By at 3 April, 2020, 1:43 pm

Business Intelligence, News and Policy Update

by Karen Kerrigan-  

Interim “Final” Guidance and Rules on the “Paycheck Protection Program”
As expected, the Small Business Administration (SBA) released Interim “Final” Rules on the CARES Act “Paycheck Protection Program” (PPP) late yesterday.  SBE Council has reviewed the rules which can accessed here, and I provide some highlights below.

Borrower Application: This is the Final borrower form for PPP loans (which is submitted to a PPP participating lender).

Final Lender Application: Here is the final application form that lenders use for each borrower.

The rules provide clarity in some key areas but still raise questions in others. Many lenders are still holding out for clear guidance, and say the interim final rules are “insufficient” with respect to guidance, liability and other issues. Understandably, lenders do not want to get a bad rap for holding up loans for their small business customers without clarity and protection. They want to ensure they can deliver capital with speed, but without running afoul of the law, which could bring government penalties (or regulatory actions) in the future. (Listen to my latest Growth Without Barriers podcast here – or click on the image to the right – recorded yesterday, to get the latest update on the PPP program and more.)

Still, some lenders are taking applications today, the day the program launches, and even processing loans. Clearer guidance will bring more financial institutions into the fold, which will greatly help in terms of deploying  capital more quickly and more broadly across the country.

Small business owners see snags and new difficulties given the extension of shutdown/stay-at-home orders in their states, and what this means for revenues in late spring and early summer – that is, weak sales or none.

As I noted on Neil Cavuto’s Fox News yesterday, the governor of my home state of Virginia extended the stay-at-home order until June 10! That means extended economic pain and uncertainty for small businesses and workers. Neil and I also discuss the state of play for small businesses and the CARES Act loan provisions.

The covered period for Paycheck Protection Program (PPP) CARES Act loans is February 15-June 30. It appears the duration of the pain could extend longer (unless – and hopefully – the virus quickly evaporates and Governors amend stay-at-home orders by lifting them sooner.) The June 30 deadline put into the legislation is not the fault of the drafters – the situation continues to evolve and the effects of COVID-19 are extending beyond what was expected.

Congress must re-visit this right away and make these loans and the forgiveness features as flexible as possible. For example, small businesses are not going to rehire workers “right away” only to let them go once their 8-week forgiveness period is complete (due to a weak economy or sales.) This, and other issues, need to be looked at anew.

This rapidly evolving situation speaks to the need for the small business community and small businesses to be integrally involved and called upon to actively participate in the rulemaking process. I don’t say this as a disgruntled advocate, but only as someone who wants to see these programs succeed because our members’ survival is at stake!  Yes, we are providing feedback and ideas on the back-end (and where we can influence things on the front-end when these rules are being designed). SBE Council has always advocated for small businesses to be actively consulted during the creation (and now re-creation) of rules to ensure that they will work for entrepreneurs and small businesses.

Some highlights of the Intern Final Guidance by SBA:

You are eligible for a PPP loan if:

“You were in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC. You are also eligible for a PPP loan if you are an individual who operates under a sole proprietorship or as an independent contractor or eligible self-employed individual, you were in operation on February 15, 2020. You must also submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.”

Other eligibility information remains the same including 501 c3’s, etc. (Read the rules.)

Not eligible:

Household employers

An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years;

If you are delinquent on an SBA or other federal government loan (or have ever defaulted on one in the last 7 years.)

Bank Concerns About Guidance and Liability:

“SBA will allow lenders to rely on certifications of the borrower in order to determine eligibility of the borrower and use of loan proceeds and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for loan forgiveness. Lenders must comply with the applicable lender obligations set forth in this interim final rule, but will be held harmless for borrowers’ failure to comply with program criteria;…” (The rules also include more lender guidelines.)

Payroll Costs that Qualify to be Forgiven in PPP:

The rules provide examples of payroll that is eligible, again read the rules (the document is not long.)

What does not qualify – straight from the rules:

Is there anything that is expressly excluded from the definition of payroll costs?

Yes.  The Act expressly excludes the following:

Any compensation of an employee whose principal place of residence is outside of the United States;

The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary;

Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and

Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

(The rules make no mention of issues we have been hearing about from our members – such as “does an owner’s draw count as payroll” or distributions from K-1 accounts.  We presume it can be included; the owner’s compensation simply cannot be higher than $100,000.  Hopefully, banking officials will provide clarity on this when you apply for the loan.)

Do independent contractors count as employees for purposes of PPP loan calculations?

No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.

What is the interest rate on a PPP loan?

The interest rate will be 100 basis points or one percent.

What will be the maturity date on a PPP loan?

The maturity is two years

Can I apply for more than one PPP loan?

No.  The Administrator, in consultation with the Secretary, determined that no eligible borrower may receive more than one PPP loan.  This means that if you apply for a PPP loan you should consider applying for the maximum amount.

Can I use e-signatures or e-consents if a borrower has multiple owners?


Is the PPP “first-come, first-served?”


When will I have to begin paying principal and interest on my PPP loan?

You will not have to make any payments for six months following the date of disbursement of the loan.  However, interest will continue to accrue on PPP loans during this six-month deferment.  The Act authorizes the Administrator to defer loan payments for up to one year.

Can my PPP loan be forgiven in whole or in part?

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 forgivable purposes described below and employee and compensation levels 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 eight-week period following the date of the loan.  However, not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs.

Do independent contractors count as employees for purposes of PPP loan forgiveness?

No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan forgiveness.

What happens if PPP loan funds are misused?

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.

What certifications need to be made?

On the Paycheck Protection Program application, an authorized representative of the applicant must certify in good faith to all of the below…(read the final rules, and go to section “t”).

Finally, the rules confirm that “not more than 25 percent of the loan forgiveness amount may be attributable to non
payroll costs.” Of course, this was a big disappointment to our small business members but they continue to grind it out and look for new solutions.

As I come across really good analysis from experts in our network, I will pass that along as I have been doing and post it on SBE Council’s website in our Resources area and in all posts related to what’s in the CARES Act for small businesses.

I’ll be out with another update tonight on this, as well as related SBE Council issues we have been working on.

Keep powering through,


Karen Kerrigan, president & CEO, SBE Council

Survive and Thrive Summit: April 23 – 4:30 p.m. ET  

Hosted by Entrepreneur and Author, Ramon Ray, the Survive and Thrive Summit 2020 brings together leading brands, experts and entrepreneurs to acknowledge the challenges we face so we can pull together to push forward and thrive. SBE Council president & CEO Karen Kerrigan will also join the lineup of speakers for this important event.
Register here.



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