[Federal Register Volume 85, Number 76 (Monday, April 20, 2020)]
[Rules and Regulations]
[Pages 21747-21752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08257]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

[Docket Number SBA-2020-0020]
RIN 3245-AH36


Business Loan Program Temporary Changes; Paycheck Protection 
Program--Additional Eligibility Criteria and Requirements for Certain 
Pledges of Loans

AGENCY: U. S. Small Business Administration.

ACTION: Interim final rule.

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SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA) 
posted an interim final rule (the First PPP Interim Final Rule) 
announcing 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 program, titled 
the ``Paycheck Protection Program,'' to the 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 (PPP). The PPP is intended to provide economic 
relief to small businesses nationwide adversely impacted by the 
Coronavirus Disease 2019 (COVID-19). This interim final rule 
supplements the First PPP Interim Final Rule with guidance for 
individuals with self-employment income who file a Form 1040, Schedule 
C. This rule also addresses eligibility issues for certain business 
concerns and requirements for certain pledges of PPP loans. This 
interim final rule supplements SBA's implementation of sections 1102 
and 1106 of the Act and requests public comment.

DATES: 
    Effective Date: This rule is effective April 20, 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 20, 2020.

ADDRESSES: You may submit comments, identified by number SBA-2020-0020 
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].

[[Page 21748]]

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: A 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, tribal, 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.

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 whether they are eligible to apply for a loan, 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 
determine their eligibility and 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 
I 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 20, 2020. SBA will consider these comments 
and the need for making any revisions as a result of these comments.

III. Additional Paycheck Protection Program Eligibility Criteria and 
Requirements for Certain Pledges of Loans

Overview

    The CARES Act was enacted to provide immediate assistance to 
individuals, families, and organizations affected by the COVID-19 
emergency. Among the provisions contained in the CARES Act are 
provisions authorizing SBA to temporarily guarantee loans under the 
Paycheck Protection Program (PPP). Loans under the PPP will be 100 
percent guaranteed by SBA, and the full principal amount of the loans 
and any accrued interest may qualify for loan forgiveness. Additional 
information about the PPP is available in the First PPP Interim Final 
Rule (85 FR 20811) and a second interim final rule (85 FR 20817) posted 
April 3, 2020.
1. Individuals With Self-Employment Income Who File a Form 1040, 
Schedule C
    a. I have income from self-employment and file a Form 1040, 
Schedule C. Am I eligible for a PPP Loan?
    You are eligible for a PPP loan if: (i) You were in operation on 
February 15, 2020; (ii) you are an individual with self-employment 
income (such as an independent contractor or a sole proprietor); (iii) 
your principal place of residence is in the United States; and (iv) you 
filed or will file a Form 1040 Schedule C for 2019. However, if you are 
a partner in a partnership, you may not submit a separate PPP loan 
application for yourself as a self-employed individual. Instead, the 
self-employment income of general active partners may be reported as a 
payroll cost, up to $100,000 annualized, on a PPP loan application 
filed by or on behalf of the partnership. Partnerships are eligible for 
PPP loans under the Act, and the Administrator has determined, in 
consultation with the Secretary of the Treasury (Secretary), that 
limiting a partnership and its partners (and an LLC filing taxes as a 
partnership) to one PPP loan is necessary to help ensure that as many 
eligible borrowers as possible obtain PPP loans before the statutory 
deadline of June 30, 2020. This limitation will allow lenders to more 
quickly process applications and lower the burdens of applying for 
partnerships/partners. The Administrator has further determined that 
permitting partners to apply as self-employed individuals would create 
unnecessary confusion regarding which entity, the partner or the 
partnership, applies for partner and LLC member income, and would 
generate loan proceeds use coordination and allocation issues. Rent, 
mortgage interest, utilities, and other debt service are generally 
incurred at the partnership level, not partner level, so it is most 
natural to provide the funds for these expenses to the partnership, not 
individual partners. In addition, you should be aware that 
participation in the PPP may affect your eligibility for state-
administered unemployment compensation or unemployment assistance 
programs, including the programs authorized by Title II, Subtitle A of 
the CARES Act, or CARES Act Employee Retention Credits. SBA will issue 
additional guidance for those individuals with self-employment income 
who: (i) Were not in operation in 2019 but who were in operation on 
February 15, 2020, and (ii) will file a Form 1040 Schedule C for 2020.

