[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Rules and Regulations]
[Pages 36308-36312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12909]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket No. SBA-2020-0035]
RIN 3245-AH49
Business Loan Program Temporary Changes; Paycheck Protection
Program--Revisions to First Interim Final Rule
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 the U.S. Small Business Administration's (SBA's) 7(a)
Loan Program. Subsequently, SBA issued a number of 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 SBA's interim final rule published in the Federal Register on
April 15, 2020, by changing key provisions, such as the loan maturity,
deferral of loan payments, and forgiveness provisions, to conform to
the Flexibility Act. SBA also is making conforming amendments to the
use of PPP loan proceeds for consistency with amendments made in 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 and deferral periods for PPP
[[Page 36309]]
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 12, 2020.
Comment Date: Comments must be received on or before July 16, 2020.
ADDRESSES: You may submit comments, identified by number SBA-2020-0035,
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. A more detailed discussion of sections
1102 and 1106 of the Act is found in section III below.
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 and comment on the
grounds that 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 16, 2020. The SBA will consider these
comments, comments received on the interim final rule posted on SBA's
website April 2, 2020 (the First Interim Final Rule) and published in
the Federal Register on April 15, 2020, and the need for making any
revisions as a result of these comments.
III. Paycheck Protection Program--Revisions to First Interim Final Rule
(85 FR 20811)
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 and amends provisions relating to loan terms and loan forgiveness.
The purpose of this interim final rule is to make changes to the First
Interim Final Rule,
[[Page 36310]]
posted on SBA's website on April 2, 2020, and published in the Federal
Register on April 15, 2020 (85 FR 20811). The First Interim Final Rule,
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 First Interim Final Rule
a. Covered Period for PPP Loans
Section 3(a) of the Flexibility Act amended the definition of
``covered period'' for a PPP loan from ``the period beginning on
February 15, 2020 and ending on June 30, 2020'' to ``the period
beginning on February 15, 2020 and ending on December 31, 2020.''
Therefore, Part III.2.g.iii. of the First Interim Final Rule (85 FR
20811, 20813) is revised by striking ``June 30, 2020'' and replacing it
with ``December 31, 2020''. Section 3(d) of the Flexibility Act
provides that this amendment shall be effective as if included in the
CARES Act, which was signed into law on March 27, 2020.
This amendment by the Flexibility Act applies to the definition of
``covered period'' that appears in section 1102 of the CARES Act,
governing loan use, loan eligibility, and related requirements. It does
not alter the meaning of ``covered period'' that appears in section
1106 of the CARES Act governing loan forgiveness, which is addressed by
a different provision of the Flexibility Act.
b. Maturity Date for PPP Loans
Section 2(a) of the Flexibility Act amended the CARES Act to
provide a minimum maturity of five years for all PPP loans made on or
after the date of enactment of the Flexibility Act. Therefore, Part
III.2.j. of the First Interim Final Rule (85 FR 20811, 20813) is
revised to read as follows:
j. What will be the maturity date on a PPP loan?
For loans made before June 5, 2020, the maturity is two years;
however, borrowers and lenders may mutually agree to extend the
maturity of such loans to five years. For loans made on or after June
5, the maturity is five years.
Section 2 of the Paycheck Protection Program Flexibility Act of
2020 (Flexibility Act) amended the CARES Act to provide a minimum
maturity of 5 years for all PPP loans made on or after its enactment.
The Administrator, in consultation with the Secretary, determined that
the date SBA assigns a loan number to the PPP loan provides an
efficient, transparent, and auditable means of determining when a PPP
loan is ``made'' that provides certainty to lenders. While the CARES
Act provides that a loan will have a maximum maturity of up to ten
years from the date the borrower applies for loan forgiveness, the
Administrator, in consultation with the Secretary, determined that a
five-year loan term is sufficient in light of the temporary economic
dislocations caused by the coronavirus. Specifically, the considerable
economic disruption caused by the coronavirus is expected to abate well
before the five-year maturity date such that borrowers will be able to
resume business operations and pay off any outstanding balances on
their PPP loans.
c. Deferral Period for PPP Loans
Section 3(c) of the Flexibility Act extended the deferral period on
PPP loans. Therefore, Part III.2.n. of the First Interim Final Rule (85
FR 20811, 20813) is revised to read as follows:
n. When will I have to begin paying principal and interest on my
PPP loan?
