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April 3 2020

Client Alert - SBA Issues Interim Final Rule Implementing Payroll Protection Loans

By: Michael J. Huff

Thursday evening the SBA issued an interim final rule implementing sections of the CARES Act, which create the Payroll Protection Program (“PPP”), a program designed to provide relief for small businesses by means of making loan forgiveness available for eligible borrowers who spend the funds on payroll, and qualifying rent, mortgage interest and utility expenses.  The interim final rule helps to resolve certain questions borrowers and lenders have had about PPP while altering information released earlier in the week and leaving some questions unanswered.  Borrowers and lenders should rely on the interim final rule and not the program overview or sample application released by the SBA and Department of Treasury earlier this week.

One change set forth by the interim final rule is to the interest rate which will be charged on the loan.  SBA had previously indicated the loans would carry an interest rate of 0.5% but in the interim final rule the rate was changed to 1.0%.  The CARES Act itself allows for a higher rate.

The interim final rule also serves to further define which businesses are eligible for the loans.  While many of the businesses which will not be eligible for the loans were expected, such as passive holding companies, the interim final rule indicates other businesses which are not eligible such as marijuana businesses and household workers.

The interim final rule also indicates the documentation borrowers will need to submit to establish eligibility and creates flexible options for potential borrowers such as sole proprietors.  Based on the interim final rule, the documentation required will be significantly streamlined as compared to traditional SBA 7(a) loans.

Some questions remain unanswered which may give some borrowers and lenders cause to delay finalizing certain applications.  Most notably, the SBA indicates it will issue additional guidance regarding the loan forgiveness available under PPP.

As indicated in prior client alerts from Mika Meyers, the loans are offered on a first come, first served basis.  Thus, while some banks are still finalizing how they will process the loans, small business owners who have determined the PPP loans will provide the best relief for their business after considering other, mutually exclusive relief available under the CARES Act, should contact their attorney, accountant, and banker promptly.