On April 2, 2020, the Small Business Administration (SBA) issued its Interim Final Rules (the Interim Rules) for the Paycheck Protection Program (PPP), a copy of which can be found here. The Interim Rules include examples to illustrate the methodologies used to calculate loan amounts.
Additionally, the U.S. Treasury Department released an updated Application Form - a copy of which can be found here.
Highlights of the Interim Rules:
- The interest rate will be set at 1% - NOTE: Previous guidance indicated that the interest rate on any unforgiven loan amount would be 0.5%.
- The term of the loans will be for 2 years.
- Independent contractors (those who receive a Form 1099) do not count toward the total payroll costs in the calculation of the loan amounts as independent contractors have the ability to apply for the loan on their own.
- The loan payments, if not forgiven, will be deferred for six months. Interest will accrue on the loans during the six-month deferment.
- No more than 25% of the amount of the loan that is forgiven can be used for non-payroll costs (i.e. mortgage or lease payments and utilities).
- Applicants must submit SBA form 2483 as well all relevant payroll documentation.
- There is some conflicting language as to the dates to be used for the twelve months lookback in calculating the loan. While the new guidance states that the applicant should aggregate payroll costs from the last twelve months, the application and guidance for the banks seem to say that the banks should confirm the payroll costs of the borrower for the last calendar year.
NOTE: The Interim Rules are inconsistent as they state that an independent contractor may apply for their own PPP loan, but in their examples of calculating payroll costs, the SBA indicates that only amounts paid to independent contractors in excess of $100,000 are to be included. Additionally, it is unclear what documentation an independent contractor would be required to provide in order to have the loan forgiven – we await additional guidance from the U.S. Treasury Department and SBA on this.
Highlights of the Updated Application Form:
- Entities that have foreign owners are no longer automatically disqualified from obtaining a PPP loan – the previous application form asked whether all of the applicant’s 20% owners are either U.S. Citizens or Lawful Permanent Residents and indicated that if the answer was no the loan would not be granted.
- The applicant is required to certify that the payroll calculation is for only employees with a principal place of residence in the United States.
- The applicant is required to answer whether it is a franchise – applicants with a NAICS code indicating that it is a franchise are not required to aggregate their employees with those of their franchiser and other franchisees for calculating the number of employees.