By Kevin O’Connor, Anne Corrigan & Jon Pinney
KJK has obtained the Small Business Administration’s (SBA) Interim Final Rule for the Paycheck Protection Program, which is designed to provide economic relief to small businesses across the country affected by the COVID-19 coronavirus pandemic. You can read the Rule here. The release of this rule allows for applications to go forward on April 3 as previously announced.
While much of the guidance aligns with the statutory text and the guidance released by the Treasury Department on March 31, there are some significant changes and clarifications made in the Rule. The guidance provides clarification on a number of previously open questions regarding the structure of the program, including that independent contractors will not be included in an employer’s payroll and that independent contractors must apply for their own loans. Additionally, the interest rate for the loans has been set at 1%, up from previous Treasury Department guidance that announced a 0.5% interest rate.The term of the loans remains at the two years announced Tuesday, March 31 by the Treasury Department.
In a change from both the statutory text and the March 31 guidance, the Rules require that at least 75% of the loan proceeds must be used for payroll costs despite the statutory text allowing for a broader use of the proceeds. The Rule also formalized the previously informal guidance that not more than 25% of the amount forgiven can be used for rent, mortgage interest or utility payments. The new requirements and limitations are due to the CARES Act’s goal of keeping workers paid and employed. Additional guidance on loan forgiveness is promised as well.
KJK attorneys are currently reviewing the 31-page Rule and will provide updates here on material information related to the program.