[Federal Register Volume 85, Number 202 (Monday, October 19, 2020)]
[Rules and Regulations]
[Pages 66214-66217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23091]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket Number SBA-2020-0052]
RIN 3245-AH59
DEPARTMENT OF THE TREASURY
RIN 1505-AC71
Business Loan Program Temporary Changes; Paycheck Protection
Program--Additional Revisions to Loan Forgiveness and Loan Review
Procedures Interim Final Rules
AGENCY: U.S. Small Business Administration; Department of the Treasury.
ACTION: Interim final rule.
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SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA)
posted on its website an interim final rule relating to the
implementation of Sections 1102 and 1106 of the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act or the Act) (published in
the Federal Register on April 15, 2020). Section 1102 of the Act
temporarily adds a new product, titled the ``Paycheck Protection
Program,'' to the U.S. Small Business Administration's (SBA's) 7(a)
Loan Program. Subsequently, SBA and the Department of the Treasury
(Treasury) issued additional interim final rules implementing the
Paycheck Protection Program (PPP). On June 5, 2020, the Paycheck
Protection Program Flexibility Act of 2020 (Flexibility Act) was signed
into law, amending the CARES Act. This interim final rule revises
interim final rules posted on SBA's and the Department of the
Treasury's websites on May 22, 2020 (published on June 1, 2020, in the
Federal Register) and June 22, 2020 (published on June 26, 2020, in the
Federal Register), by providing additional guidance concerning the
forgiveness and loan review processes for PPP loans of $50,000 or less
and, for PPP loans of all sizes, lender responsibilities with respect
to the review of borrower documentation of eligible costs for
forgiveness in excess of a borrower's PPP loan amount.
DATES:
Effective date: The provisions in this interim final rule are
effective October 14, 2020.
Comment date: Comments must be received on or before November 18,
2020.
ADDRESSES: You may submit comments, identified by docket number SBA-
2020-0052, through the Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please
[[Page 66215]]
send an email to ppp-ifr@sba.gov. Highlight the information that you
consider to be CBI and explain why you believe SBA should hold this
information as confidential. SBA will review the information and make
the final determination whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-
572-0502, or the local SBA Field Office; the list of offices can be
found at https://www.sba.gov/tools/local-assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 27, 2020, the President signed the Coronavirus Aid,
Relief, and Economic Security Act (the CARES Act or the Act) (Pub. L.
116-136) to provide emergency assistance and health care response for
individuals, families, and businesses affected by the coronavirus
pandemic. The Small Business Administration (SBA) received funding and
authority through the Act to modify existing loan programs and
establish a new loan program to assist small businesses nationwide
adversely impacted by the COVID-19 emergency.
Section 1102 of the Act temporarily permits SBA to guarantee 100
percent of 7(a) loans under a new program titled the ``Paycheck
Protection Program.'' Section 1106 of the Act provides for forgiveness
of up to the full principal amount of qualifying loans guaranteed under
the Paycheck Protection Program (PPP).
On April 24, 2020, the President signed the Paycheck Protection
Program and Health Care Enhancement Act (Pub. L. 116-139), which
provided additional funding and authority for the PPP. On June 5, 2020,
the President signed the Paycheck Protection Program Flexibility Act of
2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of
the PPP relating to the maturity of PPP loans, the deferral of PPP loan
payments, and the forgiveness of PPP loans. On July 4, 2020, the
President signed into law S. 4116, which reauthorized lending under the
PPP through August 8, 2020 (Pub. L. 116-147).
As described below, this interim final rule provides additional
guidance concerning the forgiveness and loan review processes for PPP
loans of $50,000 or less and, for PPP loans of all sizes, lender
responsibilities with respect to the review of borrower documentation
of eligible costs for forgiveness in excess of a borrower's PPP loan
amount.
