[Federal Register Volume 85, Number 202 (Monday, October 19, 2020)]
[Rules and Regulations]
[Pages 66214-66217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23091]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

[Docket Number SBA-2020-0052]
RIN 3245-AH59

DEPARTMENT OF THE TREASURY

RIN 1505-AC71


Business Loan Program Temporary Changes; Paycheck Protection 
Program--Additional Revisions to Loan Forgiveness and Loan Review 
Procedures Interim Final Rules

AGENCY: U.S. Small Business Administration; Department of the Treasury.

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 the U.S. Small Business Administration's (SBA's) 7(a) 
Loan Program. Subsequently, SBA and the Department of the Treasury 
(Treasury) issued additional interim final rules implementing the 
Paycheck Protection Program (PPP). 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 and the Department of the 
Treasury's websites on May 22, 2020 (published on June 1, 2020, in the 
Federal Register) and June 22, 2020 (published on June 26, 2020, in the 
Federal Register), by providing additional guidance concerning the 
forgiveness and loan review processes for PPP loans of $50,000 or less 
and, for PPP loans of all sizes, lender responsibilities with respect 
to the review of borrower documentation of eligible costs for 
forgiveness in excess of a borrower's PPP loan amount.

DATES: 
    Effective date: The provisions in this interim final rule are 
effective October 14, 2020.
    Comment date: Comments must be received on or before November 18, 
2020.

ADDRESSES: You may submit comments, identified by docket number SBA-
2020-0052, 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

[[Page 66215]]

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 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 (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. On June 5, 2020, 
the President signed the Paycheck Protection Program Flexibility Act of 
2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of 
the PPP relating to the maturity of PPP loans, the deferral of PPP loan 
payments, and the forgiveness of PPP loans. On July 4, 2020, the 
President signed into law S. 4116, which reauthorized lending under the 
PPP through August 8, 2020 (Pub. L. 116-147).
    As described below, this interim final rule provides additional 
guidance concerning the forgiveness and loan review processes for PPP 
loans of $50,000 or less and, for PPP loans of all sizes, lender 
responsibilities with respect to the review of borrower documentation 
of eligible costs for forgiveness in excess of a borrower's PPP loan 
amount.
    Two provisions of this interim final rule are an exercise of 
rulemaking authority by SBA jointly with Treasury: (1) The de minimis 
exemption from the full-time equivalent (FTE) employee reduction 
penalty for PPP loans of $50,000 or less, and (2) the de minimis 
exemption from the employee salary and wages reduction penalty for PPP 
loans of $50,000 or less. Otherwise, all provisions in this rule are an 
exercise of rulemaking authority by SBA alone.

II. Comments and 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 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 began accepting lender loan 
forgiveness submissions on August 10, 2020. These same reasons provide 
good cause for SBA to dispense with the 30-day delayed effective date 
provided in the Administrative Procedure Act (APA). See 5 U.S.C. 
553(b)(B). 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 November 18, 2020. 
The SBA and Treasury will consider these comments; comments received on 
the two interim final rules amended by this interim final rule that 
were posted on SBA's website on May 22, 2020 and published on June 1, 
2020, in the Federal Register; and the interim final rule amended by 
this interim final rule that was posted on SBA's website on June 22, 
2020 and published on June 26, 2020.

III. Paycheck Protection Program--Additional Revisions to Loan 
Forgiveness Interim Final Rule and SBA Loan Review Procedures and 
Related Borrower and Lender Responsibilities Interim Final Rule

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 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.
    SBA has previously issued comprehensive regulations and guidance on 
the loan forgiveness provisions in the CARES Act. As relevant here, on 
May 22, 2020, SBA and Treasury jointly posted an additional interim 
final rule on loan forgiveness (85 FR 33004) (First Loan Forgiveness 
Rule). The SBA also posted an interim final rule on May 22, 2020 on SBA 
loan review procedures and related borrower and lender responsibilities 
(85 FR 33010) (First Loan Review Rule). On June 22, 2020, SBA and 
Treasury jointly posted an interim final rule, Revisions to Loan 
Forgiveness and Loan Review Procedures Interim Final Rules (85 FR 
38304), revising the First Loan Forgiveness Rule and the First Loan 
Review Rule to incorporate Flexibility Act amendments. On August 4 and 
11, 2020, SBA posted Frequently Asked Questions on PPP Loan 
Forgiveness.
    The purpose of this interim final rule is to simplify further (i) 
the forgiveness and loan review processes for PPP loans of $50,000 or 
less, and (ii) for PPP loans of all sizes, lender responsibilities with 
respect to the review of borrower documentation of eligible costs for 
forgiveness in excess of a borrower's PPP loan amount.
    In connection with this rule, SBA is issuing an alternative Loan 
Forgiveness Application, SBA Form 3508S, for use by PPP borrowers 
applying for loan forgiveness on PPP loans with a total loan amount of 
$50,000 or less, except for those borrowers that together with their 
affiliates \1\ received loans totaling $2 million or greater. The 
Administrator of SBA (Administrator) and the Secretary of the Treasury 
(Secretary) have concluded that this form strikes an appropriate 
balance between the need for simplification in the forgiveness process 
with the responsibility to protect the integrity of the program and 
safeguard taxpayer funds.
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    \1\ See 85 FR 20817 (April 15, 2020) regarding application of 
SBA's affiliation rules and the exemption of otherwise qualified 
faith-based organizations from SBA's affiliation rules.
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1. Changes to the Loan Forgiveness Rules
a. Alternative Loan Forgiveness Application
    Because SBA is issuing an alternative Loan Forgiveness Application, 
SBA

