 of the Act provides for forgiveness of up to 
the full principal amount of qualifying loans guaranteed under the 
Paycheck Protection Program. The Paycheck Protection Program and loan 
forgiveness are intended to provide economic relief to small businesses 
nationwide adversely impacted under the Coronavirus Disease 2019 
(COVID-19) Emergency Declaration (COVID-19 Emergency Declaration) 
issued by President Trump on March 13, 2020. This interim final rule 
outlines the key provisions of SBA's implementation of sections 1102 
and 1106 of the Act in formal guidance and requests public comment.

DATES: 
    Effective date: This interim final rule is effective April 15, 
2020.
    Applicability date: 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.
    Comment Date: Comments must be received on or before May 15, 2020.

ADDRESSES: You may submit comments, identified by number SBA-2020-0015 
through the Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please send an email to [email protected]. 
Highlight the information that you consider to be CBI and explain why 
you believe SBA should hold this information as confidential. SBA will 
review the information and make the final determination whether it will 
publish the information.

FOR FURTHER INFORMATION CONTACT: Call Center Representative at 833-572-
0502, or the local SBA Field Office; the list of offices can be found 
at https://www.sba.gov/tools/local-assistance/districtoffices.

SUPPLEMENTARY INFORMATION: 

I. Background Information

    On March 13, 2020, President Trump declared the ongoing Coronavirus 
Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude 
to warrant an emergency declaration for all states, territories, and 
the District of Columbia. With the COVID-19 emergency, many small 
businesses nationwide are experiencing economic hardship as a direct 
result of the Federal, State, and local public health measures that are 
being taken to minimize the public's exposure to the virus. These 
measures, some of which are government-mandated, are being implemented 
nationwide and include the closures of restaurants, bars, and gyms. In 
addition, based on the advice of public health officials, other 
measures, such as keeping a safe distance from others or even stay-at-
home orders, are being implemented, resulting in a dramatic decrease in 
economic activity as the public avoids malls, retail stores, and other 
businesses.
    On March 27, 2020, the President signed the Coronavirus Aid, 
Relief, and Economic Security Act (the CARES Act or the Act) (Pub. L. 
116-136) to provide emergency assistance and health care response for 
individuals, families, and businesses affected by the coronavirus 
pandemic. The Small Business Administration (SBA) received funding and 
authority through the Act to modify existing loan programs and 
establish a new loan program to assist small businesses nationwide 
adversely impacted by the COVID-19 emergency.
    Section 1102 of the Act temporarily permits SBA to guarantee 100 
percent of 7(a) loans under a new program titled the ``Paycheck 
Protection Program.'' Section 1106 of the Act provides for forgiveness 
of up to the full principal amount of qualifying loans guaranteed under 
the Paycheck Protection Program. A more detailed discussion of sections 
1102 and 1106 of the Act is found in section III below.

II. Comments and Immediate Effective Date

    The intent of the Act is that SBA provide relief to America's small 
businesses expeditiously. This intent, along with the dramatic decrease 
in economic activity nationwide, provides good cause for SBA to 
dispense with the 30-day delayed effective date provided in the 
Administrative Procedure Act. Specifically, small businesses need to be 
informed on how to apply for a loan and the terms of the loan under 
section 1102 of the Act as soon as possible because the last day to 
apply for and receive a loan is June 30, 2020. The immediate effective 
date of this interim final rule will benefit small businesses so that 
they can immediately apply for the loan with a full understanding of 
loan terms and conditions. This interim final rule is effective without 
advance notice and public comment because section 1114 of the Act 
authorizes SBA to issue regulations to implement Title 1 of the Act 
without regard to notice requirements. This rule is being issued to 
allow for immediate implementation of this program. Although this 
interim final rule is effective immediately, comments are solicited 
from interested members of the public on all aspects of the interim 
final rule, including section III below. These comments must be 
submitted on or before May 15, 2020. The SBA will consider these 
comments and the need for making any revisions as a result of these 
comments.

III. Temporary New Business Loan Program: Paycheck Protection Program

Overview

    The CARES Act was enacted to provide immediate assistance to 
individuals, families, and businesses

[[Page 20812]]

