[Federal Register Volume 85, Number 82 (Tuesday, April 28, 2020)]
[Rules and Regulations]
[Pages 23450-23452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09098]



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SMALL BUSINESS ADMINISTRATION

[Docket Number SBA-2020-0021]

13 CFR Parts 120 and 121

RIN 3245-AH37


Business Loan Program Temporary Changes; Paycheck Protection 
Program--Requirements--Promissory Notes, Authorizations, Affiliation, 
and Eligibility

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 the Coronavirus Aid, Relief, and 
Economic Security Act (CARES Act or the Act). The Act temporarily adds 
a new program, titled the ``Paycheck Protection Program,'' to the SBA's 
7(a) Loan Program. The Act also 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). SBA posted additional interim 
final rules on April 3, 2020, and April 14, 2020. This interim final 
rule supplements the previously posted interim final rules with 
additional guidance. SBA requests public comment on this additional 
guidance.

DATES: Effective date: This rule is effective April 28, 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 28, 2020.

ADDRESSES: You may submit comments, identified by number SBA-2020-0021 
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: 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, it is critical to meet 
lenders' and borrowers' need for clarity concerning program 
requirements as rapidly as possible because the last day eligible 
borrowers can apply for and receive a loan is June 30, 2020.
    This interim final rule supplements previous regulations and 
guidance on several important, discrete issues. The immediate effective 
date of this interim final rule will benefit lenders so that they can 
swiftly close and disburse loans to small businesses. 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 28, 2020. SBA will consider 
these comments and the need for making any revisions as a result of 
these comments.

III. Paycheck Protection Program Requirements for Promissory Notes, 
Authorizations, Affiliation, and Eligibility

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), a second interim final rule (85 FR 20817) (the 
Second PPP Interim Final Rule), and a third interim final rule (the 
Third PPP Interim Final Rule) (85 FR 21747) (collectively, the PPP 
Interim Final Rules).
1. Requirements for Promissory Notes and Authorizations
    This guidance is substantively identical to previously posted FAQ 
guidance.
    a. Are lenders required to use a promissory note provided by SBA or 
may they use their own?

