The Small Business Administration (SBA) issued an interim final rule to supplement the first interim final rule on the Paycheck Protection Program (PPP) with additional guidance regarding eligibility for individuals with self-employment income and certain businesses. A summary of the first interim final rule is available here.
Details of the new interim final rule follow:
Individuals with Self-Employment Income who File a Form 1040, Schedule C
- Eligibility – An individual is eligible for a PPP Loan if:
- The individual was in operation on February 15, 2020;
- The individual has a self-employment income (e.g., independent contractor, sole proprietor);
- The individual’s principal place of resident is in the United States; and
- The individual filed a From 1040, Schedule C for 2019.
An individual who is a partner in a partnership may not submit a separate PPP loan application as a self-employed individual. However, a partnership is eligible to apply for one PPP loan. See p. 5 for more details.
SBA will issue additional guidance for individuals with self-employment income who: (1) were not in operation in 2019 but who were in operation on February 15, 2020, and (2) will file a Form 1040 Schedule C for 2020.
- Maximum Loan Amount – On pp. 6-8, SBA outlines the methodology for calculating the maximum amount a self-employed individual can borrow and what documentation is required, depending on whether or not the individual has employees.
- Use of PPP Loans and Restrictions – PPP Loans are limited to owner compensation replacement; employee payroll costs, mortgage interest payments, business rent payments, and business utility payments; interest payments on any other debt obligations that were incurred before February 15, 2020 (i.e., amounts not eligible for PPP loan forgiveness); and refinancing an SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020. At least 75 percent of PPP loans must be used for payroll costs.
- Loan Forgiveness – On pp. 11-14, SBA provides a list of amounts eligible for forgiveness – including payrolls costs, employee benefits, health care expenses, payment of interest on mortgage obligations incurred before February 15, 2020; rent payments on lease agreements in force before February 15, 2020, and utility payments under service agreements dated before February 15, 2020. Up to the full principal amount of loan plus accrued interest can be forgiven. See pp. 14-15 for information on required documentation.
Clarification Regarding Eligible Businesses
Eligible Businesses Owned by Directors or Shareholders of a PPP Lender – SBA allows “an otherwise eligible business owned (in whole or part) by an outside director or holder of a less than 30 percent equity interest in a PPP Lender from obtaining a PPP loan from the PPP Lender on whose board the director serves or in which the equity owner holds an interest, provided that the eligible business owned by the director or equity holder follows the same process as any similarly situated customer or account holder of the Lender.” See pp. 15-16 for more information.
Requirements for Certain Pledges of PPP Loans
- Loan Pledges – SBA does not apply requirements for loan pledges do not apply to PPP Loans. As an example, SBA states it “would not have to approve loan documents or require a multi-party agreement among SBA, the lender, and others.”
SBA notes that further guidance may be provided. Questions on PPP may be directed to the Lender Relations Specialist in the local SBA Field Office. A directory of district offices is available here.
The interim final rule is effective upon publication in the Federal Register on April 20, 2020. Comments are due 30 days after publication (i.e., on or around May 20, 2020).