SBA Makes Rules for Paycheck Protection Loans

Last night the SBA released interim regulations concerning implementation of the Paycheck Protection Loan Program (PPP). These regulations make a few very significant changes from the text of the statute. Here are the major points.

MAJOR CHANGE, now independent contractors do not count as part of your payroll cost for determining your payroll and maximum loan amount. The SBA says that since contractors can apply for their own loans they won’t count for yours. This one may greatly impact the ability of smaller businesses to obtain loans.

If a self employed person or sole proprietor does not have payroll tax filings or form 1099s, you can establish your pay by including bank records with your application. This likely means canceled checks, but the regulation doesn’t specify so any record you have is something I’d consider. While a statement doesn’t necessarily show that the check was paid to you, I’d still use it since the regulation only says “bank records”.

SBA is going to issue guidance shortly on affiliation rules. These may impact the ability of business owners with multiple businesses from applying for multiple loans. The Act does not restrict that, but it is possible the new regulations will. There is no clear answer on what these regulations may mean for a business owner with multiple businesses. It is possible that forgiveness may be disallowed for all loans after the first loan when a common business owner applies for multiple loans going to multiple businesses commonly held businesses. It’s also possible that all loan applications after the first one won’t even be processed. I would tread lightly in a period where we don’t know the rules.

If any person misuses PPP funds the SBA will require the person to repay them. The SBA will have recourse against that person. This means they can pursue personal assets. This is part of why I caution against borrowing for multiple loans for multiple businesses without knowing what SBA’s new affiliation guidance will be.

Loan maturity is 2 years. Interest is 1%.

75% of the borrowed amount has to be used for payroll or else forgiveness will be affected. No word on whether going over 75% completely eliminates forgiveness or proportionately eliminates forgiveness.

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