If you submit to your lender a loan forgiveness application within
10 months after the end of your loan forgiveness covered period, you
will not have to make any payments of principal or interest on your
loan before the date on which SBA remits the loan forgiveness amount on
your loan to your lender (or notifies your lender that no loan
forgiveness is allowed).
Your ``loan forgiveness covered period'' is the 24-week period
beginning on the date your PPP loan is disbursed; however, if your PPP
loan was made before June 5, 2020, you may elect to have your loan
forgiveness covered period be the eight-week period beginning on the
date your PPP loan was disbursed.\3\ Your lender must notify you of
remittance by SBA of the loan forgiveness amount (or notify you that
SBA determined that no loan forgiveness is allowed) and the date your
first payment is due. Interest continues to accrue during the deferment
period.
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\3\ Under section 3(b)(1) of the Flexibility Act, the loan
forgiveness covered period of any borrower will end no later than
December 31, 2020.
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If you do not submit to your lender a loan forgiveness application
within 10 months after the end of your loan forgiveness covered period,
you must begin paying principal and interest after that period. For
example, if a borrower's PPP loan is disbursed on June 25, 2020, the
24-week period ends on December 10, 2020. If the borrower does not
submit a loan forgiveness application to its lender by October 10,
2021, the borrower must begin making payments on or after October 10,
2021.
d. Loan Forgiveness
Section 3(b) of the Flexibility Act amended the requirements
concerning forgiveness of PPP loans to reduce the amount of PPP loan
proceeds that must be used for payroll costs in order to be forgivable,
and the law also created a new exemption for borrowers to avoid a
reduction in loan forgiveness amount when they have a reduction in
full-time equivalent employees. While the Flexibility Act provides that
a borrower shall use at least 60 percent of the PPP loan for payroll
costs to receive loan forgiveness, the Administrator, in consultation
with the Secretary, interprets this requirement as a proportional limit
on nonpayroll costs as a share of the borrower's loan forgiveness
amount, rather than as a threshold for receiving any loan forgiveness.
This interpretation is consistent with the new safe harbor in the
Flexibility Act. The new safe harbor provides that if a borrower is
unable to rehire previously employed individuals or similarly qualified
employees, the borrower will not have its loan forgiveness amount
reduced based on the reduction in full-time equivalent employees. It
would be incongruous to interpret the Flexibility Act's 60 percent
requirement as a threshold for receiving any loan forgiveness, because
in some cases it would directly conflict with the flexibility provided
by the new safe harbor. Further, the 60 percent requirement in the
Flexibility Act was enacted against the backdrop of SBA's existing
rules governing the PPP, which Congress was aware of and which provided
for proportional reductions in loan forgiveness for borrowers that used
less than 75% of their loan amount during the eight-week covered period
for payroll costs. In addition, this interpretation of the 60 percent
requirement under the Flexibility Act is most consistent with
Congress's purpose in that legislation--namely, to increase the
flexibility provided to borrowers related to PPP loan forgiveness.
In addition, as noted in paragraph d. above, in seeking loan
forgiveness, an eligible borrower whose loan was made before June 5,
2020 may elect to apply the original eight-week covered period under
the CARES Act instead of the 24-week covered period referenced above.
See Flexibility Act, section 3(b)(3).
[[Page 36311]]
SBA will be issuing revisions to its interim final rules on loan
forgiveness and loan review procedures to address amendments the
Flexibility Act made to the loan forgiveness requirements. SBA will
also be issuing additional guidance on advance purchases of PPP loans,
which will include any effect of the amendments made to the loan
forgiveness requirements. For the reasons described above, Part
III.2.o. of the First Interim Final Rule (85 FR 20811, 20813) is
revised to read as follows:
o. Can my PPP loan be forgiven in whole or in part?
Yes. The amount of loan forgiveness can be up to the full principal
amount of the loan and any accrued interest. An eligible borrower will
not be responsible for any loan payment if the borrower uses all of the
loan proceeds for forgivable purposes as described below and employee
and compensation levels are maintained or, if not, an applicable safe
harbor applies. The actual amount of loan forgiveness will depend, in
part, on the total amount of payroll costs, payments of interest on
mortgage obligations incurred before February 15, 2020, rent payments
on leases dated before February 15, 2020, and utility payments for
service that began before February 15, 2020, over the loan forgiveness
covered period. However, to receive full loan forgiveness, a borrower
must use at least 60 percent of the PPP loan for payroll costs, and not
more than 40 percent of the loan forgiveness amount may be attributable
to nonpayroll costs. For example, if a borrower uses 59 percent of its
PPP loan for payroll costs, it will not receive the full amount of loan
forgiveness it might otherwise be eligible to receive. Instead, the
borrower will receive partial loan forgiveness, based on the
requirement that 60 percent of the forgiveness amount must be
attributable to payroll costs. For example, if a borrower receives a
$100,000 PPP loan, and during the covered period the borrower spends
$54,000 (or 54 percent) of its loan on payroll costs, then because the
borrower used less than 60 percent of its loan on payroll costs, the
maximum amount of loan forgiveness the borrower may receive is $90,000
(with $54,000 in payroll costs constituting 60 percent of the
forgiveness amount and $36,000 in nonpayroll costs constituting 40
percent of the forgiveness amount).
