The SBA issued Interim Final Rules and additional guidance regarding the Paycheck Protection Program (“PPP”). Generally, the PPP provides forgivable loans to small business and nonprofits to cover payroll costs, rent, mortgage interest and utilities. If you are unfamiliar with the basics of this program, an updated summary of the CARES Act Employer Relief programs is available here.   

Here are a few of the significant clarifications from the interim rules and guidance:

• Loan Availability: While applicants can apply for and receive the loan up until June 30, 2020, the loans will be offered on a first-come, first-served basis. It is not certain whether additional funding will be allocated to the program once the funds are exhausted, although lawmakers are already discussing another stimulus bill that could add additional funding.
• Interest Rate: The Act requires loans to be issued with an interest rate no more than 4% with a maturity date of 2 years. The interim rule sets the interest rate at 1%.
• Independent Contractors: The interim rule clarifies that independent contractors do not count as employees for purposes of establishing average payroll costs. Independent contractors are eligible to apply for the PPP independently.
• Calculation of Average Payroll Costs: The CARES Act and the SBA’s interim rules provide that average monthly payroll costs are calculated by taking an average of the 12 months prior to application of the loan. Note* The SBA’s sample PPP loan application, in addition to many of the lender applications we have seen, calculate average monthly payroll costs by taking an average of 2019 monthly payroll costs. We will continue to monitor any additional clarification on this from the SBA.
• Use of Funds: The CARES Act permits loan recipients to use the funds for payroll costs and other expenses including mortgage interest payments, rent and utilities. The interim rules clarify that 75% of the loan must be used on payroll costs. This clarifies prior guidance which suggested this requirement was only applicable if the applicant wanted to apply for loan forgiveness.
• Additional Guidance for Faith-Based Institutions: Faith-based institutions are eligible for the PPP, however certain nondiscrimination requirements that typically would not apply to faith-based organizations may apply during the term of the loan. Additional guidance from the SBA on this issue can be found by clicking here.  

The SBA continues to provide updates regarding this program. We will continue to monitor and provide updates as they become available.

Additional Resources

A link to the SBA’s Paycheck Protection Program website is available here.

A link to the SBA’s Interim Final Rule is available here.