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Form 3508S, the first parenthetical in the first sentence of Part 
III.2.a and the parenthetical in the first sentence of Part III.6 of 
the First Loan Forgiveness Rule, as revised by Revisions to Loan 
Forgiveness and Loan Review Procedures Interim Final Rules, are revised 
to read as follows: ``(SBA Form 3508, 3508EZ, 3508S, as applicable, or 
lender equivalent)''.
b. Reductions to Loan Forgiveness Amount
    A borrower of a PPP loan of $50,000 or less, other than any 
borrower that together with its affiliates received loans totaling $2 
million or greater, may use SBA Form 3508S (or lender's equivalent 
form) to apply for loan forgiveness. A borrower that uses SBA Form 
3508S (or lender's equivalent form) is exempt from any reductions in 
the borrower's loan forgiveness amount based on reductions in full-time 
equivalent (FTE) employees (section 1106(d)(2) of the CARES Act) or 
reductions in employee salary or wages (section 1106(d)(3) of the CARES 
Act) that would otherwise apply. As such, Part III.5 of the First Loan 
Forgiveness Rule, as revised by Revisions to Loan Forgiveness and Loan 
Review Procedures Interim Final Rules, does not apply to borrowers of 
loans of $50,000 or less that use SBA Form 3508S (or lender's 
equivalent form) to apply for loan forgiveness.
    The Administrator and the Secretary determined that these 
exemptions are an appropriate exercise of their joint rulemaking 
authority to grant de minimis exemptions under section 1106(d)(6) of 
the CARES Act. The Administrator and the Secretary believe that the 
additional exemptions set forth above are consistent with the purposes 
of the CARES Act, including to provide much-needed financial assistance 
to a broad range of small businesses, and provide borrowers appropriate 
flexibility in the current economic climate. The Administrator and the 
Secretary have determined that these exemptions are de minimis. The 
purpose of the PPP is to provide financial assistance to small 
businesses and their employees, and the requirements of section 1106(d) 
focus on the number of employees and compensation. Consequently, in 
this context, both the aggregate dollar amount of affected loans 
relative to the aggregate dollar amount of all PPP loans and the number 
of affected employees are reasonable considerations in assessing 
whether an exemption is de minimis. There are approximately 3.57 
million outstanding PPP loans of $50,000 or less, totaling 
approximately $62 billion of the $525 billion in PPP loans. 
Approximately 1.71 million PPP loans of $50,000 or less were made to 
businesses that reported having zero employees (presumably not counting 
the owner as an employee) or one employee. To the extent that these 
businesses have no employees other than the owner (i.e., all businesses 
that reported having zero employees and, in SBA's judgment, the 
majority of businesses that reported having one employee), they are not 
affected by these exemptions. As a result, based on available data, we 
estimate that the outstanding PPP loans of the relevant set of 
potentially affected borrowers (businesses with at least one employee 
other than the owner) total approximately $49 billion, or 9 percent of 
the overall PPP loan amount. Within this population of potentially 
affected loans, SBA believes that most borrowers would not be affected 
by the loan forgiveness reduction requirements because (1) the 
borrowers did not reduce FTE employees or reduce employee salaries or 
wages, or (2) the borrowers would qualify for one of the existing 
exemptions from loan forgiveness amount reductions.\2\ Excluding such 
borrowers, the aggregate dollar amount of PPP funds affected by these 
exemptions relative to the aggregate dollar amount of all PPP funds is 
de minimis.
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    \2\ See 85 FR 38304, 38308 (``Borrowers are exempted from the 
loan forgiveness reduction arising from a proportional reduction in 
FTE employees during the covered period if the borrower is able to 
document in good faith the following: (1) An inability to rehire 
individuals who were employees of the borrower on February 15, 2020; 
and (2) an inability to hire similarly qualified individuals for 
unfilled positions on or before December 31, 2020. . . . Borrowers 
are also exempted from the loan forgiveness reduction arising from a 
reduction in the number of FTE employees during the covered period 
if the borrower is able to document in good faith an inability to 
return to the same level of business activity as the borrower was 
operating at before February 15, 2020, due to compliance with 
requirements established or guidance issued between March 1, 2020 
and December 31, 2020 by the Secretary of Health and Human Services, 
the Director of the Centers for Disease Control and Prevention 
(CDC), or the Occupational Safety and Health Administration related 
to the maintenance of standards for sanitation, social distancing, 
or any other worker or customer safety requirement related to COVID-
19 . . . .'').
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2. Changes to the Loan Review Rules
a. Alternative Loan Forgiveness Application
    Because SBA is issuing another alternative Loan Forgiveness 
Application, SBA Form 3508S, each reference to ``SBA Form 3508, 3508EZ, 
or lender's equivalent form'' in Part III.1 of the First Loan Review 
Rule, as revised by the Revisions to Loan Forgiveness and Loan Review 
Procedures Interim Final Rules, is replaced with ``SBA Form 3508, 
3508EZ, 3508S, or lender's equivalent form''.
b. The Loan Forgiveness Process for Lenders
    As noted above, SBA is issuing another alternative Loan Forgiveness 
Application, SBA Form 3508S. This necessitates several revisions to 
Part III.2 of the First Loan Review Rule, as revised by the Revisions 
to Loan Forgiveness and Loan Review Procedures Interim Final Rules.
    The following text is added as a new paragraph at the end of Part 
III.2.a (``What should a lender review?''):
    When a borrower submits SBA Form 3508S or lender's equivalent form, 
the lender shall:
    i. Confirm receipt of the borrower certifications contained in the 
SBA Form 3508S or lender's equivalent form.
    ii. Confirm receipt of the documentation the borrower must submit 
to aid in verifying payroll and nonpayroll costs, as specified in the 
instructions to the SBA Form 3508S or lender's equivalent form.
    Providing an accurate calculation of the loan forgiveness amount is 
the responsibility of the borrower, and the borrower attests to the 
accuracy of its reported information and calculations on the Loan 
Forgiveness Application.
    The borrower shall not receive forgiveness without submitting all 
required documentation to the lender.
    As the First Interim Final Rule \3\ indicates, lenders may rely on 
borrower representations. As stated in paragraph III.3.c of the First 
Interim Final Rule, the lender does not need to independently verify 
the borrower's reported information if the borrower submits 
documentation supporting its request for loan forgiveness and attests 
that it accurately verified the payments for eligible costs.
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    \3\ 85 FR 20811, 20815-20816 (April 15, 2020).
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    In Part III.2.b., each reference to ``SBA Form 3508EZ or lender's 
equivalent form'' is replaced with ``SBA Form 3508EZ, 3508S, or 
lender's equivalent form.''
    In Part III.2.c., each reference to ``SBA Form 3508, 3508EZ or 
lender's equivalent form'' is replaced with ``SBA Form 3508, 3508EZ, 
3508S, or lender's equivalent form.''
c. Borrower Submission of Excess Costs
    In some cases, a borrower may submit to a lender documentation of 
eligible payroll and nonpayroll costs that exceed the amount of the 
borrower's PPP loan.

