[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
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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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\
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\1\ A representative of the applicant can certify for the
business as a whole if the representative is legally authorized to
do so.
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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
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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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