[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Rules and Regulations]
[Pages 38301-38304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13942]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

[Docket No. SBA-2020-0039]
RIN 3245-AH53


Business Loan Program Temporary Changes; Paycheck Protection 
Program--Additional Eligibility 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 12, 2020, SBA 
posted on its website an interim final rule revising the interim final 
rule published in the Federal Register on April 15, 2020 by changing 
the eligibility requirement related to felony convictions of applicants 
or owners of the applicant. This interim final rule further revises 
SBA's interim final rule published in the Federal Register on April 15, 
2020, by further changing that eligibility requirement.

DATES: 
    Effective date: The provisions in this interim final rule are 
effective June 24, 2020.
    Comment date: Comments must be received on or before July 27, 2020.

ADDRESSES: You may submit comments, identified by number SBA-2020-0039, 
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.

[[Page 38302]]


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 changed provisions of 
the PPP relating to the maturity of PPP loans, the deferral of PPP loan 
payments, and the forgiveness of PPP loans.

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 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. These same reasons 
provide good cause for SBA to dispense with the 30-day delayed 
effective date provided in the Administrative Procedure Act (APA). 
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 27, 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, comments 
received on the interim final rule posted on SBA's website June 12, 
2020 and published in the Federal Register on June 18, 2010, and the 
need for making any revisions as a result of these comments.

III. Paycheck Protection Program--Additional Eligibility 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 purpose of this interim final 
rule is to make further changes to the First Interim Final Rule, posted 
on SBA's website on April 2, 2020, and published in the Federal 
Register on April 15, 2020 (85 FR 20811), as amended by the interim 
final rule posted on SBA's website on June 12, 2020 and published in 
the Federal Register on June 18, 2020 (85 FR 36717). The First Interim 
Final Rule, as amended, 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
Eligibility Requirements
    The First Interim Final Rule provided, among other things, that a 
PPP loan will not be approved if an owner of 20 percent or more of the 
equity of the applicant has been convicted of a felony within the last 
five years. On June 12, 2020, the First Interim Final Rule was amended 
after the Administrator, in consultation with the Secretary of the 
Treasury (the Secretary), determined that a shorter timeframe for 
felonies that do not involve fraud, bribery, embezzlement, or a false 
statement in a loan application or an application for federal financial 
assistance is more consistent with Congressional intent to provide 
relief to small businesses and also promotes the important policies 
underlying the First Step Act of 2018 (Pub. L. 115-391).
    Upon further consideration, and in consultation with the Secretary, 
the Administrator has determined that two additional modifications to 
the First Interim Final Rule are appropriate to ensure a consistent 
approach to applicants with criminal histories. First, the First 
Interim Final Rule provided that an applicant is ineligible for a PPP 
loan if an owner of 20 percent or more of the equity of the applicant 
is presently subject to an indictment, criminal information, 
arraignment, or other means by which formal criminal charges are 
brought in any jurisdiction. The Administrator has determined that this 
restriction should be limited to pending criminal charges for felony 
offenses, which aligns with the Administrator's prior determination 
that only felony convictions (but not convictions for other types of 
offenses) will limit an applicant's eligibility for the PPP, subject to 
the time periods specified above. Second, the First Interim Final Rule 
provided that an applicant was ineligible for a PPP loan if an owner of 
20 percent or more of the equity of the applicant is on probation

[[Page 38303]]

