[Federal Register Volume 85, Number 119 (Friday, June 19, 2020)]
[Rules and Regulations]
[Pages 36997-37000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13293]



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 Rules and Regulations
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  Federal Register / Vol. 85, No. 119 / Friday, June 19, 2020 / Rules 
and Regulations  

[[Page 36997]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

[Docket No. SBA-2020-0037]
RIN 3245-AH51


Business Loan Program Temporary Changes; Paycheck Protection 
Program--Revisions to the Third and Sixth Interim Final Rules

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 on its website an interim final rule relating to the 
implementation of sections 1102 and 1106 of the Coronavirus Aid, 
Relief, and Economic Security Act (CARES Act or the Act) (published in 
the Federal Register on April 15, 2020). Section 1102 of the Act 
temporarily adds a new product, titled the ``Paycheck Protection 
Program,'' to SBA's 7(a) Loan Program. Subsequently, SBA and Treasury 
issued additional interim final rules implementing the Paycheck 
Protection Program. On June 5, 2020, the Paycheck Protection Program 
Flexibility Act of 2020 (Flexibility Act) was signed into law, amending 
the CARES Act. This interim final rule revises interim final rules 
posted on SBA's website on April 14, 2020 (published in the Federal 
Register on April 20, 2020) and April 28, 2020 (published in the 
Federal Register on May 4, 2020), by changing provisions to conform to 
the Flexibility Act. Several of these amendments are retroactive to the 
date of enactment of the CARES Act, as required by section 3(d) of the 
Flexibility Act.

DATES: 
    Effective dates: The provisions in this interim final rule related 
to loan forgiveness for PPP loans are effective March 27, 2020. The 
provision in this interim final rule relating to the maturity date of 
PPP loans is effective June 5, 2020. The remaining provisions in this 
interim final rule are effective June 16, 2020.
    Comment date: Comments must be received on or before July 20, 2020.

ADDRESSES: You may submit comments, identified by number SBA-2020-0037, 
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, 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, have been 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, have been 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.
    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. On June 5, 2020, 
the President signed the Paycheck Protection Program Flexibility Act of 
2020 (Flexibility Act) (Pub. L. 116-142), which changes key provisions 
of the Paycheck Protection Program, including provisions relating to 
the maturity of PPP loans, the deferral of PPP loan payments, and the 
forgiveness of PPP loans. Section 3(d) of the Flexibility Act provides 
that the amendments relating to PPP loan forgiveness and extension of 
the deferral period for PPP loans shall be effective as if included in 
the CARES Act, which means that they are retroactive to March 27, 2020. 
Section 2 of the Flexibility Act provides that the amendment relating 
to the extension of the maturity date for PPP loans shall take effect 
on the date of enactment (June 5, 2020). Under the Flexibility Act, the 
extension of the maturity date for PPP loans is applicable to PPP loans 
made on or after that date, and lenders and borrowers may mutually 
agree to modify PPP loans made before such date to reflect the longer 
maturity.

II. Comments and Retroactive/Immediate Effective Date

    This interim final rule is effective without advance notice and 
public comment because section 1114 of the CARES Act authorizes SBA to 
issue regulations to implement Title I of the Act without regard to 
notice requirements. In addition, SBA has determined that there is good 
cause for dispensing with advance public notice

[[Page 36998]]

and comment on the grounds that it would be contrary to the public 
interest. Specifically, advance public notice and comment would defeat 
the purpose of this interim final rule given that SBA's authority to 
guarantee PPP loans expires on June 30, 2020, and that many PPP 
borrowers can now apply for loan forgiveness following the end of their 
eight-week covered period. Providing borrowers and lenders with 
certainty on both loan requirements and loan forgiveness requirements 
following the enactment of the Flexibility Act will enhance the ability 
of lenders to make loans and process loan forgiveness applications, 
particularly in light of the fact that most of the Flexibility Act's 
provisions are retroactive to March 27, 2020. Specifically, small 
businesses that have yet to apply for and receive a PPP loan need to be 
informed of the terms of PPP loans as soon as possible, because the 
last day on which a lender can obtain an SBA loan number for a PPP loan 
is June 30, 2020. Borrowers who already have applied for and received a 
PPP loan need certainty regarding how loan proceeds must be used during 
the covered period, as amended by the Flexibility Act, so that they can 
maximize the amount of loan forgiveness. These same reasons provide 
good cause for SBA to dispense with the 30-day delayed effective date 
provided in the Administrative Procedure Act. Although this interim 
final rule is effective on or before date of filing, 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 July 20, 2020. The SBA will consider these 
comments, comments received on the interim final rules amended by this 
interim final rule, which were posted on April 14 and April 28, 2020 
(and published in the Federal Register on April 20, 2020 and May 4, 
2020, respectively), and the need for making any revisions as a result 
of these comments.

