COVID-19 Federal: SBA Issues Guidance on Paycheck Protection Program

On April 2, 2020, the Small Business Administration (SBA) issued the much-anticipated Paycheck Protection Program Interim Final Rule, providing guidance on the implementation of the Paycheck Protection Program (PPP) and on loan forgiveness for amounts loaned by the SBA loans under the PPP.

In the new guidance, the SBA makes some significant changes from its original plan. These changes include adding requirements on appropriate uses of proceeds of a PPP loan, and raising the fixed interest rate on loans made under the program from 0.5% to 1% in response to feedback that the original terms could have prevented community banks from participating in the program.

Below is a summary of some of the provisions of the new guidance. This is not a complete analysis of the new guidance, but does address some of the questions we have been asked by clients over the past week.





Am I eligible if I am a foreign-owned entity?

Foreign owned entities that have 500 or fewer employees whose principal place of residence is in the United States are eligible.


Do I include payments to independent contractors in calculating my payroll?

No. Independent contractors may apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.


What qualifies as payroll costs?

There is still a lack of clarity regarding the application of the $100,000 per employee limit. The question is whether the limit applies to wages and salary or to total compensation, including benefits and SUTA.The new regulations perpetuate the ambiguity embedded in the CARES Act. Anecdotally, in the absence of effective guidance, many of our clients are applying the $100,000 limit to wages and salary only. 


Interest Rate

The interest rate will be 100 basis points or 1%



Two years


Is the PPP “first-come, first-served?”



Guidance regarding loan forgiveness - “Spend” requirement for loan forgiveness is 75% on payroll.

Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage interest, rent, and utilities, the Administrator has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll. The Administrator has determined in consultation with the Secretary that 75% is appropriate in light of the Act’s overarching focus on keeping workers paid and employed

2(r) and (s)

Guidance regarding required use of proceeds.

(r) At least 75% of the PPP loan proceeds shall be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness. While the Act provides that PPP loan proceeds may be used for the purposes listed above and for other allowable uses described in section 7(a) of the Small Business Act (15 U.S.C. 636(a)), the Administrator believes that finite appropriations and the structure of the Act warrant a requirement that borrowers use a substantial portion of the loan proceeds for payroll costs, consistent with Congress’ overarching goal of keeping workers paid and employed. 

(s) If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.


Payroll documentation required.

The guidance instructs lenders to confirm the dollar amount of average payroll costs for the preceding calendar year.

Additional details around payroll documentation are still not specified, so there is no specific requirement for Form 941 submission. An applicant could still use payroll registers or records.

Each lender’s underwriting obligation under the PPP is limited to the items above and reviewing the Paycheck Protection Application Form. Borrowers must submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.


Lender responsibility limited in connection with determining loan forgiveness.

Lenders can rely on borrower documentation for loan forgiveness. 

Lenders do not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower.

The Administrator, in consultation with the Secretary, has determined that lender reliance on a borrower’s required documents and attestation is necessary and appropriate in light of section 1106(h) of the Act, which prohibits the Administrator from taking an enforcement action or imposing penalties if the lender has received a borrower attestation.


Significant origination fees to lenders – on fully guaranteed loans

SBA will pay lenders fees for processing PPP loans in the following amounts: i. 5% for loans of not more than $350,000; ii. 3% for loans of more than $350,000 and less than $2 million; and iii. 1% for loans of at least $2 million.

For questions regarding the PPP, and for the most up-to-date information on this evolving situation, please contact Andrea SuterChris HowardScott PueschelStephen Del SestoMary-Laura Greely, or Steve MacGillivray.

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