[[Page 21749]]

    b. How do I calculate the maximum amount I can borrow and what 
documentation is required?
    How you calculate your maximum loan amount depends upon whether or 
not you employ other individuals. If you have no employees, the 
following methodology should be used to calculate your maximum loan 
amount:
    i. Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net 
profit amount (if you have not yet filed a 2019 return, fill it out and 
compute the value). If this amount is over $100,000, reduce it to 
$100,000. If this amount is zero or less, you are not eligible for a 
PPP loan.
    ii. Step 2: Calculate the average monthly net profit amount (divide 
the amount from Step 1 by 12).
    iii. Step 3: Multiply the average monthly net profit amount from 
Step 2 by 2.5.
    iv. Step 4: Add the outstanding amount of any Economic Injury 
Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 
that you seek to refinance, less the amount of any advance under an 
EIDL COVID-19 loan (because it does not have to be repaid).
    Regardless of whether you have filed a 2019 tax return with the 
IRS, you must provide the 2019 Form 1040 Schedule C with your PPP loan 
application to substantiate the applied-for PPP loan amount and a 2019 
IRS Form 1099-MISC detailing nonemployee compensation received (box 7), 
invoice, bank statement, or book of record that establishes you are 
self-employed. You must provide a 2020 invoice, bank statement, or book 
of record to establish you were in operation on or around February 15, 
2020.
    If you have employees, the following methodology should be used to 
calculate your maximum loan amount:
    i. Step 1: Compute 2019 payroll by adding the following:
    a. Your 2019 Form 1040 Schedule C line 31 net profit amount (if you 
have not yet filed a 2019 return, fill it out and compute the value), 
up to $100,000 annualized, if this amount is over $100,000, reduce it 
to $100,000, if this amount is less than zero, set this amount at zero;
    b. 2019 gross wages and tips paid to your employees whose principal 
place of residence is in the United States computed using 2019 IRS Form 
941 Taxable Medicare wages & tips (line 5c--column 1) from each quarter 
plus any pre-tax employee contributions for health insurance or other 
fringe benefits excluded from Taxable Medicare wages & tips; subtract 
any amounts paid to any individual employee in excess of $100,000 
annualized and any amounts paid to any employee whose principal place 
of residence is outside the United States; and
    c. 2019 employer health insurance contributions (health insurance 
component of Form 1040 Schedule C line 14), retirement contributions 
(Form 1040 Schedule C line 19), and state and local taxes assessed on 
employee compensation (primarily under state laws commonly referred to 
as the State Unemployment Tax Act or SUTA from state quarterly wage 
reporting forms).
    ii. Step 2: Calculate the average monthly amount (divide the amount 
from Step 1 by 12).
    iii. Step 3: Multiply the average monthly amount from Step 2 by 
2.5.
    iv. Step 4: Add the outstanding amount of any EIDL made between 
January 31, 2020 and April 3, 2020 that you seek to refinance, less the 
amount of any advance under an EIDL COVID-19 loan (because it does not 
have to be repaid).
    You must supply your 2019 Form 1040 Schedule C, Form 941 (or other 
tax forms or equivalent payroll processor records containing similar 
information) and state quarterly wage unemployment insurance tax 
reporting forms from each quarter in 2019 or equivalent payroll 
processor records, along with evidence of any retirement and health 
insurance contributions, if applicable. A payroll statement or similar 
documentation from the pay period that covered February 15, 2020 must 
be provided to establish you were in operation on February 15, 2020.
    d. How can PPP loans be used by individuals with income from self-
employment who file a 2019 Form 1040, Schedule C?
    The proceeds of a PPP loan are to be used for the following.
    i. Owner compensation replacement, calculated based on 2019 net 
profit as described in Paragraph 1.b. above.
    ii. Employee payroll costs (as defined in the First PPP Interim 
Final Rule) for employees whose principal place of residence is in the 
United States, if you have employees.
    iii. Mortgage interest payments (but not mortgage prepayments or 
principal payments) on any business mortgage obligation on real or 
personal property (e.g., the interest on your mortgage for the 
warehouse you purchased to store business equipment or the interest on 
an auto loan for a vehicle you use to perform your business), business 
rent payments (e.g., the warehouse where you store business equipment 
or the vehicle you use to perform your business), and business utility 
payments (e.g., the cost of electricity in the warehouse you rent or 
gas you use driving your business vehicle). You must have claimed or be 
entitled to claim a deduction for such expenses on your 2019 Form 1040 
Schedule C for them to be a permissible use during the eight-week 
period following the first disbursement of the loan (the ``covered 
period''). For example, if you did not claim or are not entitled to 
claim utilities expenses on your 2019 Form 1040 Schedule C, you cannot 
use the proceeds for utilities during the covered period.
    iv. Interest payments on any other debt obligations that were 
incurred before February 15, 2020 (such amounts are not eligible for 
PPP loan forgiveness).
    v. Refinancing an SBA EIDL loan made between January 31, 2020 and 
April 3, 2020 (maturity will be reset to PPP's maturity of two years). 
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.
    The Administrator, in consultation with the Secretary, determined 
that it is appropriate to limit self-employed individuals' (who file a 
Form 1040 Schedule C) use of loan proceeds to those types of allowable 
uses for which the borrower made expenditures in 2019. The 
Administrator has determined that this limitation on self-employed 
individuals who file a Form 1040 Schedule C is consistent with the 
borrower certification required by the Act; specifically, that the PPP 
loan is necessary ``to support the ongoing operations'' of the 
borrower. The Administrator and the Secretary thus believe that this 
limitation is consistent with the structure of the Act to maintain 
existing operations and payroll and not for business expansion. This 
limitation on the use of PPP loan proceeds will also help to ensure 
that the finite appropriations available for these loans are directed 
toward maintaining existing operations and payroll, as each loan that 
is made depletes the appropriation. Finally, although the Act makes 
businesses in operation on February 15, 2020 eligible for PPP loans, 
the Administrator, in consultation with the Secretary, has determined 
that self-employed individuals will need to rely on their 2019 Form 
1040 Schedule C, which provides verifiable documentation on expenses 
between January 1, 2019 and December 31, 2019.