affected by the COVID-19 emergency. Among the provisions contained in 
the CARES Act are provisions authorizing SBA to temporarily guarantee 
loans under a new 7(a) loan program titled the ``Paycheck Protection 
Program.'' Loans guaranteed under the Paycheck Protection Program (PPP) 
will be 100 percent guaranteed by SBA, and the full principal amount of 
the loans may qualify for loan forgiveness. The following outlines the 
key provisions of the PPP.
1. General
    SBA is authorized to guarantee loans under the PPP through June 30, 
2020. Congress authorized a program level of $349,000,000,000 to 
provide guaranteed loans under this new 7(a) program. The intent of the 
Act is that SBA provide relief to America's small businesses 
expeditiously, which is expressed in the Act by giving all lenders 
delegated authority and streamlining the requirements of the regular 
7(a) loan program. For example, for loans made under the PPP, SBA will 
not require the lenders to comply with section 120.150 ``What are SBA's 
lending criteria?.'' SBA will allow lenders to rely on certifications 
of the borrower in order to determine eligibility of the borrower and 
use of loan proceeds and to rely on specified documents provided by the 
borrower to determine qualifying loan amount and eligibility for loan 
forgiveness. Lenders must comply with the applicable lender obligations 
set forth in this interim final rule, but will be held harmless for 
borrowers' failure to comply with program criteria; remedies for 
borrower violations or fraud are separately addressed in this interim 
final rule. The program requirements of the PPP identified in this rule 
temporarily supersede any conflicting Loan Program Requirement (as 
defined in 13 CFR 120.10).
2. What do borrowers need to know and do?
a. Am I eligible?
    You are eligible for a PPP loan if you have 500 or fewer employees 
whose principal place of residence is in the United States, or are a 
business that operates in a certain industry and meet the applicable 
SBA employee-based size standards for that industry, and:
    i. You are:
    A. A small business concern as defined in section 3 of the Small 
Business Act (15 U.S.C. 632), and subject to SBA's affiliation rules 
under 13 CFR 121.301(f) unless specifically waived in the Act; or
    B. A tax-exempt nonprofit organization described in section 
501(c)(3) of the Internal Revenue Code (IRC), a tax-exempt veterans 
organization described in section 501(c)(19) of the IRC, Tribal 
business concern described in section 31(b)(2)(C) of the Small Business 
Act, or any other business; and
    ii. You were in operation on February 15, 2020 and either had 
employees for whom you paid salaries and payroll taxes or paid 
independent contractors, as reported on a Form 1099-MISC.
    You are also eligible for a PPP loan if you are an individual who 
operates under a sole proprietorship or as an independent contractor or 
eligible self-employed individual, and you were in operation on 
February 15, 2020.
    You must also submit such documentation as is necessary to 
establish eligibility such as payroll processor records, payroll tax 
filings, or Form 1099-MISC, or income and expenses from a sole 
proprietorship. For borrowers that do not have any such documentation, 
the borrower must provide other supporting documentation, such as bank 
records, sufficient to demonstrate the qualifying payroll amount.
    SBA intends to promptly issue additional guidance with regard to 
the applicability of affiliation rules at 13 CFR 121.103 and 121.301 to 
PPP loans.
b. Could I be ineligible even if I meet the eligibility requirements in 
(a) above?
    You are ineligible for a PPP loan if, for example:
    i. You are engaged in any activity that is illegal under Federal, 
state, or local law;
    ii. You are a household employer (individuals who employ household 
employees such as nannies or housekeepers);
    iii. An owner of 20 percent or more of the equity of the applicant 
is incarcerated, on probation, on parole; presently subject to an 
indictment, criminal information, arraignment, or other means by which 
formal criminal charges are brought in any jurisdiction; or has been 
convicted of a felony within the last five years; or
    iv. You, or any business owned or controlled by you or any of your 
owners, has ever obtained a direct or guaranteed loan from SBA or any 
other Federal agency that is currently delinquent or has defaulted 
within the last seven years and caused a loss to the government.
    The Administrator, in consultation with the Secretary of the 
Treasury (the Secretary), determined that household employers are 
ineligible because they are not businesses. 13 CFR 120.100.
c. How do I determine if I am ineligible?
    Businesses that are not eligible for PPP loans are identified in 13 
CFR 120.110 and described further in SBA's Standard Operating Procedure 
(SOP) 50 10, Subpart B, Chapter 2, except that nonprofit organizations 
authorized under the Act are eligible. (SOP 50 10 can be found at 
https://www.sba.gov/document/sop-50-10-5-lender-development-company-loan-programs.)
d. I have determined that I am eligible. How much can I borrow?
    Under the PPP, the maximum loan amount is the lesser of $10 million 
or an amount that you will calculate using a payroll-based formula 
specified in the Act, as explained below.
e. How do I calculate the maximum amount I can borrow?
    The following methodology, which is one of the methodologies 
contained in the Act, will be most useful for many applicants.
    i. Step 1: Aggregate payroll costs (defined in detail below in f.) 
from the last twelve months for employees whose principal place of 
residence is the United States.
    ii. Step 2: Subtract any compensation paid to an employee in excess 
of an annual salary of $100,000 and/or any amounts paid to an 
independent contractor or sole proprietor in excess of $100,000 per 
year.
    iii. Step 3: Calculate average monthly payroll costs (divide the 
amount from Step 2 by 12).
    iv. Step 4: Multiply the average monthly payroll costs from Step 3 
by 2.5.
    v. Step 5: Add the outstanding amount of an Economic Injury 
Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, 
less the amount of any ``advance'' under an EIDL COVID-19 loan (because 
it does not have to be repaid).
    The examples below illustrate this methodology.
i. Example 1--No employees make more than $100,000
    Annual payroll: $120,000
    Average monthly payroll: $10,000
    Multiply by 2.5 = $25,000
    Maximum loan amount is $25,000
ii. Example 2--Some employees make more than $100,000
    Annual payroll: $1,500,000
    Subtract compensation amounts in excess of an annual salary of 
$100,000: $1,200,000
    Average monthly qualifying payroll: $100,000
    Multiply by 2.5 = $250,000
    Maximim loan amount is $250,000

