SBA Issues Interim Final Rules and Final Form of Application for Paycheck Protection Program


By: Colleen Lyons

April 3, 2020

Yesterday afternoon, the US Small Business Administration (“SBA”) issued Interim Final Rules regarding the Paycheck Protection Program. These proposed rules contain some important new information for borrowers and in some cases, changes to the guidance provided earlier by the SBA and US Treasury Department (the “Treasury Department”).

Application Process

Applicants will need to submit SBA Form 2483 (Paycheck Protection Application Form) along with payroll documentation sufficient to establish eligibility including payroll processor records, payroll tax filings or Form 1099-MISC.  The interim rules provide examples to calculate the maximum amount that can be borrowed and defines what qualifies as “payroll costs.”  The final form of the application was released this morning by the U.S. Treasury Department. This form is different than the form previously circulated.  Borrowers that submitted applications prior to the release of this final form should contact their banks to confirm that the appropriate application form and supplemental documents have all been submitted.

Treatment of Independent Contractors

The guidance clarifies that independent contractors do not count as employees for purposes of calculating the amount of a Paycheck Protection Program loan (“PPP Loan”) nor do they count as employees.

Interest Rate

The interest rate was increased to 100 basis points or 1% rather than the .5% referenced in the original release from the US Treasury Department.

Use of Loan Proceeds

The guidance confirms the permitted uses of PPP Loan proceeds and provides that “at least 75% of the PPP Loan proceeds shall be used for payroll costs.”  Additional permitted uses include (i) costs for the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums, (ii) mortgage interest payments, (iii) rent payments, (iv) utility payments, (v) interest payments on any other debt obligations that were incurred before February 15, 2020, and (vi) for refinancing an SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020.

Loan Forgiveness

Because the overarching focus of the CARES Act is on keeping workers paid and employed, the guidance provides that no more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.  Independent contractors do not count as employees for purposes of determining a borrower’s PPP loan forgiveness.  Within this rule are nuances that need to be accounted for and may ultimately impact the amount of loan forgiveness.  For example, maintaining headcount and wages (no reduction beyond 25%) as compared to Q1 2020 will influence forgiveness and will need to be carefully reviewed.  The Interim Final Rules specifically state that additional guidance on loan forgiveness will be forthcoming.

These Interim Final Rules are subject to public comment and also contemplate that the SBA will be providing additional guidance in a number of areas.