SBA Issues “Final Interim Rule” for Paycheck Protection Program

Published April 3, 2020

An Overview of SBA's Final Interim Rule for Paycheck Protection Program:

On Thursday evening, the night before this program is scheduled to begin, the SBA issued updated guidance to borrowers and lenders. This Interim Final Rule can be found by clicking here.

This final rule clarifies a few open questions but seems more designed to calm the nerves of the participating banks who were concerned about the very low interest rate of 0.5% rate, among other things.

Here are the relevant updates:

  • PPP loans will begin as soon as the banks start accepting applications and will close June 30 – or sooner if the $349B of funds are depleted and Congress does not reauthorize more. To hammer home this point, the Final Interim Rule says that PPP loans are “first-come, first-served.”
  • They will have 2-year maturities and interest of 1%. The first payment will be deferred for six months, though interest accrues from day 1. The 1% was needed to entice the banks to get on board, and we understand that many (or most) are doing it grudgingly.
  • The loans will be issued by the banks, not SBA, and the banks will develop their own applications and process for uploading or attaching supporting documentation. We expect this to be automated and applications are permitted to use E-signatures.
  • Lenders will have no responsibility to verify the borrowers’ applications and can rely on what is submitted to them.
  • To be eligible, you need 500 or fewer employees and were in business on February 15.
  • Payroll records, payroll tax filings, summaries of employee benefits (health insurance and retirement, as well as vacation, family and sick, leave not otherwise covered by the FFCRA) will be submitted with the application according to the bank’s methodology.
  • In determining the loan amount, it appears that we can calculate “payroll costs” either using the last 12 months (April 2019 – March 2020) or calendar year 2019. We prefer 2019 for the simplicity and the likely better results we’ll get.
  • Payroll costs include compensation of employees up to $100,000 per year. In addition to this (not part of it), we can add the employee benefits of group health insurance and retirement benefits. Those terms still have not been clearly defined, and they may never be. We’ll wait to see how the bank loan applications interpret these, but we expect it to continue to be vague. Group health insurance premiums are included, but what about HRA reimbursements? As for retirement plan contributions, 401(k) “matching contributions” are likely included, but what about safe harbor and profit-sharing contributions, and cash balance contributions? Cash balance contributions, in particular, do not seem to be in keeping with the spirit of the PPP program. And, can we choose to include 2019 contributions for the 2018 plan year or 2020 contributions for the 2019 plan year? Again, some of these questions have still not been answered.
  • When it’s time to request loan forgiveness at the end of the 8-week period, at least 75% of the forgivable amount has to be spent on payroll. No more than 25% can be spent on rent, utilities, or debt interest. That will ensure that the majority of the PPP program will be spent on payroll (not to mention it will limit the ability of a doctor who owns the practice and office building to raise the office rent to boost the amount of loan forgiveness).
  • EIDL loans that were obtained prior to April 3 (we doubt there are many) in order to cover payroll costs must be rolled into the new PPP loan and will be eligible for loan forgiveness. We believe that all other EIDL loans (those obtained on or before April 3 to cover non-payroll costs as well as EIDLs that are obtained after April 3) will not affect our ability to also apply for PPPs. They will simply be separate loans subject to their own repayment terms (3.75%, up to 30 years, no payment for one year, etc.).
  • Independent contractors can apply in their own right, but should not be included in the employer’s calculation of its loan amount or in the employer’s loan forgiveness. The contractor should apply for its own PPP loan, and will get loan forgiveness itself.

Collier & Associates, Inc. will update our blog as the CARES Act progresses. We take pride in continuing to keep our subscribers and website visitors updated on current events during this extraordinary time.

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