[[Page 20813]]

iii. Example 3--No employees make more than $100,000, outstanding EIDL 
loan of $10,000.
    Annual payroll: $120,000
    Average monthly payroll: $10,000
    Multiply by 2.5 = $25,000
    Add EIDL loan of $10,000 = $35,000
    Maximum loan amount is $35,000
iv. Example 4--Some employees make more than $100,000, outstanding EIDL 
loan of $10,000
    Annual payroll: $1,500,000
    Subtract compensation amounts in excess of an annual salary of 
$100,000: $1,200,000
    Average monthly qualifying payroll: $100,000
    Multiply by 2.5 = $250,000
    Add EIDL loan of $10,000 = $260,000
    Maximum loan amount is $260,000
f. What qualifies as ``payroll costs?''
    Payroll costs consist of compensation to employees (whose principal 
place of residence is the United States) in the form of salary, wages, 
commissions, or similar compensation; cash tips or the equivalent 
(based on employer records of past tips or, in the absence of such 
records, a reasonable, good-faith employer estimate of such tips); 
payment for vacation, parental, family, medical, or sick leave; 
allowance for separation or dismissal; payment for the provision of 
employee benefits consisting of group health care coverage, including 
insurance premiums, and retirement; payment of state and local taxes 
assessed on compensation of employees; and for an independent 
contractor or sole proprietor, wages, commissions, income, or net 
earnings from self-employment, or similar compensation.
g. Is there anything that is expressly excluded from the definition of 
payroll costs?
    Yes. The Act expressly excludes the following:
    i. Any compensation of an employee whose principal place of 
residence is outside of the United States;
    ii. The compensation of an individual employee in excess of an 
annual salary of $100,000, prorated as necessary;
    iii. Federal employment taxes imposed or withheld between February 
15, 2020 and June 30, 2020, including the employee's and employer's 
share of FICA (Federal Insurance Contributions Act) and Railroad 
Retirement Act taxes, and income taxes required to be withheld from 
employees; and
    iv. Qualified sick and family leave wages for which a credit is 
allowed under sections 7001 and 7003 of the Families First Coronavirus 
Response Act (Pub. L. 116-127).
h. Do independent contractors count as employees for purposes of PPP 
loan calculations?
    No, independent contractors have the ability to apply for a PPP 
loan on their own so they do not count for purposes of a borrower's PPP 
loan calculation.
i. What is the interest rate on a PPP loan?
    The interest rate will be 100 basis points or one percent.
    The Administrator, in consultation with the Secretary, determined 
that a one percent interest rate is appropriate. First, it provides low 
cost funds to borrowers to meet eligible payroll costs and other 
eligible expenses during this temporary period of economic dislocation 
caused by the coronavirus. Second, for lenders, the 100 basis points 
offers an attractive interest rate relative to the cost of funding for 
comparable maturities. For example, the FDIC's weekly national average 
rate for a 24-month CD deposit product for the week of March 30, 2020 
is 42 basis points for non-jumbo and 44 basis points for jumbo (https://www.fdic.gov/regulations/resources/rates/). Third, the interest rate 
is higher than the yield on Treasury securities of comparable maturity. 
For example, the yield on the Treasury two-year note is approximately 
23 basis points. This higher yield combined with the fact that the 
loans are 100 percent guaranteed by the SBA and the fact that lenders 
will receive a substantial processing fee from the SBA provide ample 
inducement for lenders to participate in the PPP.
j. What will be the maturity date on a PPP loan?
    The maturity is two years. While the Act provides that a loan will 
have a maximum maturity of up to ten years from the date the borrower 
applies for loan forgiveness (described below), the Administrator, in 
consultation with the Secretary, determined that a two year loan term 
is sufficient in light of the temporary economic dislocations caused by 
the coronavirus. Specifically, the considerable economic disruption 
caused by the coronavirus is expected to abate well before the two year 
maturity date such that borrowers will be able to re-commence business 
operations and pay off any outstanding balances on their PPP loans.
k. Can I apply for more than one PPP loan?
    No. The Administrator, in consultation with the Secretary, 
determined that no eligible borrower may receive more than one PPP 
loan. This means that if you apply for a PPP loan you should consider 
applying for the maximum amount. While the Act does not expressly 
provide that each eligible borrower may only receive one PPP loan, the 
Administrator has determined, in consultation with the Secretary, that 
because all PPP loans must be made on or before June 30, 2020, a one 
loan per borrower limitation is necessary to help ensure that as many 
eligible borrowers as possible may obtain a PPP loan. This limitation 
will also help advance Congress' goal of keeping workers paid and 
employed across the United States.
l. Can I use e-signatures or e-consents if a borrower has multiple 
owners?
    Yes, e-signature or e-consents can be used regardless of the number 
of owners.
m. Is the PPP ``first-come, first-served?''
    Yes.
n. When will I have to begin paying principal and interest on my PPP 
loan?
    You will not have to make any payments for six months following the 
date of disbursement of the loan. However, interest will continue to 
accrue on PPP loans during this six-month deferment. The Act authorizes 
the Administrator to defer loan payments for up to one year. The 
Administrator determined, in consultation with the Secretary, that a 
six-month deferment period is appropriate in light of the modest 
interest rate (one percent) on PPP loans and the loan forgiveness 
provisions contained in the Act.
o. Can my PPP loan be forgiven in whole or in part?
    Yes. The amount of loan forgiveness can be up to the full principal 
amount of the loan and any accrued interest. That is, the borrower will 
not be responsible for any loan payment if the borrower uses all of the 
loan proceeds for forgiveable purposes described below and employee and 
compensation levels are maintained. The actual amount of loan 
forgiveness will depend, in part, on the total amount of payroll costs, 
payments of interest on mortgage obligations incurred before February 
15, 2020, rent payments on leases dated before February 15, 2020, and 
utility payments under service agreements dated before February 15, 
2020, over the eight-week period following the date of the loan. 
However, not more than 25 percent of the loan forgiveness amount may be 
attributable to non-payroll costs. While the Act provides that 
borrowers are eligible for forgiveness in an amount equal to the sum of 
payroll costs and