[[Page 21750]]

For individuals with income from self-employment from 2019 for which 
they have filed or will file a 2019 Form 1040 Schedule C, expenses 
incurred between January 1, 2020 and February 14, 2020 may not be 
considered because of the lack of verifiable documentation on expenses 
in this period. SBA will issue additional guidance for those 
individuals with self-employment income who: (i) Were not in operation 
in 2019 but who were in operation on February 15, 2020, and (ii) will 
file a Form 1040 Schedule C for 2020.
    e. Are there any other restrictions on how I can use PPP loan 
proceeds?
    Yes. 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 (but not for forgiveness purposes), the 
amount of any refinanced EIDL will be included. The rationale for this 
75 percent floor is contained in the First PPP Interim Final Rule.
    f. What amounts shall be eligible for forgiveness?
    The amount of loan forgiveness can be up to the full principal 
amount of the loan plus accrued interest. The actual amount of loan 
forgiveness will depend, in part, on the total amount spent over the 
covered period on:
    i. Payroll costs including salary, wages, and tips, up to $100,000 
of annualized pay per employee (for eight weeks, a maximum of $15,385 
per individual), as well as covered benefits for employees (but not 
owners), including health care expenses, retirement contributions, and 
state taxes imposed on employee payroll paid by the employer (such as 
unemployment insurance premiums);
    ii. owner compensation replacement, calculated based on 2019 net 
profit as described in Paragraph 1.b. above, with forgiveness of such 
amounts limited to eight weeks' worth (8/52) of 2019 net profit, but 
excluding any qualified sick leave equivalent amount for which a credit 
is claimed under section 7002 of the Families First Coronavirus 
Response Act (FFCRA) (Pub. L. 116-127) or qualified family leave 
equivalent amount for which a credit is claimed under section 7004 of 
FFCRA;
    iii. payments of interest on mortgage obligations on real or 
personal property incurred before February 15, 2020, to the extent they 
are deductible on Form 1040 Schedule C (business mortgage payments);
    iv. rent payments on lease agreements in force before February 15, 
2020, to the extent they are deductible on Form 1040 Schedule C 
(business rent payments); and
    v. utility payments under service agreements dated before February 
15, 2020 to the extent they are deductible on Form 1040 Schedule C 
(business utility payments).
    The Administrator, in consultation with the Secretary, has 
determined that it is appropriate to limit the forgiveness of owner 
compensation replacement for individuals with self-employment income 
who file a Schedule C to eight weeks' worth (8/52) of 2019 net profit. 
This is most consistent with the structure of the Act and its 
overarching focus on keeping workers paid, and will prevent windfalls 
that Congress did not intend.
    Congress determined that the maximum loan amount is based on 2.5 
months of the borrower's payroll during the one-year period preceding 
the loan.
    Congress also determined that the maximum amount of loan 
forgiveness is based on the borrower's eligible payments--i.e., the sum 
of payroll costs and certain overhead expenses--over the eight-week 
period following the date of loan disbursement. For individuals with 
self-employment income who file a Schedule C, the Administrator, in 
consultation with the Secretary, has determined that it is appropriate 
to limit loan forgiveness to a proportionate eight-week share of 2019 
net profit, as reflected in the individual's 2019 Form 1040 Schedule C. 