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    Lenders may use their own promissory note or an SBA form of 
promissory note. See FAQ 19 (posted April 8, 2020).
    b. Are lenders required to use a separate SBA Authorization 
document to issue PPP loans?
    No. A lender does not need a separate SBA Authorization for SBA to 
guarantee a PPP loan. However, lenders must have executed SBA Form 2484 
(the Lender Application Form--Paycheck Protection Program Loan 
Guaranty) \1\ to issue PPP loans and receive a loan number for each 
originated PPP loan. Lenders may include in their promissory notes for 
PPP loans any terms and conditions, including relating to amortization 
and disclosure, that are not inconsistent with Sections 1102 and 1106 
of the CARES Act, the PPP Interim Final Rules and guidance, and SBA 
Form 2484. See FAQ 21 (posted April 13, 2020). The decision not to 
require a separate SBA Authorization in order to ensure that critical 
PPP loans are disbursed as efficiently as practicable.
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    \1\ This requirement is satisfied by a lender when the lender 
completes the process of submitting a loan through the E-Tran 
system; no transmission or retention of a physical copy of Form 2484 
is required.
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2. Clarification Regarding Eligible Businesses
    a. Is a hedge fund or private equity firm eligible for a PPP loan?
    No. Hedge funds and private equity firms are primarily engaged in 
investment or speculation, and such businesses are therefore ineligible 
to receive a PPP loan. The Administrator, in consultation with the 
Secretary, does not believe that Congress intended for these types of 
businesses, which are generally ineligible for section 7(a) loans under 
existing SBA regulations, to obtain PPP financing.
    b. Do the SBA affiliation rules prohibit a portfolio company of a 
private equity fund from being eligible for a PPP loan?
    Borrowers must apply the affiliation rules that appear in 13 CFR 
121.301(f), as set forth in the Second PPP Interim Final Rule (85 FR 
20817). The affiliation rules apply to private equity-owned businesses 
in the same manner as any other business subject to outside ownership 
or control.\2\ However, in addition to applying any applicable 
affiliation rules, all borrowers should carefully review the required 
certification on the Paycheck Protection Program Borrower Application 
Form (SBA Form 2483) stating that ``[c]urrent economic uncertainty 
makes this loan request necessary to support the ongoing operations of 
the Applicant.''
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    \2\ However, the Act waives the affiliation rules if the 
borrower receives financial assistance from an SBA-licensed Small 
Business Investment Company (SBIC) in any amount. This includes any 
type of financing listed in 13 CFR 107.50, such as loans, debt with 
equity features, equity, and guarantees. Affiliation is waived even 
if the borrower has investment from other non-SBIC investors.
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    c. Is a hospital owned by governmental entities eligible for a PPP 
loan?
    A hospital that is otherwise eligible to receive a PPP loan as a 
business concern or nonprofit organization (described in section 
501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation 
under section 501(a) of such Code) shall not be rendered ineligible for 
a PPP loan due to ownership by a state or local government if the 
hospital receives less than 50% of its funding from state or local 
government sources, exclusive of Medicaid.
    The Administrator, in consultation with the Secretary, determined 
that this exception to the general ineligibility of government-owned 
entities, 13 CFR 120.110(j), is appropriate to effectuate the purposes 
of the CARES Act.
    d. Part III.2.b. of the Third PPP Interim Final Rule (85 FR 21747, 
21751) is revised to read as follows:
    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, and 13 
CFR 120.110(g) is inapplicable to PPP loans. Businesses that received 
illegal gaming revenue remain categorically ineligible. On further 
consideration, the Administrator, in consultation with the Secretary, 
believes this approach is more consistent with the policy aim of making 
PPP loans available to a broad segment of U.S. businesses.
3. Business Participation in Employee Stock Ownership Plans
    Does participation in an employee stock ownership plan (ESOP) 
trigger application of the affiliation rules?
    No. For purposes of the PPP, a business's participation in an ESOP 
(as defined in 15 U.S.C. 632(q)(6)) does not result in an affiliation 
between the business and the ESOP. The Administrator, in consultation 
with the Secretary, determined that this is appropriate given the 
nature of such plans. Under an ESOP, a business concern contributes its 
stock (or money to buy its stock or to pay off a loan that was used to 
buy stock) to the plan for the benefit of the company's employees. The 
plan maintains an account for each employee participating in the plan. 
Shares of stock vest over time before an employee is entitled to them. 
However, with an ESOP, an employee generally does not buy or hold the 
stock directly while still employed with the company. Instead, the 
employee generally receives the shares in his or her personal account 
only upon the cessation of employment with the company, including 
retirement, disability, death, or termination.
4. Eligibility of Businesses Presently Involved in Bankruptcy 
Proceedings
    Will I be approved for a PPP loan if my business is in bankruptcy?
    No. If the applicant or the owner of the applicant is the debtor in 
a bankruptcy proceeding, either at the time it submits the application 
or at any time before the loan is disbursed, the applicant is 
ineligible to receive a PPP loan. If the applicant or the owner of the 
applicant becomes the debtor in a bankruptcy proceeding after 
submitting a PPP application but before the loan is disbursed, it is 
the applicant's obligation to notify the lender and request 
cancellation of the application. Failure by the applicant to do so will 
be regarded as a use of PPP funds for unauthorized purposes.
    The Administrator, in consultation with the Secretary, determined 
that providing PPP loans to debtors in bankruptcy would present an 
unacceptably high risk of an unauthorized use of funds or non-repayment 
of unforgiven loans. In addition, the Bankruptcy Code does not require 
any person to make a loan or a financial accommodation to a debtor in 
bankruptcy. The Borrower Application Form for PPP loans (SBA Form 
2483), which reflects this restriction in the form of a borrower 
certification, is a loan program requirement. Lenders may rely on an 
applicant's representation concerning the applicant's or an owner of 
the applicant's involvement in a bankruptcy proceeding.
5. Limited Safe Harbor With Respect to Certification Concerning Need 
for PPP Loan Request
    Consistent with section 1102 of the CARES Act, the Borrower 
Application Form requires PPP applicants to certify that ``[c]urrent 
economic uncertainty makes this loan request necessary to support the 
ongoing operations of the Applicant.''
    Any borrower that applied for a PPP loan prior to the issuance of 
this regulation and repays the loan in full by May 7, 2020 will be 
deemed by SBA to have made the required certification in good faith.
    The Administrator, in consultation with the Secretary, determined 
that this safe harbor is necessary and appropriate

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to ensure that borrowers promptly repay PPP loan funds that the 
borrower obtained based on a misunderstanding or misapplication of the 
required certification standard.
6. 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 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.

Jovita Carranza,
Administrator.
[FR Doc. 2020-09098 Filed 4-27-20; 8:45 am]
 BILLING CODE P