[[Page 20814]]

any payments of mortgage interest, rent, and utilities, the 
Administrator has determined that the non-payroll portion of the 
forgivable loan amount should be limited to effectuate the core purpose 
of the statute and ensure finite program resources are devoted 
primarily to payroll. The Administrator has determined in consultation 
with the Secretary that 75 percent is an appropriate percentage in 
light of the Act's overarching focus on keeping workers paid and 
employed. Further, the Administrator and the Secretary believe that 
applying this threshold to loan forgiveness is consistent with the 
structure of the Act, which provides a loan amount 75 percent of which 
is equivalent to eight weeks of payroll (8 weeks/2.5 months = 56 days/
76 days = 74 percent rounded up to 75 percent). Limiting non-payroll 
costs to 25 percent of the forgiveness amount will align these elements 
of the program, and will also help to ensure that the finite 
appropriations available for PPP loan forgiveness are directed toward 
payroll protection. SBA will issue additional guidance on loan 
forgiveness.
p. Do independent contractors count as employees for purposes of PPP 
loan forgiveness?
    No, independent contractors have the ability to apply for a PPP 
loan on their own so they do not count for purposes of a borrower's PPP 
loan forgiveness.
q. What forms do I need and how do I submit an application?
    The applicant must submit SBA Form 2483 (Paycheck Protection 
Program Application Form) and payroll documentation, as described 
above. The lender must submit SBA Form 2484 (Paycheck Protection 
Program Lender's Application for 7(a) Loan Guaranty) electronically in 
accordance with program requirements and maintain the forms and 
supporting documentation in its files.
r. How can PPP loans be used?
    The proceeds of a PPP loan are to be used for:
    i. payroll costs (as defined in the Act and in 2.f.);
    ii. costs related to the continuation of group health care benefits 
during periods of paid sick, medical, or family leave, and insurance 
premiums;
    iii. mortgage interest payments (but not mortgage prepayments or 
principal payments);
    iv. rent payments;
    v. utility payments;
    vi. interest payments on any other debt obligations that were 
incurred before February 15, 2020; and/or
    vii. refinancing an SBA EIDL loan made between January 31, 2020 and 
April 3, 2020. If you received an SBA EIDL loan from January 31, 2020 
through April 3, 2020, you can apply for a PPP loan. If your EIDL loan 
was not used for payroll costs, it does not affect your eligibility for 
a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan 
must be used to refinance your EIDL loan. Proceeds from any advance up 
to $10,000 on the EIDL loan will be deducted from the loan forgiveness 
amount on the PPP loan.
    However, at least 75 percent of the PPP loan proceeds shall be used 
for payroll costs. For purposes of determining the percentage of use of 
proceeds for payroll costs, the amount of any EIDL refinanced will be 
included. For purposes of loan forgiveness, however, the borrower will 
have to document the proceeds used for payroll costs in order to 
determine the amount of forgiveness. While the Act provides that PPP 
loan proceeds may be used for the purposes listed above and for other 
allowable uses described in section 7(a) of the Small Business Act (15 
U.S.C. 636(a)), the Administrator believes that finite appropriations 
and the structure of the Act warrant a requirement that borrowers use a 
substantial portion of the loan proceeds for payroll costs, consistent 
with Congress' overarching goal of keeping workers paid and employed. 
As with the similar limitation on the forgiveness amount explained 
earlier, the Administrator, in consultation with the Secretary, has 
determined that 75 percent is an appropriate percentage that will align 
this element of the program with the loan amount, 75 percent of which 
is equivalent to eight weeks of payroll. This limitation on use of the 
loan funds will help to ensure that the finite appropriations available 
for these loans are directed toward payroll protection, as each loan 
that is issued depletes the appropriation, regardless of whether 
portions of the loan are later forgiven.
s. What happens if PPP loan funds are misused?
    If you use PPP funds for unauthorized purposes, SBA will direct you 
to repay those amounts. If you knowingly use the funds for unauthorized 
purposes, you will be subject to additional liability such as charges 
for fraud. If one of your shareholders, members, or partners uses PPP 
funds for unauthorized purposes, SBA will have recourse against the 
shareholder, member, or partner for the unauthorized use.
t. What certifications need to be made?
    On the Paycheck Protection Program application, an authorized 
representative of the applicant must certify in good faith to all of 
the below: \1\
---------------------------------------------------------------------------