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To address this situation, the following text is added as a new 
paragraph d. at the end of Part III.2:
d. What should a lender do if a borrower submits documentation of 
eligible costs that exceed a borrower's PPP loan amount?
    The amount of loan forgiveness that a borrower may receive cannot 
exceed the principal amount of the PPP loan. Whether a borrower submits 
SBA Form 3508, 3508EZ, 3508S, or lender's equivalent form, a lender 
should confirm receipt of the documentation the borrower is required to 
submit to aid in verifying payroll and nonpayroll costs, and, if 
applicable (for SBA Form 3508, 3508EZ, or lender's equivalent form), 
confirm the borrower's calculations on the borrower's Loan Forgiveness 
Application, up to the amount required to reach the requested 
Forgiveness Amount.
3. 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 and Treasury have 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 and Treasury have determined that this rule modifies an 
existing information collection. This rule reduces the burden 
associated with lender review of borrower documentation of eligible 
costs for forgiveness. Additionally, SBA has developed a second 
streamlined Paycheck Protection Program--PPP Loan Forgiveness 
Application Form 3508S (SBA Form 3508S), which is available for 
borrowers meeting criteria described in the instructions accompanying 
the form. SBA has obtained Office of Management and Budget (OMB) 
approval of the modification to the existing information collection, 
which is currently approved as an emergency request under OMB Control 
Number 3245-0407 until October 31, 2020.

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 small government jurisdictions with a population 
of less than 50,000, neither State nor local governments are ``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. Since this rule is 
exempt from notice and comment, SBA is not required to conduct a 
regulatory flexibility analysis.

Jovita Carranza,
Administrator Small Business Administration.
Michael Faulkender,
Assistant Secretary for Economic Policy Department of the Treasury.
[FR Doc. 2020-23091 Filed 10-14-20; 4:15 pm]
BILLING CODE P