e. Use of PPP Loan Proceeds
For consistency with the amendments made in the Flexibility Act
regarding the percentage of loan proceeds that must be used for payroll
costs in order to be forgiven, discussed in paragraph 2.e. above, Part
III.2.r. of the First Interim Final Rule (85 FR 20811, 20814) is
revised to read as follows:
r. How can PPP loans be used?
The proceeds of a PPP loan are to be used for:
i. payroll costs (as defined in the Act and in 2.f.);
ii. costs related to the continuation of group health care benefits
during periods of paid sick, medical, or family leave, and insurance
premiums;
iii. mortgage interest payments (but not mortgage prepayments or
principal payments);
iv. rent payments;
v. utility payments;
vi. interest payments on any other debt obligations that were
incurred before February 15, 2020; and/or
vii. refinancing an SBA EIDL loan made between January 31, 2020 and
April 3, 2020. If you received an SBA EIDL loan from January 31, 2020
through April 3, 2020, you can apply for a PPP loan. If your EIDL loan
was not used for payroll costs, it does not affect your eligibility for
a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan
must be used to refinance your EIDL loan. Proceeds from any advance up
to $10,000 on the EIDL loan will be deducted from the loan forgiveness
amount on the PPP loan.
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, the amount of any EIDL refinanced will be
included. For purposes of loan forgiveness, however, the borrower will
have to document the proceeds used for payroll costs in order to
determine the amount of forgiveness. While the Act provides that PPP
loan proceeds may be used for the purposes listed above and for other
allowable uses described in section 7(a) of the Small Business Act (15
U.S.C. 636(a)), the Administrator believes that finite appropriations
and the structure of the Act warrant a requirement that borrowers use a
substantial portion of the loan proceeds for payroll costs, consistent
with Congress' overarching goal of keeping workers paid and employed.
This percentage is consistent with the limitation on the forgiveness
amount set forth in the Flexibility Act. This limitation on use of the
loan funds will help to ensure that the finite appropriations available
for these loans are directed toward payroll protection, as each loan
that is issued depletes the appropriation, regardless of whether
portions of the loan are later forgiven.
f. Borrower Certifications
For consistency with the changes discussed in paragraphs 2.e. and
f. above, Parts III.2.t.iii., iv., and v. of the First Interim Final
Rule (85 FR 20811, 20814) are revised to read as follows:
t. What certifications need to be made?
* * * * *
iii. The funds will be used to retain workers and maintain payroll
or make mortgage interest payments, lease payments, and utility
payments; I understand that if the funds are knowingly used for
unauthorized purposes, the Federal Government may hold me legally
liable such as for charges of fraud. As explained above, not more than
40 percent of loan proceeds may be used for nonpayroll costs.
iv. Documentation verifying the number of full-time equivalent
employees on payroll as well as the dollar amounts of payroll costs,
covered mortgage interest payments, covered rent payments, and covered
utilities for the loan forgiveness covered period for the loan will be
provided to the lender.
v. Loan forgiveness will be provided for the sum of documented
payroll costs, covered mortgage interest payments, covered rent
payments, and covered utility payments. As explained above, not more
than 40 percent of the forgiven amount may be used for nonpayroll
costs.
* * * * *
2. 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
[[Page 36312]]
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 modify existing
recordkeeping or reporting requirements under the Paperwork Reduction
Act. The amendments to the PPP made by the Flexibility Act and
implemented in this interim final rule will require conforming
revisions to the PPP Borrower Application Form (SBA Form 2483), the PPP
Lender Application Form (SBA Form 2484), and the PPP Loan Forgiveness
Application (SBA Form 3508). SBA will submit the modified forms to OMB
for approval as a modification to the existing PPP information
collection. This information collection 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 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 Ac. 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. 2020-12909 Filed 6-12-20; 11:15 am]
BILLING CODE P