    \1\ A representative of the applicant can certify for the 
business as a whole if the representative is legally authorized to 
do so.
---------------------------------------------------------------------------

    i. The applicant was in operation on February 15, 2020 and had 
employees for whom it paid salaries and payroll taxes or paid 
independent contractors, as reported on a Form 1099-MISC.
    ii. Current economic uncertainty makes this loan request necessary 
to support the ongoing operations of the applicant.
    iii. The funds will be used to retain workers and maintain payroll 
or make mortgage interest payments, lease payments, and utility 
payments; I understand that if the funds are knowingly used for 
unauthorized purposes, the Federal Government may hold me legally 
liable such as for charges of fraud. As explained above, not more than 
25 percent of loan proceeds may be used for non-payroll costs.
    iv. Documentation verifying the number of full-time equivalent 
employees on payroll as well as the dollar amounts of payroll costs, 
covered mortgage interest payments, covered rent payments, and covered 
utilities for the eight week period following this loan will be 
provided to the lender.
    v. Loan forgiveness will be provided for the sum of documented 
payroll costs, covered mortgage interest payments, covered rent 
payments, and covered utilities. As explained above, not more than 25 
percent of the forgiven amount may be for non-payroll costs.
    vi. During the period beginning on February 15, 2020 and ending on 
December 31, 2020, the applicant has not and will not receive another 
loan under this program.
    vii. I further certify that the information provided in this 
application and the information provided in all supporting documents 
and forms is true and accurate in all material respects. I understand 
that knowingly making a false statement to obtain a guaranteed loan 
from SBA is punishable under the law, including under 18 U.S.C. 1001 
and 3571 by imprisonment of not more than five years and/or a fine of 
up to $250,000; under 15 U.S.C. 645 by imprisonment of not more than 
two years and/or a fine of not more than $5,000; and, if submitted to a 
federally insured institution, under 18 U.S.C. 1014 by imprisonment of 
not more than thirty years and/or a fine of not more than $1,000,000.

[[Page 20815]]

