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SBA, Treasury Issue New Guidance on PPP

  • U.S. Small Business Administration and Treasury Department issue interim rules on new Paycheck Protection Program
  • Separate documents issued for first-time loans and second draw loans, although the rules are similar in several areas
  • SBA outlines several exclusions, ranging from top earners to entities controlled by government officials

The U.S. Small Business Administration and Treasury Department have issued new guidance on the newly revived Paycheck Protection Program. The documentation seeks to address early inquiries and set new rules on the program, which was issued $284.5 billion for another round of forgivable loans under an economic stimulus bill approved last month.

In general, the program is limited to small businesses that suffered major revenue losses during the COVID-19 pandemic. First-time borrowers must have no more than 500 employees, although eligibility is expanded to areas such as self-employed workers, nonprofits, and news organizations. Repeat borrowers must have no more than 300 employees, have expended all of their original loan or plan to do so, and show a 25 percent annual revenue loss in any quarter of 2020.

Under the legislation, borrowers will have until March 31 to apply for a PPP loan. The SBA says it has consolidated the interim final rules and guidance issued to date on eligibility, forgiveness, and  other matters for borrower and lender ease. The administration also intends to issue additional rules on second draw PPP loans, or funds for businesses that were approved for a loan in the first round of funding, as well as a consolidated rule on all aspects of the forgiveness and review process.

The SBA issued an 82-page document on the PPP as amended by the Economic Aid Act as well as a 42-page document on second draw loans. The guidance builds off the language in the stimulus bill, clarifying certain matters involved in the loan process and adding certain restrictions on how the funds can be used.

Calculating payroll

New borrowers can calculate their payroll costs based on either 2019 or 2020. This rule is intended to put new PPP loan recipients on par with those who received funds last year, rather than have their loan amounts be calculated based on potentially diminished finances from 2020.

Payroll for employees whose principal place of residence is not the United States must be excluded. The applicant must also subtract any annualized compensation of $100,000 or more per year for a single employee, or the prorated amount for a shorter period.

Payroll calculations can include salary, commissions, a good faith estimate of tips, paid leave, and state and local taxes assessed on the compensation of employees. They may not include federal employment taxes or qualified family or sick leave under the Families First Coronavirus Response Act.

While student employees may be included in payroll calculations, independent contractors may not since they can file their own applications for PPP loans.


Self-employed people, including independent contractors and owners of sole proprietorships, must use IRS Form 1040 Schedule C from either 2019 or 2020 to determine their net profit. They are ineligible to apply for a PPP loan if their net profit is zero, and this figure must be capped at $100,000.

The net profit is used to calculate an average monthly net profit. This figure should be multiplied by 2.5, and any outstanding Economic Injury Disaster Loan taken out between Jan. 31 and April 3, 2020, can be added if the borrower wishes to refinance it.

In addition to their tax form, self-employed applicants must also submit an invoice, bank statement, or book of record establishing that they are self-employed. Additional steps are necessary if the applicant has employees.

Seasonal businesses

Seasonal businesses that were dormant on Feb. 15, 2020 are eligible for PPP funding if they were active for any 12-week period within the previous year. They must meet other eligibility requirements as well, namely being inactive for seven months of the year or having gross receipts for any six months of the year that are less than one-third of the receipts for the remainder of the year. These businesses can calculate their payroll based on any 12-week period in the year.

Documentation to submit

Borrowers must submit a PPP Borrower Application Form (SBA Form 2483) or a lender’s equivalent form. Other documentation a lender may require includes tax forms, payroll records and tax filings, income and expense information, and bank records.

Applicants must certify that they were in business with employees or that they were a qualifying self-employed individual on Feb. 15, 2020. They must also pledge that they will abide by all conditions, including how the funds will be used, and that they are not subject to any exclusions.

First draw borrowers must certify that they are facing “current economic uncertainty,” while second draw borrowers must submit proof that they have met the minimum revenue loss requirement.


The SBA outlines numerous potential applicants who are ineligible to receive PPP funds, including:

  • Anyone engaged in activity that is illegal under local, state, or federal law
  • Household employers, such as those who have hired nannies or housekeepers
  • Any business where at least 20 percent equity is held by someone who has been imprisoned or charged with a felony, has entered a plea in a felony case within the past year, or who has been imprisoned, entered a plea, or commenced parole or probation for certain felony financial crimes within the past five years
  • Anyone who is currently delinquent on an SBA loan or has defaulted on any other loan within the past seven years at a loss to the government
  • Any business receiving funds under a shuttered venue grant directed at performing arts organizations, theaters, museums, and other arts and cultural recipients
  • Any business where a controlling interest is held by the President, Vice President, head of an executive department, member of Congress, or the spouse of any of such official
  • Any issuer of securities on a national securities exchange
  • Hedge funds or private equity firms
  • Any business that is in bankruptcy proceedings or has permanently closed

The second draw guidance further specifies that recipients whose businesses are principally involved in lobbying, such as think tanks, are excluded. It also forbids funding to certain entities organized under or with ties to China or Hong Kong, or anyone required to submit a registration statement under section 2 of the Foreign Agents Registration Act of 1938.

Applicants are generally considered together with any affiliates, and are still eligible if they meet other requirements. Separate legal business entities under a parent company are allowed to apply for individual PPP loans as long as there are no more than 300 employees per location. However, a single corporate group may only receive a maximum of $20 million in aggregate.

Eligible use of loans

While the initial program was launched with the intent of preventing layoffs, businesses may use PPP funds for a wide range of expenses. These include:

  • Payroll
  • Benefits
  • Mortgage interest payments
  • Rent
  • Utilities
  • Interest payments on debts incurred before Feb. 15, 2020
  • Refinancing an EIDL loan made between Jan. 31 and April 3
  • Expenditures for eligible operations, such as the purchase of business software
  • Damages caused by public disturbances in 2020 that weren’t covered by insurance or other compensation
  • Eligible supplier or worker protection costs

Self-employed applicants can can compensate themselves with income in line with their 2019 or 2020 net profits. They can use the funds for the other expenditures listed above, but mortgage and loan interest payments are limited to business purposes.

PPP funds cannot be used for lobbying purposes.


As with the first round of funding, at least 60 percent of a PPP loan must be used for payroll. Businesses meeting this threshold can have their loans fully forgiven, while those that spend less money on payroll can have the loan partially forgiven.

A loan forgiveness period begins on the day the funds are disbursed and ends on any date selected by the borrower falling eight to 24 weeks afterward. The borrower must submit an application for forgiveness within 10 months of the end of this period or repay the loan in full.

Any loan amount that is not forgiven must be repaid over five years at a 1 percent interest rate. Any funds used for unauthorized purposes must be repaid, and borrowers who knowingly misuse PPP funding can be prosecuted for fraud.

A simplified forgiveness process is available for loans under $150,000, but borrowers must still retain employment records for four years and other relevant records for three years in case of an audit.

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