III. Paycheck Protection Program--Revisions to Third and Sixth Interim 
Final Rules

Overview

    The CARES Act was enacted to provide immediate assistance to 
individuals, families, and businesses 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 Flexibility Act amends the CARES 
Act, including its provisions relating to loan terms and loan 
forgiveness. The purpose of this interim final rule is to update the 
Interim Final Rule on Additional Eligibility Criteria and Requirements 
for Certain Pledges of Loans (Third Interim Final Rule), posted on 
SBA's website on April 14, 2020 and published in the Federal Register 
on April 20, 2020 (85 FR 21747), and the Interim Final Rule on 
Disbursements (Sixth Interim Final Rule), posted on SBA's website on 
April 28, 2020 and published in the Federal Register on May 4, 2020 (85 
FR 26321), in light of the amendments under the Flexibility Act. The 
Third Interim Final Rule and the Sixth Interim Final Rule, each as 
amended by this interim final rule, should be interpreted consistent 
with the frequently asked questions (FAQs) regarding the PPP that are 
posted on SBA's website \1\ and the other interim final rules issued 
regarding the PPP.\2\
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    \1\ See https://www.sba.gov/document/support--faq-lenders-borrowers.
    \2\ See https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.
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1. Changes to the Third Interim Final Rule

a. Use of PPP Loan Proceeds
    Under section 1102 of the CARES Act, certain provisions regarding 
the issuance and use of PPP loans are limited to the ``covered 
period.'' ``Covered period,'' as that term is used in section 1102 of 
the CARES Act, was originally defined as the period from February 15, 
2020, to June 30, 2020. However, section 3(a) of the Flexibility Act 
extended the ``covered period'' as defined in section 1102 until 
December 31, 2020. Therefore, Part III.1.d.(iii.) of the Third Interim 
Final Rule (85 FR 21747, 21749) is revised by striking ``during the 
eight-week period following the first disbursement of the loan (the 
``covered period'')'' and ``during the covered period''.
    Section 2(a) of the Flexibility Act provides a minimum maturity of 
five years for all PPP loans made on or after the date of enactment of 
the Flexibility Act (June 5, 2020), and permits lenders and borrowers 
to extend the maturity date of earlier PPP loans by mutual agreement. 
Therefore, Part III.1.d.v. of the Third Interim Final Rule (85 FR 
21747, 21749) is revised by striking ``PPP's maturity of two years'' 
and replacing it with ``PPP's maturity of two years for PPP loans made 
before June 5, 2020 unless the borrower and lender mutually agree to 
extend the maturity of such loans to five years, or PPP's maturity of 
five years for PPP loans made on or after June 5''.
    Section 3(b) of the Flexibility Act amended the requirements 
regarding forgiveness of PPP loans to reduce, from 75 percent to 60 
percent, the portion of PPP loan proceeds that must be used for payroll 
costs for the full amount of the PPP loan to be eligible for 
forgiveness. Consistent with this change, SBA's interim final rule 
posted on June 11, 2020, decreased from 75 percent to 60 percent the 
portion of loan proceeds that must be used for payroll costs. 
Therefore, Part III.1.e. of the Third Interim Final Rule (85 FR 21747, 
21750) is revised to read as follows:

e. Are there any other restrictions on how I can use PPP loan proceeds?

    Yes. At least 60 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 60 percent floor is contained in the First PPP Interim 
Final Rule and SBA's interim final rule posted on June 11, 2020.
b. Loan Forgiveness
    Under section 1106 of the CARES Act, certain provisions regarding 
the forgiveness of PPP loans are limited to the ``covered period.'' 
``Covered period,'' as that term is used in section 1106 of the CARES 
Act, was originally defined as the eight-week period beginning on the 
date of the origination of a covered loan. However, section 3(b) of the 
Flexibility Act extended the length of the covered period as defined in 
section 1106 of the CARES Act from eight to 24 weeks, while allowing 
borrowers that received PPP loans before June 5, 2020 to elect to use 
the original eight-week covered period. As noted above, section 3(b) of 
the Flexibility Act also amended the requirements regarding forgiveness 
of PPP loans to reduce, from 75 percent to 60 percent, the amount of 
PPP loan proceeds that must be used for payroll costs for the full 
amount of the PPP loan to be eligible for forgiveness. Therefore, Part 
III.1.f. of the Third Interim Final Rule (85 FR 21747, 21750) is 
revised to read as follows:

