Although the Interim Final Rule is undated and references a period for public comment, it does provide additional information about the PPP loan program or update previously released information, including:
The PPP loans will be provided on a first come, first-served basis until the funds are exhausted.
The interest rate for PPP loans will be 1%, which is an increase from the previously stated .5%. The term of the PPP loans remains two years.
Costs incurred for independent contractors are not considered payroll costs for purposes of determining the amount of the PPP loan, nor will loan amounts spent on contractor costs be forgivable.
Borrowers are required to use at least 75% of the PPP loan proceeds for payroll costs. The Interim Final Rule emphasizes that no more than 25% of loan forgiveness will be attributable to non-payroll costs, such as rent, utilities or mortgage interest.
Payroll costs used to calculate PPP loans will not include federal employment taxes imposed or withheld from February 15, 2020 through June 30, 2020, including both the employer and employee shares of FICA and Railroad Retirement Act taxes, as well as any income taxes required to be withheld.
The Interim Final Rule indicates that the SBA expects to “promptly” release additional guidance regarding the application of the SBA’s affiliation rules that could, unless waived, require businesses under common ownership or control, such as private equity portfolio companies, to aggregate their total number of employees.
The amount of any outstanding Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 less the amount of any “advance” under an EIDL COVID-19 Loan will be added to the borrower’s calculation of the maximum loan amount, allowing borrowers with existing EIDLs to roll those loans into forgivable PPP loans.
Updated PPP Loan Application
On April 3, 2020, the SBA issued an updated PPP loan application, replacing the sample form that was originally released on March 31, 2020. The updated application can be found here. Interested businesses should note that participating lenders may be creating their own applications and are encouraged to consult with their lender to make sure they are using the most appropriate application.
The SBA Focus Group of the COVID-19 Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the PPP loan program is implemented.
Co-authors Matthew McDonald, partner and Elizabeth Bucilla, associate are members of the Corporate & Securities Department at Klehr Harrison.