SBA Issues New Guidance For Paycheck Protection Program

January 8, 2021

The Small Business Administration (SBA) has issued new guidance on the Paycheck Protection Program (PPP) in the form of two interim final rules. The first amends existing PPP rules to reflect changes in the recently enacted Coronavirus Response and Relief Supplemental Appropriations Act of 2021, including on fees, borrower eligibility, loan amounts, eligible expenses, reliance on borrower certifications and loan increases, as well as a new registration requirement for all lenders. The relief package establishes a specific loan calculation for the first round of PPP loans for farmers and ranchers who operate as a sole proprietor, independent contractor or self-employed individual and report income and expenses on a Schedule F and were in business as of February 15, 2020. These entities may utilize their gross income in 2019 as reported on a Schedule F. Lenders may recalculate loans that previously have been approved to these entities if they would result in a larger loan.  

The second interim rule governs second-draw loans now available for borrowers with 300 or fewer employees that saw a 25% or greater revenue drop in 2020 compared to 2019 and that have used the full amount of their first-draw PPP loan. According to SBA, second-draw loans are, for the most part, subject to the same terms as first-draw loans. The maximum loan amount is $2 million or 2 1/2 months’ worth of average payroll costs, whichever is less. The rule clarifies that the same general calculation for farmers and ranchers applies to both first- and second-draw PPP loans, with the following adjustments: 1) eliminates the provision for refinancing of an Economic Injury Disaster Loan, which does not apply to second-draw loans; and 2) applies the choice of time period for calculating a farmer’s or rancher’s payroll costs for a second-draw loan. This interim rule also specifies that, in calculating a farmer’s or rancher’s maximum loan amount, any employee payroll costs should be subtracted from the gross income to avoid double counting amounts that represent pay to employees.  

PPP will re-open the week of January 11 for new borrowers and certain existing borrowers. According to SBA, only community financial institutions initially will be able to make first-draw PPP loans on January 11 and second-draw PPP loans on January 13.  The program will open to all participating lenders shortly thereafter.