Two provisions of this interim final rule are an exercise of
rulemaking authority by SBA jointly with Treasury: (1) The de minimis
exemption from the full-time equivalent (FTE) employee reduction
penalty for PPP loans of $50,000 or less, and (2) the de minimis
exemption from the employee salary and wages reduction penalty for PPP
loans of $50,000 or less. Otherwise, all provisions in this rule are an
exercise of rulemaking authority by SBA alone.
II. Comments and Immediate Effective Date
This interim final rule is effective without advance notice and
public comment because Section 1114 of the CARES Act authorizes SBA to
issue regulations to implement Title I of the Act without regard to
notice requirements. In addition, SBA has determined that there is good
cause for dispensing with advance public notice and comment on the
grounds that it would be contrary to the public interest. Specifically,
advance public notice and comment would defeat the purpose of this
interim final rule given that SBA began accepting lender loan
forgiveness submissions on August 10, 2020. These same reasons provide
good cause for SBA to dispense with the 30-day delayed effective date
provided in the Administrative Procedure Act (APA). See 5 U.S.C.
553(b)(B). Although this interim final rule is effective on or before
date of filing, comments are solicited from interested members of the
public on all aspects of the interim final rule, including Section III
below. These comments must be submitted on or before November 18, 2020.
The SBA and Treasury will consider these comments; comments received on
the two interim final rules amended by this interim final rule that
were posted on SBA's website on May 22, 2020 and published on June 1,
2020, in the Federal Register; and the interim final rule amended by
this interim final rule that was posted on SBA's website on June 22,
2020 and published on June 26, 2020.
III. Paycheck Protection Program--Additional Revisions to Loan
Forgiveness Interim Final Rule and SBA Loan Review Procedures and
Related Borrower and Lender Responsibilities Interim Final Rule
Overview
The CARES Act was enacted to provide immediate assistance to
individuals, families, and organizations affected by the COVID-19
emergency. Among the provisions contained in the CARES Act are
provisions authorizing SBA to temporarily guarantee loans under a new
7(a) loan program titled the ``Paycheck Protection Program.'' Loans
guaranteed under the Paycheck Protection Program (PPP) will be 100
percent guaranteed by SBA, and the full principal amount of the loans
may qualify for loan forgiveness.
SBA has previously issued comprehensive regulations and guidance on
the loan forgiveness provisions in the CARES Act. As relevant here, on
May 22, 2020, SBA and Treasury jointly posted an additional interim
final rule on loan forgiveness (85 FR 33004) (First Loan Forgiveness
Rule). The SBA also posted an interim final rule on May 22, 2020 on SBA
loan review procedures and related borrower and lender responsibilities
(85 FR 33010) (First Loan Review Rule). On June 22, 2020, SBA and
Treasury jointly posted an interim final rule, Revisions to Loan
Forgiveness and Loan Review Procedures Interim Final Rules (85 FR
38304), revising the First Loan Forgiveness Rule and the First Loan
Review Rule to incorporate Flexibility Act amendments. On August 4 and
11, 2020, SBA posted Frequently Asked Questions on PPP Loan
Forgiveness.
The purpose of this interim final rule is to simplify further (i)
the forgiveness and loan review processes for PPP loans of $50,000 or
less, and (ii) for PPP loans of all sizes, lender responsibilities with
respect to the review of borrower documentation of eligible costs for
forgiveness in excess of a borrower's PPP loan amount.
In connection with this rule, SBA is issuing an alternative Loan
Forgiveness Application, SBA Form 3508S, for use by PPP borrowers
applying for loan forgiveness on PPP loans with a total loan amount of
$50,000 or less, except for those borrowers that together with their
affiliates \1\ received loans totaling $2 million or greater. The
Administrator of SBA (Administrator) and the Secretary of the Treasury
(Secretary) have concluded that this form strikes an appropriate
balance between the need for simplification in the forgiveness process
with the responsibility to protect the integrity of the program and
safeguard taxpayer funds.
