[Federal Register Volume 85, Number 97 (Tuesday, May 19, 2020)]
[Rules and Regulations]
[Pages 29847-29849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10674]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 120 and 121

[Docket Number SBA-2020-0029]
RIN 3245-AH43


Business Loan Program Temporary Changes; Paycheck Protection 
Program--Eligibility of Certain Electric Cooperatives

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 announcing the implementation of the 
Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The 
CARES Act temporarily adds a new program, titled the ``Paycheck 
Protection Program,'' to the SBA's 7(a) Loan Program. The CARES 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, April 14, 2020, April 24, 2020, April 28, 2020, April 30, 2020, 
May 5, 2020, and May 8, 2020, and the Department of the Treasury posted 
an additional interim final rule on April 28, 2020. This interim final 
rule supplements the previously posted interim final rules by providing 
guidance on additional eligibility requirements for certain electric 
cooperatives, and requests public comment.

DATES: 
    Effective date: This rule is effective May 19, 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 June 18, 2020.

ADDRESSES: You may submit comments, identified by number SBA-2020-0029 
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

[[Page 29848]]

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) (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 CARES 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 CARES 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 CARES Act provides for forgiveness of up to the full principal 
amount of qualifying loans guaranteed under the Paycheck Protection 
Program (PPP). On April 24, 2020, the President signed the Paycheck 
Protection Program and Health Care Enhancement Act (Pub. L. 116-139), 
which provided additional funding and authority for the PPP.
    Among the categories of entities that are eligible PPP borrowers 
are business concerns and certain nonprofit organizations described in 
section 501(c)(3) of the Internal Revenue Code (the Code). This interim 
final rule addresses the eligibility of electric cooperatives as PPP 
borrowers. Existing SBA regulations define a ``business concern'' as 
``a business entity organized for profit,'' subject to certain 
limitations. 13 CFR 121.105(a)(1). Generally, electric cooperatives are 
organizations that are owned and controlled by members who receive 
services from the cooperative. Electric cooperatives periodically 
return any excess of net operating revenues over their cost of 
operations--generally referred to as ``savings''--to their member-
owners. In addition, electric cooperatives meeting the description of 
section 501(c)(12) of the Code may be exempt from Federal income 
taxation under section 501(a) of the Code. To qualify for the 
exemption, an electric cooperative must receive at least 85 percent of 
its income each year from its members. The 85 percent member income 
test is computed annually. An electric cooperative may be exempt in one 
year, lose exemption in another year if it does not derive at least 85 
percent of its income from members, and become exempt in a third year. 
Because of their potential tax exemption under section 501(c)(12) of 
the Code, electric cooperatives have faced uncertainty about their 
eligibility to receive PPP loans.
    The Administrator, in consultation with the Secretary, understands 
that electric cooperatives are unusual in that they may be exempt from 
taxation or organized under state nonprofit statutes in certain 
jurisdictions, while they operate as businesses. For example, electric 
cooperatives provide utility services and distribute savings to their 
member-owners. Accordingly, as described below, to provide certainty to 
potential PPP loan applicants, this interim final rule provides that, 
for purposes of the PPP, an electric cooperative that is exempt from 
Federal income taxation under section 501(c)(12) of the Code will be 
considered to be ``a business entity organized for profit'' under 13 
CFR 121.105(a)(1). As a result, such electric cooperatives are eligible 
PPP borrowers, as long as other eligibility requirements are met.

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 an important, discrete issue. 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 June 18, 2020. SBA will 
consider these comments and the need for making any revisions as a 
result of these comments.

III. Paycheck Protection Program Additional Eligibility Criteria

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 
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 interim final rules published by SBA and the Department of the 
Treasury in the Federal Register (85 FR 20811, 85 FR 20817, 85 FR 
21747, 85 FR 23450, 85 FR 23917, 85 FR 26321, 85 FR 26324, and 85 FR 
27287) and the interim rule entitled ``Business Loan Program Temporary 
Changes; Paycheck Protection Program--Requirements--Extension of 
Limited Safe Harbor with Respect to Certification Concerning Need for 
PPP Loan Request,'' which SBA posted on May 8, 2020, and is published 
elsewhere in this issue of the Federal Register (collectively, the PPP 
Interim Final Rules).
1. Eligibility of Certain Electric Cooperatives
    Are electric cooperatives that are exempt from Federal income 
taxation under section 501(c)(12) of the Internal Revenue Code eligible 
for a PPP loan?
    Yes. Electric cooperatives provide utility services and distribute 
savings to their member-owners. Accordingly, for purposes of the PPP, 
the Administrator, in consultation with the Secretary, has determined 
that an electric cooperative that is exempt from Federal income 
taxation under section 501(c)(12) of the Internal Revenue Code will be 
considered to be ``a business entity organized for profit'' for 
purposes of 13 CFR 121.105(a)(1). As a result, such entities are 
eligible PPP borrowers, as long as other eligibility requirements are 
met. To be eligible, an electric cooperative must satisfy the employee-
based size standard established in the CARES Act, SBA's employee-based 
size standard corresponding to its primary industry, if higher, or both 
tests in

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SBA's ``alternative size standard.'' \1\ The Administrator, in 
consultation with the Secretary, has determined that this treatment is 
appropriate to effectuate the purposes of the CARES Act to provide 
assistance to eligible PPP borrowers, including business concerns, 
affected by the COVID-19 emergency.
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    \1\ Under the alternative size standard, a business concern, 
including an electric cooperative, can qualify for the PPP as a 
small business concern if, as of March 27, 2020: (1) The maximum 
tangible net worth of the business was not more than $15 million; 
and (2) the average net income after Federal income taxes (excluding 
any carry-over losses) of the business for the two full fiscal years 
before the date of the application is not more than $5 million. For 
an electric cooperative that does not have net income, the 
cooperative's savings distributed to its owner-members will be 
considered its net income.
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2. 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. 2020-10674 Filed 5-18-20; 8:45 am]
BILLING CODE P