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Paycheck Protection Program – Interim Final Rule Issued by the U.S. Small Business Administration

Late on Thursday, April 2, 2020, the United States Small Business Administration issued its Interim Final Rule in regard to the implementation and process for the Payroll Protection Program. Below are the outlined changes to the previous guidance that small businesses have been working under.

You should ensure that you follow the updated guidance and application process to ensure that your application for review is not denied due to incorrect information as some of the changes noted below are SIGNIFICANT.

1. New Application

Here is the link to the new application: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf

The application questions are somewhat expanded, and there is an addition to the multiplier area of the application to include any Economic Injury Disaster Loan (EIDL) that might have been received in advance of a Payroll Protection Program (PPP) Loan as the new guidance now requires that an EIDL loan received in advance of a PPP loan will need to be included as part of the loan because you cannot have both loans at the same time. The instructions are also more clear on completion of the loan application including definition of “Payroll” cost, average monthly payroll calculation, and application process for different entities.

2. Independent Contractors Removed as Employees

This is somewhat of a big change in the guidance. The Interim Final Rule state that “Independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.” For businesses that have independent contractors that provide direct services in support of the business and work for that business most of the time, these contractors will be excluded from any calculation of “Payroll” cost.

3. Terms of the Loan have Changed Slightly

The loan term still remains at 2 years with deferment of the first six months of the loan following date of the loan disbursement; however, interest will begin to accrue on the loan at the date of loan origination and the interest rate has now been set at 1% over the term of the loan versus the previous guidance of 0.50%.

4. Change in Definition of Loan Forgiveness

In previous guidance, loan forgiveness was dependent upon a review of the average number of Full Time Equivalent Employees (FTEs) during the eight-week period from loan origination compared to average FTE levels between either February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020. According to the Interim Final Rule, it appears this FTE calculation and requirement has been eliminated.

Current language in the Interim Final Rule states: “The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes described below and employee and compensation levels are maintained. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs.”

Further, under certifications to be made by the borrower, as outlined on the application, it states that:

  • Applicant was in operation as of February 15, 2020, and had employees who were paid salaries and payroll taxes or paid independent contractors;
  • Funds will be used to retain workers and maintain payroll, and that 75 percent of the funds will be used for payroll purposes and not more than 25 percent will be used for non-payroll costs;
  • Documentation verifying the number of FTEs on payroll, as well as dollar amounts of payroll costs and other covered expenses as previously outlined for the eight-week period following the loan origination, will be provided to the lender; and
  • Loan forgiveness will be provided for the sum of documented payroll costs and other covered expenses as long as payroll represents at least 75 percent of those expenses and other non-payroll expenses do not exceed 25 percent.

While it is unclear what time period the Interim Final Rule means as “employee and compensation levels are maintained,” it is clear that the time period review of head count, as discussed above, appears to be eliminated in this Interim Final Rule.

5. Additional Qualified Use of PPP Proceeds

The Interim Final Rule also outlines that in addition to previous qualified uses of PPP proceeds, proceeds can now also be used for:

    1. Interest payments on any other debt obligations that were incurred before February 15, 2020.
    2. Refinancing and SBA EIDL loans made between January 31, 2020 and April 3, 2020.

It further states that if you received a SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, a PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.

McKonly & Asbury is striving to stay on top of these continuous changes. If you have further questions regarding this information, please feel free to contact David Blain, CPA, CVA, Partner & Director of Entrepreneurial Services at McKonly & Asbury at dblain@macpas.com or by calling (717) 972-5722. We will be certain to get back to you on a timely basis to assist you through this application process.

As further changes develop, we’ll continue to keep you informed. Be sure to check back to our COVID-19 Resource Center for additional information and updates.

Questions on submitting your PPP loan application or the forgiveness process?

Our team stands ready to assist you through the PPP loan application and forgiveness process. Do not go at it alone. Ensure you are submitting the right information and receiving the highest forgiveness amount possible. Visit our PPP Loan Consulting webpage by clicking here to request assistance or support.


This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although McKonly & Asbury has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

About the Author

David Blain

David is a Partner with McKonly & Asbury. He has a diverse background with experience in both private industry and public accounting, having worked for five years for an international public accounting firm and five years in private i… Read more

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