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\1\ See 85 FR 20817 (April 15, 2020) regarding application of
SBA's affiliation rules and the exemption of otherwise qualified
faith-based organizations from SBA's affiliation rules.
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1. Changes to the Loan Forgiveness Rules
a. Alternative Loan Forgiveness Application
Because SBA is issuing an alternative Loan Forgiveness Application,
SBA
[[Page 66216]]
Form 3508S, the first parenthetical in the first sentence of Part
III.2.a and the parenthetical in the first sentence of Part III.6 of
the First Loan Forgiveness Rule, as revised by Revisions to Loan
Forgiveness and Loan Review Procedures Interim Final Rules, are revised
to read as follows: ``(SBA Form 3508, 3508EZ, 3508S, as applicable, or
lender equivalent)''.
b. Reductions to Loan Forgiveness Amount
A borrower of a PPP loan of $50,000 or less, other than any
borrower that together with its affiliates received loans totaling $2
million or greater, may use SBA Form 3508S (or lender's equivalent
form) to apply for loan forgiveness. A borrower that uses SBA Form
3508S (or lender's equivalent form) is exempt from any reductions in
the borrower's loan forgiveness amount based on reductions in full-time
equivalent (FTE) employees (section 1106(d)(2) of the CARES Act) or
reductions in employee salary or wages (section 1106(d)(3) of the CARES
Act) that would otherwise apply. As such, Part III.5 of the First Loan
Forgiveness Rule, as revised by Revisions to Loan Forgiveness and Loan
Review Procedures Interim Final Rules, does not apply to borrowers of
loans of $50,000 or less that use SBA Form 3508S (or lender's
equivalent form) to apply for loan forgiveness.
The Administrator and the Secretary determined that these
exemptions are an appropriate exercise of their joint rulemaking
authority to grant de minimis exemptions under section 1106(d)(6) of
the CARES Act. The Administrator and the Secretary believe that the
additional exemptions set forth above are consistent with the purposes
of the CARES Act, including to provide much-needed financial assistance
to a broad range of small businesses, and provide borrowers appropriate
flexibility in the current economic climate. The Administrator and the
Secretary have determined that these exemptions are de minimis. The
purpose of the PPP is to provide financial assistance to small
businesses and their employees, and the requirements of section 1106(d)
focus on the number of employees and compensation. Consequently, in
this context, both the aggregate dollar amount of affected loans
relative to the aggregate dollar amount of all PPP loans and the number
of affected employees are reasonable considerations in assessing
whether an exemption is de minimis. There are approximately 3.57
million outstanding PPP loans of $50,000 or less, totaling
approximately $62 billion of the $525 billion in PPP loans.
Approximately 1.71 million PPP loans of $50,000 or less were made to
businesses that reported having zero employees (presumably not counting
the owner as an employee) or one employee. To the extent that these
businesses have no employees other than the owner (i.e., all businesses
that reported having zero employees and, in SBA's judgment, the
majority of businesses that reported having one employee), they are not
affected by these exemptions. As a result, based on available data, we
estimate that the outstanding PPP loans of the relevant set of
potentially affected borrowers (businesses with at least one employee
other than the owner) total approximately $49 billion, or 9 percent of
the overall PPP loan amount. Within this population of potentially
affected loans, SBA believes that most borrowers would not be affected
by the loan forgiveness reduction requirements because (1) the
borrowers did not reduce FTE employees or reduce employee salaries or
wages, or (2) the borrowers would qualify for one of the existing
exemptions from loan forgiveness amount reductions.\2\ Excluding such
borrowers, the aggregate dollar amount of PPP funds affected by these
exemptions relative to the aggregate dollar amount of all PPP funds is
de minimis.
