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CARES Act: SBA Issues Interim Final Rule for Implementing Paycheck Protection Program
Practical Law Legal Update w-024-8654 (Approx. 4 pages)
CARES Act: SBA Issues Interim Final Rule for Implementing Paycheck Protection Program
by Practical Law Finance
| Published on 06 Apr 2020 • USA (National/Federal) |
On April 2, 2020, the Small Business Administration (SBA) issued an interim final rule (IFR) outlining the key provisions for implementing the Paycheck Protection Program (PPP) created under Title 1 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This IFR is effective immediately in order to provide needed information to adversely affected small businesses so that they can apply for a PPP loan without delay. This Update focuses on revisions to and further guidance for implementing the PPP provided in the IFR.
On March 27, 2020, the US Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. No. 116-136 (H.R. 748)), which President Trump signed into law, effective immediately. The CARES Act is the third major piece of legislation enacted in response to the COVID-19 outbreak in the US and is intended to provide economic relief to individuals and businesses facing economic hardship due to the outbreak. Under the CARES Act, the Small Business Administration (SBA) is offering loans under the Paycheck Protection Program (PPP) (Sections 1102 and 1106) and Economic Injury Disaster Loan Program (EIDL) (Section 1110).
On April 2, 2020, the SBA issued an interim final rule (IFR) outlining the key provisions for implementing the PPP. The IFR is effective immediately in order to provide needed information to adversely affected small businesses so that they can apply for a PPP loan without delay. Public comment on the proposed rule is due 30 days after publication in the Federal Register.
For a summary of the SBA PPP, see CARES Act: Stimulus for Small Businesses Under the SBA Checklist.
The IFR contains certain revisions and clarifications to the prior guidance:
- The interest rate has been raised to 1%.
- In addition to certain payroll costs, utilities, mortgage interest payments and rent payments, proceeds of a PPP loan can also be used for:
- interest payments on any other debt obligations incurred before February 15, 2020; and
- refinancing an EIDL loan made between January 31, 2020 and April 3, 2020. Applicants that received an EIDL loan from January 31, 2020 through April 3, 2020 may also apply for a PPP loan. If the EIDL loan was used for payroll costs, proceeds of the PPP loan must be used to refinance the EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the forgiven amount of the PPP loan.
- At least 75 percent of the PPP loan proceeds must be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL loan 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.
- Penalties for knowingly making a false statement in the PPP application is punishable under the law, including:
- under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000;
- under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and
- if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
Applicants are encouraged to apply for the maximum amount available since they can only receive one PPP loan. Loans will be made under the PPP until June 30, 2020 or until funds for this program are exhausted. Loans are made on a "first come-first served" basis so applicants are encouraged to apply without delay.
For guidance from the Treasury Department, see: