Interim Final Rule – Paycheck Protection Program

The SBA released its Interim Final Rule on the Paycheck Protection Program. With this announcement, banks can officially accept applications. The article is constructed on the basics of the Paycheck Protection Program, addressing new or clarifying information.

For an in-depth understanding of the Paycheck Protection Program, please refer to our article: Paycheck Protection Program – What to know

  1. Documentation Required
    • Payroll records and payroll tax filings. If you do not have your payroll records/tax filings, “other supporting documentation” sufficient to establish the qualifying payroll amount. The lender may require a prior year’s tax return as well.
  2. Employees Making more than $100,000
    • Employee(s) earning more than $100,000 per year does not require deduction of entire compensation; instead, you “subtract any compensation paid to an employee in excess of an annual salary of $100,000.”
  3. Federal Taxes
    • You must deduce from your calculation of the payroll costs “Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020, including the employee’s and employer’s share of FICE (Federal Insurance Contributions Act) and Railroad Retirement Act races, and income taxes required to be withheld from employees.”
    • The deduction not from the entire prior year’s average monthly payroll, but only during e “covered period” of February 15-June 10, 2020. The CARES Act also states that the non-inclusion of federal tax is “during the scored period” which is defined February 15-June 30, 2020.
  4. Maturity Date
    • The Rule states the maturity date will be two (2) years.
  5. Interest Rate
    • The Rule states the interest rate will be 1%.
  6. Repayment
    • Repayments on the loan are deferred for six (6) months after loan disbursement, although interest will continue to accrue.
  7. First-Come, First-Served
  8. Electronic Signatures
    • Applications can be signed with e-signature
  9. Use of the Loan
    • The loan forgiveness can be up to 100% of principal and interest, no more than 25% of the loan proceeds can be used for items other than payroll.
    • Recommendation: Put the loan proceeds into separate accounts to prove what each fund was used for. When applying for forgiveness, the bank can easily track the use of the loan proceeds.
  10. Payment to Independent Contractors
    • Payments made to independent contractors from the loan proceeds, you will not be forgiven any amount(s) paid to a 1099 contractor because the contractors can apply for a Paycheck Protection Program Loan on their own.
  11. Loan Application Form
    • Banks will have access to the application form and post it on their websites when they are ready to start accepting loan applications.
    • Sample: Paycheck Protection Program Application
  12. Fraud
    • If you use the money for purposes other than payroll, lease payments, utilities, and interest on mortgage obligation. The Rule states, “If you knowingly use the fund for unauthorized purposes, you will be subject to additional liability such as charges for fraud.”
  13. Tax Returns
    • The borrower must make a certification that understands “that the lender will confirm the eligible loan amount using tax documents I have submitted. I affirm that these tax documents are identical to those submitted to the Internal Revenue Service.” Suggestion your bank may require to submit your most recently filed tax return.
  14. Personal Guarantee and Collateral
    • Collateral or a signature of a personal guarantee is NOT required to obtain the loan.

Sources: U.S. Department of Treasury 


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