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\2\ See 85 FR 38304, 38308 (``Borrowers are exempted from the
loan forgiveness reduction arising from a proportional reduction in
FTE employees during the covered period if the borrower is able to
document in good faith the following: (1) An inability to rehire
individuals who were employees of the borrower on February 15, 2020;
and (2) an inability to hire similarly qualified individuals for
unfilled positions on or before December 31, 2020. . . . Borrowers
are also exempted from the loan forgiveness reduction arising from a
reduction in the number of FTE employees during the covered period
if the borrower is able to document in good faith an inability to
return to the same level of business activity as the borrower was
operating at before February 15, 2020, due to compliance with
requirements established or guidance issued between March 1, 2020
and December 31, 2020 by the Secretary of Health and Human Services,
the Director of the Centers for Disease Control and Prevention
(CDC), or the Occupational Safety and Health Administration related
to the maintenance of standards for sanitation, social distancing,
or any other worker or customer safety requirement related to COVID-
19 . . . .'').
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2. Changes to the Loan Review Rules
a. Alternative Loan Forgiveness Application
Because SBA is issuing another alternative Loan Forgiveness
Application, SBA Form 3508S, each reference to ``SBA Form 3508, 3508EZ,
or lender's equivalent form'' in Part III.1 of the First Loan Review
Rule, as revised by the Revisions to Loan Forgiveness and Loan Review
Procedures Interim Final Rules, is replaced with ``SBA Form 3508,
3508EZ, 3508S, or lender's equivalent form''.
b. The Loan Forgiveness Process for Lenders
As noted above, SBA is issuing another alternative Loan Forgiveness
Application, SBA Form 3508S. This necessitates several revisions to
Part III.2 of the First Loan Review Rule, as revised by the Revisions
to Loan Forgiveness and Loan Review Procedures Interim Final Rules.
The following text is added as a new paragraph at the end of Part
III.2.a (``What should a lender review?''):
When a borrower submits SBA Form 3508S or lender's equivalent form,
the lender shall:
i. Confirm receipt of the borrower certifications contained in the
SBA Form 3508S or lender's equivalent form.
ii. Confirm receipt of the documentation the borrower must submit
to aid in verifying payroll and nonpayroll costs, as specified in the
instructions to the SBA Form 3508S or lender's equivalent form.
Providing an accurate calculation of the loan forgiveness amount is
the responsibility of the borrower, and the borrower attests to the
accuracy of its reported information and calculations on the Loan
Forgiveness Application.
The borrower shall not receive forgiveness without submitting all
required documentation to the lender.
As the First Interim Final Rule \3\ indicates, lenders may rely on
borrower representations. As stated in paragraph III.3.c of the First
Interim Final Rule, the lender does not need to independently verify
the borrower's reported information if the borrower submits
documentation supporting its request for loan forgiveness and attests
that it accurately verified the payments for eligible costs.
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\3\ 85 FR 20811, 20815-20816 (April 15, 2020).
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In Part III.2.b., each reference to ``SBA Form 3508EZ or lender's
equivalent form'' is replaced with ``SBA Form 3508EZ, 3508S, or
lender's equivalent form.''
In Part III.2.c., each reference to ``SBA Form 3508, 3508EZ or
lender's equivalent form'' is replaced with ``SBA Form 3508, 3508EZ,
3508S, or lender's equivalent form.''
c. Borrower Submission of Excess Costs
In some cases, a borrower may submit to a lender documentation of
eligible payroll and nonpayroll costs that exceed the amount of the
borrower's PPP loan.
[[Page 66217]]
To address this situation, the following text is added as a new
paragraph d. at the end of Part III.2:
d. What should a lender do if a borrower submits documentation of
eligible costs that exceed a borrower's PPP loan amount?
The amount of loan forgiveness that a borrower may receive cannot
exceed the principal amount of the PPP loan. Whether a borrower submits
SBA Form 3508, 3508EZ, 3508S, or lender's equivalent form, a lender
should confirm receipt of the documentation the borrower is required to
submit to aid in verifying payroll and nonpayroll costs, and, if
applicable (for SBA Form 3508, 3508EZ, or lender's equivalent form),
confirm the borrower's calculations on the borrower's Loan Forgiveness
Application, up to the amount required to reach the requested
Forgiveness Amount.
