February 5, 2021

The Small Business Administration (SBA) has published an interim final rule implementing reauthorization and enhancement of the Paycheck Protection Program (PPP) that SWACCA advocated as part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), which was signed into law on December 27, 2020. The Economic Aid Act: (1) reauthorized lending under the PPP through March 31, 2021; (2) modified provisions related to making “first draw” PPP loans (i.e., a borrower’s first PPP loan); and (3) authorized “second draw” PPP loans for PPP borrowers that previously received a PPP loan.

This interim final rule consolidates the SBA’s prior notices related to forgiveness and reviews of PPP loans and incorporates changes made by the Economic Aid Act, particularly with respect to forgiveness of second draw PPP loans.  In general, payroll costs paid or incurred during the “covered period” are eligible for forgiveness under the PPP. For purposes of loan forgiveness, the covered period is the period beginning on the date the lender disburses the PPP loan and ending on a date selected by the borrower that occurs during the period: (1) beginning on the date that is 8 weeks after the date of disbursement; and (2) ending on the date that is 24 weeks after the date of disbursement. Per this interim final rule, the covered periods for a first draw PPP loan and a second draw PPP loan cannot overlap and a borrower must use all proceeds of the first draw PPP loan for eligible expenses before disbursement of the second draw PPP loan. The interim final rule adds that second draw PPP loans qualify for full loan forgiveness if, during the 8- to 24-week covered period following loan disbursement: (1) employee and compensation levels are maintained in the same manner as required for the borrower’s first draw PPP loan; (2) the loan proceeds are spent on payroll costs and other eligible expenses; and (3) at least 60 percent of the proceeds are spent on payroll costs. 

To receive loan forgiveness on either a first or a second draw PPP loan, a borrower must complete and submit the loan forgiveness application to its lender (or to the lender servicing its loan). All second dram PPP borrowers must certify on their loan forgiveness application that the borrower used all first draw PPP loan amounts on eligible expense prior to disbursement of the second draw PPP loan. Moreover, for second draw PPP loans in excess of $150,000, the borrower must submit its loan forgiveness application for the first draw PPP loan before or simultaneously with the loan forgiveness application for the second draw PPP loan, even if the calculated amount of forgiveness on the first draw PPP loan is zero. 

This interim final rule is effective as of February 5, 2021 and applies to PPP loans for which a loan forgiveness payment had not been remitted by SBA as of December 27, 2020. Comments are due by March 8, 2021 and can be submitted here using Docket ID SBA-2021-0006.

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