June 18, 2020 – Additional changes have been made to this program. Please click here for additional information.
Interim Final Rule: Business Loan Program Temporary Changes; Paycheck Protection Program
On Thursday evening, April 2, 2020, the Small Business Administration published an Interim Final Rule relating to the Paycheck Protection Program (PPP). This item summarized key provisions of the Paycheck Protection Program and clarified areas where The Coronavirus Aid, Relief, and Economic Security Act (CARES) was either unclear or in the eyes of the SBA, needed to treat certain items with more clarity and specificity. A link to this ruling may be found here: https://home.treasury.gov/system/files/136/PPP–IFRN%20FINAL.pdf
Key Provisions or Clarifications in the Interim Final Ruling
Below we will focus only on those items we deem new, clarified, and key for our clients and in no way does the below purport to be an exhaustive list. Additionally, those items below that are highlighted are those deemed to have ‘changed’ or become ‘clarified’ as part of this ruling:
- Independent contractors must apply separately from the organizations that pay them. In the CARES Act, it seemed the independent contractor could apply either with the company that paid them or separately. Due to suspected possible abuse, the SBA has issued clarity addressing that independent contractors will need to apply separately. Not only was this clarified in the guide, it was clarified twice!
- The interest rate on the loans per the Act was to be up to 4.00%, however, shortly after enactment of the CARES Act, the Treasury and SBA issued guidance advising that the rate would be 0.50%. This guide clarifies and corrects the interest rate to 1.00% based on feedback from the banking community.
- Originally the Act stated that the unforgiven balance of the note could be amortized over a period not to exceed 10 years. This ruling states that the maturity will be 2 years.
- The Act also was unclear on the deferment of payments. It originally stated 6 or 12 months. This ruling clarifies that the deferment of payments is 6 months from the date of disbursement of the loan and that interest will accrue from the date of disbursement of the loan.
- Of the amount being considered for forgiveness, 75% of the loan proceeds must go towards payroll costs.
- The PPP application will require the borrower to submit SBA Form 2483, Payroll Protection Program Application Form. Lenders likely will have other requirements for making the loan.
- The ruling also clarifies how the PPP Loan will interact with an existing EIDL loan. Refer to item 2. r. vii. for additional commentary.
- What remains unclear is whether a borrower can apply for more than one loan for each entity where they have ownership and/or receive payroll.
- What also remains unclear is how to calculate the maximum loan amount and potential forgiveness of the loan when the business is a partnership.
- Hopefully, further guidance comes on this soon.
Clarity is added and as of today, loans are being originated under the PPP program throughout the United States.
As your trusted advisors, we are committed to keeping you well-informed with any new legislation passed by Congress or other authorities as well as any new pronouncements by the Department of Treasury that may affect you. Please do not hesitate to reach out to KHA with any additional questions you may have.
These sources are simply included for informational purposes. KHA Accountants, PLLC, its partners and others do not provide any assurance as to the accuracy of these items or the information included therein. As such, KHA Accountants, PLLC cannot be held liable for any information derived from referenced sources. This by no means is a recommendation to obtain a loan or attempt to apply for a loan. There are many unknowns at this time regarding what other stimulus (grants or other loan options) that may become available with pending and future bills, executive orders, or emergency declarations to follow, that may become laws. Consult your legal and business advisors prior to making financing decisions. This is intended for illustrative and discussion purposes only.