3. Additional Information
SBA may provide further guidance, if needed, through SBA notices
that will be posted on SBA's website at www.sba.gov. Questions on the
Paycheck Protection Program may be directed to the Lender Relations
Specialist in the local SBA Field Office. The local SBA Field Office
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the
purposes of Executive Orders 12866 and 13563, and is considered a major
rule under the Congressional Review Act. SBA, however, is proceeding
under the emergency provision at Executive Order 12866 Section
6(a)(3)(D) based on the need to move expeditiously to mitigate the
current economic conditions arising from the COVID-19 emergency. This
rule's designation under Executive Order 13771 will be informed by
public comment.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance
with the standards set forth in Section 3(a) and 3(b)(2) of Executive
Order 12988, to minimize litigation, eliminate ambiguity, and reduce
burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
SBA and Treasury have determined that this rule will not have
substantial direct effects on the States, on the relationship between
the National Government and the States, or on the distribution of power
and responsibilities among the various layers of government. Therefore,
SBA has determined that this rule has no federalism implications
warranting preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA and Treasury have determined that this rule modifies an
existing information collection. This rule reduces the burden
associated with lender review of borrower documentation of eligible
costs for forgiveness. Additionally, SBA has developed a second
streamlined Paycheck Protection Program--PPP Loan Forgiveness
Application Form 3508S (SBA Form 3508S), which is available for
borrowers meeting criteria described in the instructions accompanying
the form. SBA has obtained Office of Management and Budget (OMB)
approval of the modification to the existing information collection,
which is currently approved as an emergency request under OMB Control
Number 3245-0407 until October 31, 2020.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule, or a final rule pursuant to Section
553(b) of the APA or another law, the agency must prepare a regulatory
flexibility analysis that meets the requirements of the RFA and publish
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to describe the impact of a
rulemaking on small entities by providing a regulatory impact analysis.
Such analysis must address the consideration of regulatory options that
would lessen the economic effect of the rule on small entities. The RFA
defines a ``small entity'' as (1) a proprietary firm meeting the size
standards of the Small Business Administration (SBA); (2) a nonprofit
organization that is not dominant in its field; or (3) a small
government jurisdiction with a population of less than 50,000. 5 U.S.C.
601(3)-(6). Except for small government jurisdictions with a population
of less than 50,000, neither State nor local governments are ``small
entities.''
The requirement to conduct a regulatory impact analysis does not
apply if the head of the agency ``certifies that the rule will not, if
promulgated, have a significant economic impact on a substantial number
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish
the certification in the Federal Register at the time of publication of
the rule, ``along with a statement providing the factual basis for such
certification.'' If the agency head has not waived the requirements for
a regulatory flexibility analysis in accordance with the RFA's waiver
provision, and no other RFA exception applies, the agency must prepare
the regulatory flexibility analysis and publish it in the Federal
Register at the time of promulgation or, if the rule is promulgated in
response to an emergency that makes timely compliance impracticable,
within 180 days of publication of the final rule. 5 U.S.C. 604(a),
608(b).
Rules that are exempt from notice and comment are also exempt from
the RFA requirements, including conducting a regulatory flexibility
analysis, when among other things the agency for good cause finds that
notice and public procedure are impracticable, unnecessary, or contrary
to the public interest. SBA Office of Advocacy guide: How to Comply
with the Regulatory Flexibility Act, Ch.1. p.9. Since this rule is
exempt from notice and comment, SBA is not required to conduct a
regulatory flexibility analysis.
Jovita Carranza,
Administrator Small Business Administration.
Michael Faulkender,
Assistant Secretary for Economic Policy Department of the Treasury.
[FR Doc. 2020-23091 Filed 10-14-20; 4:15 pm]
BILLING CODE P