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Paycheck Protection Program Update: SBA Interim Final Rule

UPDATE: This article was updated on April 27, 2020, to reflect further developments regarding the PPP loan program.

It seems like there is something new coming out most every day with regard to the stimulus package and the effects of the novel coronavirus/COVID-19 pandemic on small businesses. On April 2nd, the SBA issued a new Interim Final Rule intended to further clarify the implementation of the Paycheck Protection Program (“PPP”). Additionally, the US Department of Treasury issued a list of frequently asked questions regarding the PPP loan program on April 26, 2020. Here are a few highlights:

Interest Rate

The SBA has set the interest rate for PPP loans at 1%. This is considerably less than the maximum interest rate of 4% authorized by the CARES Act.

Maturity Date

The maturity date for a PPP loan will be 2 years from the date of origination. Although the CARES Act would have allowed a maturity period of up to 10 years, the SBA believes 2 years is a reasonable period for repayment given the low interest rate on the loan.

Deferral of Repayment

For any amount of a PPP loan not subject to the loan forgiveness program, repayment of principle and interest of the loan will be deferred for 6 months from the origination date.

Limitation on Nonpayroll Expenses

According to the CARES Act, PPP loan proceeds may be used for (1) Payroll costs (which includes health insurance premiums and sick/medical/family leave (except if another federal subsidy is applied under the expanded FMLA or the Emergency Paid sick Leave Act), etc.), (2) preexisting mortgage interest, (3) preexisting rent obligations, (4) preexisting utility obligations, and (5) preexisting interest on other debt. The loan forgiveness only applies to the first 4 categories. The 5th category for preexisting interest on other debt was not included as a covered use/expense for which PPP loan proceeds used in that manner would be forgiven. Beyond that, the CARES Act places no further limitation on the use of PPP loan proceeds or loan forgiveness.

In keeping with the PPP loan program’s purpose, however, the SBA has provided a limitation on the amount of loan proceeds that can be forgiven when used for non-payroll purposes. A business seeking to have either a portion or the full amount of a PPP loan forgiven must take care that no more than 25% of the amount sought to be forgiven is attributable to non-payroll costs associated with categories 2, 3, and 4 above. In other words, at least 75% of the forgiven amount must be attributable to payroll costs.

Additionally, the SBA has indicated that it will issue further guidance with regard to loan forgiveness in the coming days.

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DISCLOSURE: This legislative update, drafted by attorneys at Homesley & Wingo Law Group PLLC, is only intended to be a summary of recently passed legislation in a legal environment that is subject to change daily. Accordingly, this summary is not intended to be a full explanation of the law, nor should it be considered legal advice. For a more detailed explanation of how these or other legislative changes may affect your business, contact your attorney.