This is because many self-employed individuals have few of the overhead 
expenses that qualify for forgiveness under the Act. For example, many 
such individuals operate out of either their homes, vehicles, or sheds 
and thus do not incur qualifying mortgage interest, rent, or utility 
payments. As a result, most of their receipts will constitute net 
income. Allowing such a self-employed individual to treat the full 
amount of a PPP loan as net income would result in a windfall. The 
entire amount of the PPP loan (a maximum of 2.5 times monthly payroll 
costs) would be forgiven even though Congress designed this program to 
limit forgiveness to certain eligible expenses incurred in an eight-
week covered period. Limiting forgiveness to eight weeks of net profit 
from the owner's 2019 Form 1040 Schedule C is consistent with the 
structure of the Act, which provides for loan forgiveness based on 
eight weeks of expenditures. This limitation will also help to ensure 
that the finite appropriations are directed toward payroll protection, 
consistent with the Act's central objective. Finally, 75 percent of the 
amount forgiven must be attributable to payroll costs for the reasons 
specified in the First PPP Interim Final Rule.
    g. What documentation will I be required to submit to my lender 
with my request for loan forgiveness?
    In addition to the borrower certification required by Section 
1106(e)(3) of the Act, to substantiate your request for loan 
forgiveness, if you have employees, you should submit Form 941 and 
state quarterly wage unemployment insurance tax reporting forms or 
equivalent payroll processor records that best correspond to the 
covered period (with evidence of any retirement and health insurance 
contributions). Whether or not you have employees, you must submit 
evidence of business rent, business mortgage interest payments on real 
or personal property, or business utility payments during the covered 
period if you used loan proceeds for those purposes.
    The 2019 Form 1040 Schedule C that was provided at the time of the 
PPP loan application must be used to determine the amount of net profit 
allocated to the owner for the eight-week covered period. The 
Administrator, in consultation with the Secretary, determined that for 
purposes of loan forgiveness it is appropriate to require self-employed 
individuals to rely on the 2019 Form 1040 Schedule C to determine the 
amount of net profit allocated to the owner during the covered period 
for the reasons described in Paragraph 1.d. above.
2. Clarification Regarding Eligible Businesses
    a. Are eligible businesses owned by directors or shareholders of a 
PPP Lender permitted to apply for a PPP Loan through the Lender with 
which they are associated?
    The Administrator recognizes that, unlike other SBA loan programs, 
the financial terms for PPP Loans are uniform for all borrowers, and 
the standard underwriting process does not apply because no 
creditworthiness assessment is required for PPP Loans. Consequently, 
there is no meaningful risk of underwriting bias or below-market rates 
and terms. The Administrator also recognizes that many directors and 
equity holders of PPP Lenders are owners of unrelated businesses. For 
those reasons, the Administrator, in consultation with the Secretary, 
has determined that SBA regulations (including 13 CFR 120.110 and 
120.140) shall not apply to prohibit an otherwise eligible business 
owned (in whole or part) by an outside director or holder of a less 
than 30 percent equity interest in a PPP Lender from obtaining a PPP 
loan from the PPP Lender on whose board the director serves or in which 
the equity owner

