Small Business Administration Releases Additional Paycheck Protection Program Guidance


By Dorit F. Kressel, Tricia M. Gasparine, Heidi I. Hansen, and Ryan M. Beeck
Chiesa Shahinian & Giantomasi PC
Updated June 19, 2020

The Small Business Administration (the “SBA”) has released additional guidance regarding the Paycheck Protection Program (“PPP”). The SBA released two Interim Final Rules, which can be found here and here, revising previous guidance to implement portions of the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”), an Interim Final Rule relaxing a disqualification for businesses with owners convicted of certain felonies, and an updated PPP borrower application form. The new guidance provides the following clarifications and modifications:

  • The loan term for any remaining balance after loan forgiveness will be five years for any loan made on or after June 5, 2020, and two years for any loan made before that date (unless otherwise mutually agreed between borrower and lender). A loan is made on the date the SBA assigns a loan number.
  • The Flexibility Act reduced the portion of loan proceeds that borrowers are required to spend on payroll costs to be eligible for forgiveness to 60% (from 75%). The SBA’s revised guidance confirms that this requirement is a proportional limit on non-payroll costs, as opposed to a threshold to qualify for loan forgiveness. Thus, if a borrower spends less than 60% on payroll costs, the borrower is still eligible for partial forgiveness of the loan.
  •  In general, the amount of loan proceeds that may be spent on owner compensation replacement is limited to either 8 weeks’ worth of 2019 net profit for an 8-week covered period or 2.5 months’ worth of 2019 net profit for a 24-week covered period.
  • The SBA has relaxed the eligibility requirements for businesses with owners convicted of certain felonies. Under the SBA’s prior guidance, a business was ineligible for a PPP loan if an owner of 20% or more of the business’ equity had been convicted of any felony within the last five years. Under the revised guidance, a business is disqualified if an owner of 20% or more of the equity was convicted of either (i) a felony involving fraud, bribery, embezzlement, or a false statement on a loan application or an application for federal financial assistance within the last five years or (ii) any other felony within the last year.

The SBA has also released a revised form of PPP loan forgiveness application, as well as an “EZ” short form of PPP loan forgiveness application for certain borrowers. We have issued a separate alert on the loan forgiveness applications, which can be found here.

Our prior alert discussing the changes made by the Flexibility Act may be found here.

Dorit F. KresselDorit F. Kressel | Co-Chair, Public Finance Group | 973.530.2065


Tricia M. GasparineTricia M. Gasparine
| Co-Chair, Public Finance Group | 973.530.2081


Heidi I. HansenHeidi I. Hansen
| Member, Tax Group | 973.530.2056


Ryan M. BeeckRyan M. Beeck | Associate, Corporate & Securities Group | 973.530.2382