[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]
[[Page 23450]]
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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
[[Page 23452]]
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