The Small Business Administration and Department of the Treasury have issued two Interim Final Rules (IFR) (First Draw PPP Loan IFR and Second Draw PPP Loan IFR, respectively) to implement changes to the Paycheck Protection Program (PPP) as amended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), which extends the authority to make PPP loans through March 31, 2021. 

The Economic Aid Act establishes First Draw PPP loans similar to the prior program under Section 7(a)(36) of the Small Business Act and Second Draw PPP loans under Section 7(a)(37) of the Small Business Act. The First Draw PPP Loan IFR brings forward the many clarifications issued over the course of the prior PPP program and slightly expands eligibility by adding 501(c)(6) and 501(c)(12) entities and limiting application of 13 CFR 120.110(a), (g), and (k) to allow nonprofit entities, legal gaming entities, and instructional/teaching entities to participate.

The available use of proceeds was expanded to add covered operations expenditures such as payments for any business software or cloud computing service facilitating business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, and HR resources, sales, and billing functions; covered property damage costs resulting from public disturbances that occurred during 2020 not otherwise covered by insurance; covered supplier costs, which are expenditures made by a borrower for a supplier of goods that are essential to the operation of the borrower; and covered worker protection expenditures to facilitate adaptations of business activities to Department of Homeland Security or Centers for Disease Control and Prevention guidelines, including the purchase, maintenance, or renovation of assets that create or expand a business such as (i) drive-through window services; (ii) indoor, outdoor, or combined air or air pressure ventilation or filtration systems; (iii) physical barriers; (iv) expansion of indoor, outdoor, or combined business space, and (v) health screening capability. At least 60% of the PPP loan proceeds shall be used for payroll costs.  

A borrower who received a PPP loan in 2020 received a First Draw PPP Loan and, with limited exceptions, is not eligible to receive another First Draw PPP Loan, but may be eligible for a Second Draw PPP loan, generally under the same terms and conditions available under the First Draw, but such borrowers must have used or will use the full amount of the initial PPP loan for authorized purposes on or before the expected date of disbursement of the Second Draw PPP loan. To be eligible for a Second Draw PPP Loan, a borrower must have 300 or fewer employees (as compared to 500 for a First Draw PPP Loan) and have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. 

In a matter important for lenders, both IFRs make clear that lenders may rely on certifications of the borrower in order to determine eligibility of the borrower and use of loan proceeds and may rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for loan forgiveness. Although lenders must comply with the applicable lender obligations in the IFR, lenders will be held harmless for borrowers’ failure to comply with program criteria and will not be subject to any enforcement action or penalty relating to loan origination or forgiveness of the loan if the lender acts in good faith relating to origination or forgiveness of the PPP loan and satisfies all other applicable federal, state, local, or other statutory and regulatory requirements of Section 7(a) of the Small Business Act.