OVERVIEW OF INTERIM FINAL RULE #2 ON PPP
On January 6, 2021, the Small Business Administration (SBA) and U.S. Department of Treasury issued two Interim Final Rules (IFRs) surrounding the Paycheck Protection Program (PPP). The IFRs include the following:
- Interim Final Rule #1: Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans: Implements the key provisions of the Second Draw PPP Loans.
- Interim Final Rule #2: Business Loan Program Temporary Changes; Paycheck Protection Program as Amended: (1) Incorporates the latest guidance included in the Consolidated Appropriations Act, 2021, (2) Consolidates the guidance issued to date governing borrower eligibility, lender eligibility and PPP application and origination requirements for new PPP loans and (3) Provides general rules relating to loan increases and loan forgiveness.
This alert covers the details of IFR #2 referenced above; click here for our summary of the highlights of IFR #1.
On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (CAA) into law, ushering in $900 billion of COVID-19 related aid as part of an omnibus $2.3 trillion spending package. While the provisions of the CAA were far-reaching, the PPP received some much-needed enhancement and clarifications under this new legislation.
As part of the issuance of the CAA, the SBA was required to release rules within 10 days of the enactment of the CAA. This new IFR governs loans made under the CAA provisions, as well as loan forgiveness applications on existing PPP loans that have not yet received a forgiveness determination from the SBA. PPP loans closed prior to the enactment of the CAA are not impacted unless expressly noted.
For the most part, this 82-page IFR combines the guidance issued to date in the CARES Act, the interim final rules and the FAQs into a single point of reference. Examples of the now-consolidated guidance in this IFR surround borrower eligibility, loan amount calculations, Payroll Costs, loan details, and lender responsibilities. However, there are also a number of items that are either clarified or expanded upon in the IFR, including:
- Enhanced Entity Eligibility: Additional eligibility was added for:
- Housing cooperatives, eligible IRC Sec. 501(c)(6) entities and eligible destination marketing organizations with 300 or less employees;
- News organizations that are majority-owned or controlled by an NAICS code 511110 or 5151 business with 500 or less employees;
- Eligible news organizations with multiple locations count each location separately for purposes of the 500-employee test; and
- Nonprofit public broadcasting entities with a trade or business under NAICS Code 511110 or 5151 with 500 or less employees.
- Maximum Loan Amounts: Farmers and ranchers, as well as seasonal employers, are provided with details to support the loan amount computation.
- Increased Loan Amounts: A number of scenarios are provided where borrowers can increase existing PPP loans, including:
- Partnerships: Partnerships that received a loan that excluded eligible partner-compensation expenses are eligible for increased funding even if the loan has been fully disbursed and even if the lender’s first SBA Form 1502 report has already been submitted.
- Seasonal Employers: Seasonal employers that received a PPP loan before December 27, 2020 are eligible to receive an increase in funding if the expansion of the seasonal employer period to any 12 weeks between February 15, 2019 and February 15, 2020 would allow for a larger loan.
- Other Borrowers: Provided loan forgiveness has not been received, the following borrowers can request an increase in funding:
- If a borrower returned all of a PPP loan, the borrower may re-apply for a PPP loan in an amount the borrower is eligible for under current PPP rules; or
- If a borrower returned part of a PPP loan, the borrower may re-apply for an amount equal to the difference between the amount retained and the amount previously approved; or
- If a borrower did not accept the full amount of a PPP loan for which it was approved, the borrower may request an increase in the amount of the PPP loan up to the amount previously approved.
For an in-depth overview on the new guidance recently released on the PPP loans, register for our webinar on Thursday, January 14 @ 10 am.
Sax will continue to update you as further details are made available. Reach out to your Sax advisor or email [email protected] with questions. For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center.