    viii. I acknowledge that the lender will confirm the eligible loan 
amount using tax documents I have submitted. I affirm that these tax 
documents are identical to those submitted to the Internal Revenue 
Service. I also understand, acknowledge, and agree that the Lender can 
share the tax information with SBA's authorized representatives, 
including authorized representatives of the SBA Office of Inspector 
General, for the purpose of compliance with SBA Loan Program 
Requirements and all SBA reviews.
3. What do lenders need to know and do?
a. Who is eligible to make PPP loans?
    i. All SBA 7(a) lenders are automatically approved to make PPP 
loans on a delegated basis.
    ii. The Act provides that the authority to make PPP loans can be 
extended to additional lenders determined by the Administrator and the 
Secretary to have the necessary qualifications to process, close, 
disburse, and service loans made with the SBA guarantee. Since SBA is 
authorized to make PPP loans up to $349 billion by June 30, 2020, the 
Adminstrator and the Secretary have jointly determined that authorizing 
additional lenders is necessary to achieve the purpose of allowing as 
many eligible borrowers as possible to receive loans by the June 30, 
2020 deadline.
    iii. The following types of lenders have been determined to meet 
the criteria and are eligible to make PPP loans unless they currently 
are designated in Troubled Condition by their primary Federal regulator 
or are subject to a formal enforcement action with their primary 
Federal regulator that addresses unsafe or unsound lending practices:
    I. Any federally insured depository institution or any federally 
insured credit union;
    II. Any Farm Credit System institution (other than the Federal 
Agricultural Mortgage Corporation) as defined in 12 U.S.C. 2002(a) that 
applies the requirements under the Bank Secrecy Act and its 
implementing regulations (collectively, BSA) as a federally regulated 
financial institution, or functionally equivalent requirements that are 
not altered by this rule; and
    III. Any depository or non-depository financing provider that 
originates, maintains, and services business loans or other commercial 
financial receivables and participation interests; has a formalized 
compliance program; applies the requirements under the BSA as a 
federally regulated financial institution, or the BSA requirements of 
an equivalent federally regulated financial institution; has been 
operating since at least February 15, 2019, and has originated, 
maintained, and serviced more than $50 million in business loans or 
other commercial financial receivables during a consecutive 12 month 
period in the past 36 months, or is a service provider to any insured 
depository institution that has a contract to support such 
institution's lending activities in accordance with 12 U.S.C. 1867(c) 
and is in good standing with the appropriate Federal banking agency.
    iv. Qualified institutions described in 3.a.iii.I. and II. will be 
automatically qualified under delegated authority by the SBA upon 
transmission of CARES Act Section 1102 Lender Agreement (SBA Form 3506) 
unless they currently are designated in Troubled Condition by their 
primary Federal regulator or are subject to a formal enforcement action 
by their primary Federal regulator that addresses unsafe or unsound 
lending practices.
b. What do lenders have to do in terms of loan underwriting?
    Each lender shall:
    i. Confirm receipt of borrower certifications contained in Paycheck 
Protection Program Application form issued by the Administration;
    ii. Confirm receipt of information demonstrating that a borrower 
had employees for whom the borrower paid salaries and payroll taxes on 
or around February 15, 2020;
    iii. Confirm the dollar amount of average monthly payroll costs for 
the preceding calendar year by reviewing the payroll documentation 
submitted with the borrower's application; and
    iv. Follow applicable BSA requirements:
    I. Federally insured depository institutions and federally insured 
credit unions should continue to follow their existing BSA protocols 
when making PPP loans to either new or existing customers who are 
eligible borrowers under the PPP. PPP loans for existing customers will 
not require re-verification under applicable BSA requirements, unless 
otherwise indicated by the institution's risk-based approach to BSA 
compliance.
    II. Entities that are not presently subject to the requirements of 
the BSA, should, prior to engaging in PPP lending activities, including 
making PPP loans to either new or existing customers who are eligible 
borrowers under the PPP, establish an anti-money laundering (AML) 
compliance program equivalent to that of a comparable federally 
regulated institution. Depending upon the comparable federally 
regulated institution, such a program may include a customer 
identification program (CIP), which includes identifying and verifying 
their PPP borrowers' identities (including e.g., date of birth, 
address, and taxpayer identification number), and, if that PPP borrower 
is a company, following any applicable beneficial ownership information 
collection requirements. Alternatively, if available, entities may rely 
on the CIP of a federally insured depository institution or federally 
insured credit union with an established CIP as part of its AML 
program. In either instance, entities should also understand the nature 
and purpose of their PPP customer relationships to develop customer 
risk profiles. Such entities will also generally have to identify and 
report certain suspicious activity to the U.S. Department of the 
Treasury's Financial Crimes Enforcement Network (FinCEN). If such 
entities have questions with regard to meeting these requirements, they 
should contact the FinCEN Regulatory Support Section at [email protected]. 
In addition, FinCEN has created a COVID-19-specific contact channel, 
via a specific drop-down category, for entities to communicate to 
FinCEN COVID-19-related concerns while adhering to their BSA 
obligations. Entities that wish to communicate such COVID-19-related 
concerns to FinCEN should go to www.FinCEN.gov, click on ``Need 
Assistance,'' and select ``COVID19'' in the subject drop-down list.
    Each lender's underwriting obligation under the PPP is limited to 
the items above and reviewing the ``Paycheck Protection Application 
Form.'' Borrowers must submit such documentation as is necessary to 
establish eligibility such as payroll processor records, payroll tax 
filings, or Form 1099-MISC, or income and expenses from a sole 
proprietorship. For borrowers that do not have any such documentation, 
the borrower must provide other supporting documentation, such as bank 
records, sufficient to demonstrate the qualifying payroll amount.
c. Can lenders rely on borrower documentation for loan forgiveness?
    Yes. The lender does not need to conduct any verification if the 
borrower submits documentation supporting its request for loan 
forgiveness and attests that it has accurately verified the payments 
for eligible costs. The Administrator will hold harmless any lender 
that relies on such borrower documents and attestation from a borrower. 
The Administrator, in