or on parole. The Administrator has determined that this restriction 
should be limited to individuals whose probation or parole commenced 
within the time periods specified above--i.e., within the last five 
years for any felony involving fraud, bribery, embezzlement, or a false 
statement in a loan application or an application for federal financial 
assistance, and within the last one year for other felonies. Applying 
these time limitations to the probation and parole restriction aligns 
with the Administrator's prior determination to apply the identical 
time limitations to felony convictions. Moreover, aligning the time 
limitations applicable to these restrictions is consistent with 
Congressional intent to provide relief to small businesses and also 
promotes the important policies underlying the First Step Act of 2018 
(Pub. L. 115-391). This amendment does not affect the rule regarding 
applicants that are presently suspended, debarred, or proposed for 
debarment, which remains effective. Therefore, Part III.2.b.iii. of the 
First Interim Final Rule (85 FR 20811, 20812) is revised to read as 
follows:
    b. Could I be ineligible even if I meet the eligibility 
requirements in (a) above?
    You are ineligible for a PPP loan if, for example:
* * * * *
    iii. An owner of 20 percent or more of the equity of the applicant 
is presently incarcerated or, for any felony, presently subject to an 
indictment, criminal information, arraignment, or other means by which 
formal criminal charges are brought in any jurisdiction; or has been 
convicted of, pleaded guilty or nolo contendere to, or commenced any 
form of parole or probation (including probation before judgment) for, 
a felony involving fraud, bribery, embezzlement, or a false statement 
in a loan application or an application for federal financial 
assistance within the last five years or any other felony within the 
last year; or
* * * * *
    Under the First Interim Final Rule, as amended, an applicant is 
ineligible if an owner of 20 percent or more of its equity is presently 
incarcerated. In considering this amended Interim Final Rule the 
Administrator, in consultation with the Secretary, has determined that 
this restriction on eligibility remains appropriate because the 
operations of small business concerns present a greater danger of 
becoming impaired when their owners are incarcerated. As a result, they 
may have greater difficulty repaying their loans and present a greater 
credit risk. Although PPP loans may be forgiven under section 1106 of 
the CARES Act, PPP loans may only be forgiven in cases where borrowers 
can document that the proceeds were expended in accordance with the 
requirements of section 1106. In situations where the proceeds have not 
been used appropriately, and the loans, accordingly, cannot be 
forgiven, the borrowers' ability to repay the loans remains an 
important consideration. In addition, ineligibility for businesses 
whose owners are currently incarcerated will help prevent misuse of PPP 
loan funds, irrespective of loan forgiveness considerations.
    Under the First Interim Final Rule, as amended, an applicant is 
also ineligible if an owner of 20 percent or more of its equity is, for 
any felony, subject to an indictment, criminal information, 
arraignment, or other means by which formal criminal charges are 
brought in any jurisdiction. Individuals charged with felonies are at 
risk of imprisonment, which, as discussed above, could place the 
creditworthiness of their businesses in question. Therefore, the 
Administrator, in consultation with the Secretary, has determined that 
this limitation also remains appropriate to ensure that PPP funds are 
not allocated to an applicant for which a recent felony charge may 
impair its ongoing business operations and therefore its ability to 
repay a PPP loan for reasons unrelated to the COVID-19 pandemic.
    Finally, under the First Interim Final Rule, as amended, an 
applicant is ineligible if an owner of 20 percent or more of its equity 
has been convicted of, pleaded guilty or nolo contendere to, or 
commenced any form of parole or probation (including probation before 
judgment) for, a felony involving fraud, bribery, embezzlement, or a 
false statement in a loan application or an application for federal 
financial assistance within the last five years or any other felony 
within the last year. The Administrator, in consultation with the 
Secretary, has determined that, in order to ensure program integrity 
and safeguard against misuse of PPP funds, it remains appropriate to 
require that applicants whose owners previously were convicted of or 
pleaded guilty or nolo contendere to a felony offense have avoided a 
further felony charge following conviction or incarceration for a 
period of at least one year before obtaining a PPP loan. This interval 
provides a reasonable level of assurance that such applicants do not 
present unacceptable risks of re-incarceration that could, as discussed 
above, undermine the ability of their businesses to repay their PPP 
loans. The Administrator, in consultation with the Secretary, has 
determined that a longer five-year limitation is appropriate for 
felonies involving fraud, bribery, embezzlement, or a false statement 
in a loan application or an application for federal financial 
assistance because such felonies are most relevant to the applicant's 
business integrity and responsibility, and may indicate a greater risk 
of potential misuse of PPP loan funds.
    Each of the ineligible applicant categories described above has 
been formulated to reduce the risk of default and fraud in the PPP and 
to ensure that PPP loan funds are provided for small businesses that 
will be able to support jobs, consistent with Congressional intent in 
the CARES Act. These measures are particularly necessary in light of 
the structure of the PPP, in which lenders are subject to relatively 
few underwriting obligations before issuing loans that are 100 percent 
guaranteed by SBA and that may be subject to full forgiveness based on 
documentation provided by the borrower. While neither lenders nor SBA 
are conducting typical analysis of the characteristics of PPP 
applicants, the measures described above are intended to mitigate the 
risk of default, fraud, or misuse of PPP loan funds intended to benefit 
small business employees and at the same time balance that need with 
the need to assist in the rehabilitation of felons, who are working to 
become responsible and productive members of society.
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

[[Page 38304]]

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 require modification to the 
existing PPP information collection that is approved under OMB Control 
Number 3245-0407 as an emergency request until October 31, 2020. As 
discussed above, this rule amends the PPP eligibility requirements 
regarding certain criminal activity. As a result of these amendments, 
conforming changes will be made to Questions 5 and 6 of Form 2483, 
Borrower Application Form, and Section H of Form 2484, Lender 
Application Form. SBA will submit the revisions to these forms to the 
Office of Management and Budget for approval.
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 Act, 
Ch.1. p.9. Accordingly, SBA is not required to conduct a regulatory 
flexibility analysis.

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

Jovita Carranza,
Administrator.
[FR Doc. 2020-13942 Filed 6-24-20; 4:15 pm]
BILLING CODE 8026-03-P