[[Page 21751]]

holds an interest, provided that the eligible business owned by the 
director or equity holder follows the same process as any similarly 
situated customer or account holder of the Lender. Favoritism by the 
Lender in processing time or prioritization of the director's or equity 
holder's PPP application is prohibited. The Administrator cautions, 
however, that Lenders should comply with all other applicable state and 
federal regulations concerning loans to associates of the Lender. 
Lenders should also consult their own internal policies concerning 
lending to individuals or entities associated with the Lender.
    The foregoing paragraph does not apply to a director or owner who 
is also an officer or key employee of the PPP Lender. Officers and key 
employees of a PPP Lender may obtain a PPP Loan from a different 
lender, but not from the PPP Lender with which they are associated. SBA 
also reminds Lenders that the ``Authorized Lender Official'' for each 
PPP Loan is subject to the limitations described in the Lender 
Application Form, which states in relevant part: ``Neither the 
undersigned Authorized Lender Official, nor such individual's spouse or 
children, has a financial interest in the Applicant [Borrower].''
    b. Are businesses that receive revenue from legal gaming eligible 
for a PPP Loan?
    A business that is otherwise eligible for a PPP Loan is not 
rendered ineligible due to its receipt of legal gaming revenues if the 
existing standard in 13 CFR 120.110(g) is met or the following two 
conditions are satisfied: (a) The business's legal gaming revenue (net 
of payouts but not other expenses) did not exceed $1 million in 2019; 
and (b) legal gaming revenue (net of payouts but not other expenses) 
comprised less than 50 percent of the business's total revenue in 2019. 
Businesses that received illegal gaming revenue are categorically 
ineligible. The Administrator, in consultation with the Secretary, 
believes this test appropriately balances the longstanding policy 
reasons for limiting lending to businesses primarily and substantially 
engaged in gaming activity with the policy aim of making the PPP Loan 
available to a broad segment of U.S. businesses and their employees.
3. Requirements for Certain Pledges of PPP Loans
    Do the requirements for loan pledges under 13 CFR 120.434 apply to 
PPP loans pledged for borrowings from a Federal Reserve Bank (FRB) or 
advances by a Federal Home Loan Bank (FHLB)?
    No. Pursuant to SBA regulations at 13 CFR 120.435(d) and (e), a 
pledge of 7(a) loans to a FRB or FHLB does not require SBA's prior 
written consent or notice to SBA. SBA, in consultation with Treasury, 
has determined that for purposes of loans made under the PPP, the 
additional requirements set forth in 120.434 shall also not apply. This 
would mean, for example, that SBA would not have to approve loan 
documents or require a multi-party agreement among SBA, the lender, and 
others.
4. Additional Information
    SBA may provide further guidance, if needed, through SBA notices 
that will be posted on SBA's website at www.sba.gov. Questions on the 
Paycheck Protection Program 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.

Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771, 
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Orders 12866, 13563, and 13771

    This interim final rule is economically significant for the 
purposes of Executive Orders 12866 and 13563, and is considered a major 
rule under the Congressional Review Act. 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.

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 not impose new or modify 
existing recordkeeping or reporting requirements under the Paperwork 
Reduction Act.

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

[[Page 21752]]

to the public interest. SBA Office of Advocacy guide: How to Comply 
with the Regulatory Flexibility Act. Ch.1. p.9. Accordingly, SBA is not 
required to conduct a regulatory flexibility analysis.

List of Subjects in 13 CFR Part 120

    Community development, Environmental protection, Equal employment 
opportunity, Exports, Loan programs--business, Reporting and 
recordkeeping requirements, Small businesses.

    For the reasons stated above, the Small Business Administration 
amends 13 CFR part 120 as set forth below.

PART 120--BUSINESS LOANS

0
1. The authority citation for part 120 continues to read as follows:

    Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note, 
636(a), (h) and (m), and note, 650, 657t, and note, 657u, and note, 
687(f), 696(3) and (7), and note, and 697(a) and (e), and note.


0
2. Revise Sec.  120.435 to read as follows:


Sec.  120.435  Which loan pledges do not require notice to or consent 
by SBA?

    (a) Notwithstanding the provisions of Sec.  120.434(e), 7(a) loans 
may be pledged for the following purposes without notice to or consent 
by SBA:
    (1) Treasury tax and loan accounts;
    (2) The deposit of public funds;
    (3) Uninvested trust funds;
    (4) Borrowings from a Federal Reserve Bank; or
    (5) Advances by a Federal Home Loan Bank.
    (b) For purposes of the Paycheck Protection Program (PPP), the 
other provisions of Sec.  120.434 shall also not apply to PPP loans 
pledged under paragraph (a)(4) or (5) of this section.

Jovita Carranza,
Administrator.
[FR Doc. 2020-08257 Filed 4-17-20; 8:45 am]
BILLING CODE P