[[Page 20816]]

consultation with the Secretary, has determined that lender reliance on 
a borrower's required documents and attestation is necessary and 
appropriate in light of section 1106(h) of the Act, which prohibits the 
Administrator from taking an enforcement action or imposing penalties 
if the lender has received a borrower attestation.
d. What fees will lenders be paid?
    SBA will pay lenders fees for processing PPP loans in the following 
amounts:
    i. Five (5) percent for loans of not more than $350,000;
    ii. Three (3) percent for loans of more than $350,000 and less than 
$2,000,000; and
    iii. One (1) percent for loans of at least $2,000,000.
e. Do lenders have to apply the ``credit elsewhere test''?
    No. When evaluating an applicant's eligibility lenders will not be 
required to apply the ``credit elsewhere test'' (as set forth in 
section 7(a)(1)(A) of the Small Business Act (15 U.S.C. 636) and SBA 
regulations at 13 CFR 120.101)).
4. What do both borrowers and lenders need to know and do?
a. What are the loan terms and conditions?
    Loans will be guaranteed under the PPP under the same terms, 
conditions and processes as other 7(a) loans, with certain changes 
including but not limited to:
    i. The guarantee percentage is 100 percent.
    ii. No collateral will be required.
    iii. No personal guarantees will be required.
    iv. The interest rate will be 100 basis points or one percent.
    v. All loans will be processed by all lenders under delegated 
authority and lenders will be permitted to rely on certifications of 
the borrower in order to determine eligibility of the borrower and the 
use of loan proceeds.
b. Are there any fee waivers?
    i. There will be no up-front guarantee fee payable to SBA by the 
Borrower;
    ii. There will be no lender's annual service fee (``on-going 
guaranty fee'') payable to SBA;
    iii. There will be no subsidy recoupment fee; and
    iv. There will be no fee payable to SBA for any guarantee sold into 
the secondary market.
c. Who pays the fee to an agent who assists a borrower?
    Agent fees will be paid by the lender out of the fees the lender 
receives from SBA. Agents may not collect fees from the borrower or be 
paid out of the PPP loan proceeds. The total amount that an agent may 
collect from the lender for assistance in preparing an application for 
a PPP loan (including referral to the lender) may not exceed:
    i. One (1) percent for loans of not more than $350,000;
    ii. 0.50 percent for loans of more than $350,000 and less than $2 
million; and
    iii. 0.25 percent for loans of at least $2 million.
    The Act authorizes the Administrator to establish limits on agent 
fees. The Administrator, in consultation with the Secretary, determined 
that the agent fee limits set forth above are reasonable based upon the 
application req uirements and the fees that lenders receive for making 
PPP loans.
d. Can PPP loans be sold into the secondary market?
    Yes. A PPP loan may be sold on the secondary market after the loan 
is fully disbursed. A PPP loan may be sold on the secondary market at a 
premium or a discount to par value. SBA will issue guidance regarding 
any advance purchase for loans sold in the secondary market.
e. Can SBA purchase some or all of the loan in advance?
    Yes. A lender may request that the SBA purchase the expected 
forgiveness amount of a PPP loan or pool of PPP loans at the end of 
week seven of the covered period. The expected forgiveness amount is 
the amount of loan principal the lender reasonably expects the borrower 
to expend on payroll costs, covered mortgage interest, covered rent, 
and covered utility payments during the eight week period after loan 
disbursement. At least 75 percent of the expected forgiveness amount 
shall be for payroll costs, as provided in 2.o. To submit a PPP loan or 
pool of PPP loans for advance purchase, a lender shall submit a report 
requesting advance purchase with the expected forgiveness amount to the 
SBA. The report shall include: the Paycheck Protection Program 
Application Form (SBA Form 2483) and any supporting documentation 
submitted with such application; the Paycheck Protection Program 
Lender's Application for 7(a) Loan Guaranty (SBA Form 2484) and any 
supporting documentation; a detailed narrative explaining the 
assumptions used in determining the expected forgiveness amount, the 
basis for those assumptions, alternative assumptions considered, and 
why alternative assumptions were not used; any information obtained 
from the borrower since the loan was disbursed that the lender used to 
determine the expected forgiveness amount, which should include the 
same documentation required to apply for loan forgiveness such as 
payroll tax filings, cancelled checks, and other payment documentation; 
and any additional information the Administrator may require to 
determine whether the expected forgiveness amount is reasonable. The 
Administrator, in consultation with the Secretary, determined that 
seven weeks is the minimum period of time necessary for a lender to 
reasonably determine the expected forgiveness amount for a PPP loan or 
pool of PPP loans, since the PPP is a new program and the likelihood 
that many borrowers will be new clients of the lender. The expected 
forgiveness amount may not exceed the total amount of principal on the 
PPP loan or pool of loans. The Administrator will purchase the expected 
forgiveness amount of the PPP loan(s) within 15 days of the date on 
which the Administrator receives a complete report that demonstrates 
that the expected forgiveness amount is indeed reasonable.
5. Additional Information
    All loans guaranteed by the SBA pursuant to the CARES Act will be 
made consistent with constitutional, statutory, and regulatory 
protections for religious liberty, including the First Amendment to the 
Constitution, the Religious Freedom Restoration Act, 42 U.S.C. 2000bb-1 
and bb-3, and SBA regulation at 13 CFR 113.3-1h, which provides that 
nothing in SBA nondiscrimination regulations shall apply to a religious 
corporation, association, educational institution or society with 
respect to the membership or the employment of individuals of a 
particular religion to perform work connected with the carrying on by 
such corporation, association, educational institution or society of 
its religious activities. SBA intends to promptly issue additional 
guidance with regard to religious liberty protections under this 
program.
    SBA may provide further guidance, if needed, through SBA notices 
and a program guide which will be posted on SBA's website at 
www.sba.gov.
    Questions on the Paycheck Protection Program 7(a) Loans may be 
directed to the Lender Relations Specialist in the local SBA Field 
Office. The local SBA Field Office may be found at https://www.sba.gov/tools/local-assistance/districtoffices.