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 
24-week period

[[Page 36999]]

beginning on the date your PPP loan is disbursed \3\ (``covered 
period'') on:
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    \3\ If your PPP loan was made before June 5, 2020, you may elect 
to have your covered period be the eight-week period beginning on 
the date your PPP loan was disbursed. In addition, under section 
3(b)(1) of the Paycheck Protection Program Flexibility Act of 2020 
(Flexibility Act), the covered period of any borrower will end no 
later than December 31, 2020.
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    i. Payroll costs including salary, wages, and tips, up to 
$100,000 of annualized pay per employee (for 24 weeks, a maximum of 
$46,154 per individual,\4\ or 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);
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    \4\ Given the 2.5 multiplier in the calculation of maximum PPP 
loan amount in SBA Form 2483, this per-individual maximum would only 
be reached if the borrower had reduced its FTEs but was eligible for 
an exemption (safe harbor) from the resulting reduction in 
forgiveness.
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    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 
(up to $15,385) for an eight-week covered period or 2.5 months' 
worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week 
covered period, 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 or F to either eight weeks' worth (8/52) of 2019 
net profit (up to $15,385) for an eight-week covered period or 2.5 
months' worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week 
covered period per owner in total across all businesses. This approach 
is consistent with the structure of the CARES Act and its overarching 
focus on keeping workers paid, and will prevent windfalls that Congress 
did not intend. Specifically, Congress determined that the maximum loan 
amount is generally based on 2.5 months of the borrower's average total 
monthly payroll costs during the one-year period preceding the loan. 15 
U.S.C. 636(a)(36)(E). For example, a borrower with one other employee 
would receive a maximum loan amount equal to five months of payroll 
(2.5 months of payroll for the owner plus 2.5 months of payroll for the 
employee). If the owner laid off the employee and availed itself of the 
safe harbor in the Flexibility Act from reductions in loan forgiveness 
for a borrower that is unable to return to the same level of business 
activity the business was operating at before February 15, 2020, the 
owner could treat the entire amount of the PPP loan as payroll, with 
the entire loan being forgiven. This would not only result in a 
windfall for the owner, by providing the owner with five months of 
payroll instead of 2.5 months, but also defeat the purpose of the CARES 
Act of protecting the paycheck of the employee. For borrowers with no 
employees, this limitation will have no effect, because the maximum 
loan amount for such borrowers already includes only 2.5 months of 
their payroll. Finally, at least 60 percent of the amount forgiven must 
be attributable to payroll costs, for the reasons specified in the 
First PPP Interim Final Rule and SBA's interim final rule posted on 
June 11, 2020.
    In addition, Part III.1.g. of the Third Interim Final Rule (85 FR 
21747, 21750) is revised by striking ``eight-week''.

2. Changes to the Sixth Interim Final Rule

    As described above, section 3(b) of the Flexibility Act extended 
the length of the covered period as defined in section 1106 of the 
CARES Act from eight to 24 weeks, while allowing borrowers that 
received PPP loans before June 5, 2020 to elect to use the original 
eight-week covered period. Therefore, Part III.1.a. of the Sixth 
Interim Final Rule (85 FR 26321, 26322-23) is revised by striking both 
references to ``eight-week covered period'' and replacing them with 
``covered period''.

3. Additional Information

    SBA may provide further guidance, if needed, through SBA notices 
which 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.
    This rule is necessary to implement Sections 1102 and 1106 of the 
CARES Act and the Flexibility 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 effect but does have a limited 
retroactive effect consistent with section 3(d) of the Flexibility Act.

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 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

[[Page 37000]]

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 Act, 
Ch.1. p.9. Accordingly, SBA is not required to conduct a regulatory 
flexibility analysis.

    Authority: 15 U.S.C. 636(a)(36); Paycheck Protection Program 
Flexibility Act of 2020, Pub. L. 116-142; Coronavirus Aid, Relief, 
and Economic Security Act, Pub. L. 116-136, Section 1114.

Jovita Carranza,
Administrator.
[FR Doc. 2020-13293 Filed 6-16-20; 4:15 pm]
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