The Small Business Administration (SBA) issued an Interim Final Rule for the Paycheck Protection Program (PPP) on April 15 1h , effective April 15, 2020 (85 FedReg 20811) (13 CFR Part 120). The President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136) on March 27th and the SBA received funding and authority through the CARES Act to assist small businesses nationwide impacted by the COVID-19 emergency.
The interim final rule applies to applications submitted under the PPP through June 30, 2020, or until PPP available funds are exhausted. The following Q's and A's focus on the dealer who has submitted the loan application and is now working towards the loan forgiveness.
- What qualifies as "payroll costs"?
A: Payroll costs consist of compensation to employees in the form of:
- salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips, or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
- payment for vacation, parental, family, medical, or sick leave;
- allowance for separation or dismissal;
- payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
- payment of state and local taxes assessed on compensation of employees; and,
- for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation.
- What will be the maturity date on a PPP loan?
A: The maturity is 2 years. While the Act provides that a loan will have a maximum maturity of up to 10 years from the date the borrower applies for loan forgiveness, the Administrator, in consultation with the Secretary, determined that a two 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 two-year maturity date such that borrowers will be able to re-commence business operations and pay off any outstanding balances on their PPP loans.
- Can my PPP loan be forgiven in whole or in part?
A: Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgiveable purposes described below and employee and compensation levels are maintained.
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 under service agreements dated before February 15, 2020, over the 8-week period following the date of the Joan. However, not more than 25 % of the loan forgiveness amount may be attributable to non-payroll costs.
While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage interest, rent, and utilities, the Administrator has determined that the non-payroll portion of the forgiveable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll. The Administrator has determined, in consultation with the Secretary, that 75% is an appropriate percentage in light of the Act's overarching focus on keeping workers paid and employed. Further, the Administrator and the Secretary believe that applying this threshold to loan forgiveness is consistent with the structure of the Act, which provides a loan amount 75% of which is equivalent to 8 weeks of payroll (8 weeks/2.5 months = 56 daysn6 days = 74% rounded up to 75%). Limiting non-payroll costs to 25% of the forgiveness amount will align these elements of the program, and will also help to ensure that the finite appropriations available for PPP loan forgiveness are directed toward payroll protection.
SBA will issue additional guidance on loan forgiveness.
- How can PPP loans be used?
A: The proceeds of a PPP loan are to be used for:
- Payroll costs (See #1 above);
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
- Mortgage interest payments (but not mortgage prepayments or principal payments);
- Rent payments;
- Utility payments;
- Interest payments on any other debt obligations that were incurred before 2/15/2020;
- Refinancing an SBA, EIDL loan made between I /31/2020 and 4/3/2020. If you received
an SBA EIDL loan from l /3 l /2020 through 4/3/2020, 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.
However, at least 75% 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.
As with the similar limitation on the forgiveness amount, the Administrator, in consultation with the Secretary, has determined that 75% is an appropriate percentage that will align this element of the program with the loan amount, 75% of which is equivalent to 8 weeks payroll. 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.
- What happens if PPP loan funds are misused?
A: If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud.
If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes,
SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
- Can lenders rely on borrower documentation for loan forgiveness?
A: Yes. The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower. The Administrator, in consultation with the Secretary, has determined that lender reliance on a borrower's required documents and attestation is necessary and appropriate in light of section 1106(h) of the Act, which prohibits the Administrator from taking an enforcement action or imposing penalties if the lender has a received a borrower attestation.
- What fees will lenders be paid?
A; SBA will pay lenders fees for processing PPP loans in the following amounts:
- 5% for loans of not more than $350,000;
- 3% for loans of more than $350,000 and less than $2,000,000; and,
- I% for loans of at least $2,000,000.
The SBA may provide further guidance, if needed, which will be posted on SBA's website at www.sba.gov
Questions on the PPP 7(a) Loans may be directed to the Lender Relations Specialist in the local SBA Field Office. The local SBA Field Office may be found at htlps://www.sba.gov/tools/local assistance/districtoffices