[[Page 20817]]

Compliance With Executive Orders 12866, 12988, 13132, and 13771, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

E.O. 12866 and E.O. 13563

    This interim final rule is economically significant for the 
purposes of Executive Orders 12866 and 13563. SBA, however, is 
proceeding under the emergency provision at Executive Order 12866 
Section 6(a)(3)(D) based on the need to move expeditiously to mitigate 
the current economic conditions arising from the COVID-19 emergency. 
This rule's designation under Executive Order 13771 will be informed by 
public comment.
    This rule is necessary to implement Sections 1102 and 1106 of the 
CARES Act in order to provide economic relief to small businesses 
nationwide adversely impacted under the COVID-19 Emergency Declaration. 
We anticipate that this rule will result in substantial benefits to 
small businesses, their employees, and the communities they serve. 
However, we lack data to estimate the effects of this rule.

Executive Order 12988

    SBA has drafted this rule, to the extent practicable, in accordance 
with the standards set forth in section 3(a) and 3(b)(2) of Executive 
Order 12988, to minimize litigation, eliminate ambiguity, and reduce 
burden. The rule has no preemptive or retroactive effect.

Executive Order 13132

    SBA has determined that this rule will not have substantial direct 
effects on the States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various layers of government. Therefore, SBA 
has determined that this rule has no federalism implications warranting 
preparation of a federalism assessment.

Paperwork Reduction Act, 44 U.S.C. Chapter 35

    SBA has determined that this rule will impose recordkeeping or 
reporting requirements under the Paperwork Reduction Act (``PRA''). SBA 
has obtained emergency approval under OMB Control Number 3245-0407 for 
the information collection (IC) required to implement the program 
described above. This IC consists of Form 2483 (Paycheck Protection 
Program Application Form), SBA Form 2484 (Paycheck Protection Program 
Lender's Application for 7(a) Loan Guaranty), and SBA Form 3506 (CARES 
Act Section 1102 Lender Agreement), and SBA Form 3507 (CARES Act 
Section 1102 Lender Agreement--Non-Bank and Non-Insured Depository 
Institution Lender). The collection is approved for use until September 
30, 2020.

Regulatory Flexibility Act (RFA)

    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule, or a final rule pursuant to section 
553(b) of the APA or another law, the agency must prepare a regulatory 
flexibility analysis that meets the requirements of the RFA and publish 
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically, 
the RFA normally requires agencies to describe the impact of a 
rulemaking on small entities by providing a regulatory impact analysis. 
Such analysis must address the consideration of regulatory options that 
would lessen the economic effect of the rule on small entities. The RFA 
defines a ``small entity'' as (1) a proprietary firm meeting the size 
standards of the Small Business Administration (SBA); (2) a nonprofit 
organization that is not dominant in its field; or (3) a small 
government jurisdiction with a population of less than 50,000. 5 U.S.C. 
601(3)-(6). Except for such small government jurisdictions, neither 
State nor local governments are ``small entities.'' Similarly, for 
purposes of the RFA, individual persons are not small entities.
    The requirement to conduct a regulatory impact analysis does not 
apply if the head of the agency ``certifies that the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish 
the certification in the Federal Register at the time of publication of 
the rule, ``along with a statement providing the factual basis for such 
certification.'' If the agency head has not waived the requirements for 
a regulatory flexibility analysis in accordance with the RFA's waiver 
provision, and no other RFA exception applies, the agency must prepare 
the regulatory flexibility analysis and publish it in the Federal 
Register at the time of promulgation or, if the rule is promulgated in 
response to an emergency that makes timely compliance impracticable, 
within 180 days of publication of the final rule. 5 U.S.C. 604(a), 
608(b).
    Rules that are exempt from notice and comment are also exempt from 
the RFA requirements, including conducting a regulatory flexibility 
analysis, when among other things the agency for good cause finds that 
notice and public procedure are impracticable, unnecessary, or contrary 
to the public interest. Small Business Administration's Office of 
Advocacy guide: How to Comply with the Regulatory Flexibility Ac. Ch.1. 
p.9. Accordingly, SBA is not required to conduct a regulatory 
flexibility analysis.
    Authority: 15 U.S.C. 636(a)(36); Coronavirus Aid, Relief, and 
Economic Security Act, Public Law 116-136, Section 1114.

Jovita Carranza,
Administrator.
[FR Doc. 2020-07672 Filed 4-10-20; 4:15 pm]
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