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SBA Rolls Out Paycheck Protection Program

April 3 marks the first day that lenders can process applications for small businesses and sole proprietorships for the Paycheck Protection Program (PPP), which provides qualified businesses affected by the COVID-19 pandemic with loans of up to $10 million. The rollout has been anything but smooth, with some banks beginning to process applications but others saying they were not ready. Here are the key developments since our last update:

New Guidelines

On April 2, 2020, the Small Business Administration (SBA) issued an Interim Final Rule aimed at clarifying previous guidance related to the PPP. According to the new guidelines:

Application Form: There is a revised borrower application form.

Interest Rate: The interest rate was increased to 1.00 percent (up from 0.50 percent).

Deferral of Payments: All payments will be deferred for six months from disbursement of the loan (but interest will continue to accrue during the six-month period).

Amount Eligible for Forgiveness: Amounts spent on qualifying expenses for non-payroll costs will be capped at 25 percent of the loan proceeds. In addition, proceeds of a $10,000 grant obtained under the SBA's Economic Injury Disaster Loan (EIDL) program will be deducted from the amount of forgiveness. If the borrower received a disaster loan between January 31, 2020 and April 3, 2020, the disaster loan must be refinanced as a PPP loan if it was used for payroll costs.

Forgiveness of Interest Payments: The amount of forgiveness will include the principal amount of the loan plus interest. Thus, "the borrower will not be responsible for any loan payments if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained." The SBA has indicated it will issue additional guidance on loan forgiveness. 


  • Independent contractors may no longer be included in an employee headcount because they can apply for a PPP loan directly. Similarly, amounts paid to independent contractors may not be included in determining payroll costs.

  • Household employers are not eligible because they are not businesses.

Only One Chance to Apply: A borrower cannot apply for a PPP loan and apply again later to receive more money. A business should consider applying for the maximum amount it is eligible to receive.

Electronic Signatures: E-signatures and e-consents may be used.

First Come, First Served: The guidelines make clear that loan applicants are "first come, first served."

Liability for Misuse of Funds: If loan proceeds are used for unauthorized purposes, those amounts must be repaid. If the funds were knowingly used for unauthorized purposes, the borrower will be subject to additional liability including a charge of fraud. If a shareholder, member or partner uses PPP funds for unauthorized purposes, the SBA will have recourse against them for the unauthorized use.

Affiliation Rules: The SBA indicated it intends to provide additional guidance on the applicability of affiliation rules in determining eligibility for a loan.

Know Your Customer: Lenders are required to collect "know your customer" information for new customers but may rely on existing documentation for current customers.

© 2020 Much Shelist, P.C.


About this Author

Jonathan D. Sherman, Litigation Lawyer, Much Shelist Law Firm

Jonathan D. Sherman is a trusted legal advisor and litigator with more than 30 years of experience counseling publicly traded and privately owned companies in numerous industries, including consumer products, food, manufacturing and real estate. As outside general counsel, Jon helps clients determine business strategies and manage legal risks; as national litigation counsel, he analyzes potential threats, develops effective responses, and supervises lawsuits in federal and state courts across the country.

Over the course of his career, Jon has successfully resolved disputes...

Jeff Schwartz, bankruptcy attorney, Much Shelist law firm

Jeffrey M. Schwartz, a Principal in the firm's Creditors' Rights, Insolvency & Bankruptcy group, focuses his practice on the representation of secured and unsecured creditors in business reorganizations under Chapter 11 of the Bankruptcy Code and in out-of-court restructurings. He also represents buyers and sellers of financially distressed companies and distressed debt, and regularly advises lenders, creditors' committees, indenture trustees, debtors and other parties involved in bankruptcy-related matters.