Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans, 3712-3723 [2021-00452]
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the program would expire before the
procedural steps, including the
comment periods generally required by
the Paperwork Reduction Act, could be
completed.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA)
generally requires that when an agency
issues a proposed rule, or a final rule
pursuant to section 553(b) of the APA or
another law, the agency must prepare a
regulatory flexibility analysis that meets
the requirements of the RFA and
publish such analysis in the Federal
Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to
describe the impact of a rulemaking on
small entities by providing a regulatory
impact analysis. Such analysis must
address the consideration of regulatory
options that would lessen the economic
effect of the rule on small entities. The
RFA defines a ‘‘small entity’’ as (1) a
proprietary firm meeting the size
standards of the Small Business
Administration (SBA); (2) a nonprofit
organization that is not dominant in its
field; or (3) a small government
jurisdiction with a population of less
than 50,000. 5 U.S.C. 601(3)–(6). Except
for small government jurisdictions with
a population of less than 50,000, neither
State nor local governments are ‘‘small
entities.’’
The requirement to conduct a
regulatory impact analysis does not
apply if the head of the agency ‘‘certifies
that the rule will not, if promulgated,
have a significant economic impact on
a substantial number of small entities.’’
5 U.S.C. 605(b). The agency must,
however, publish the certification in the
Federal Register at the time of
publication of the rule, ‘‘along with a
statement providing the factual basis for
such certification.’’ If the agency head
has not waived the requirements for a
regulatory flexibility analysis in
accordance with the RFA’s waiver
provision, and no other RFA exception
applies, the agency must prepare the
regulatory flexibility analysis and
publish it in the Federal Register at the
time of promulgation or, if the rule is
promulgated in response to an
emergency that makes timely
compliance impracticable, within 180
days of publication of the final rule. 5
U.S.C. 604(a), 608(b).
Rules that are exempt from notice and
comment are also exempt from the RFA
requirements, including conducting a
regulatory flexibility analysis, when
among other things the agency for good
cause finds that notice and public
procedure are impracticable,
unnecessary, or contrary to the public
interest. Small Business
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Administration’s Office of Advocacy
guide: How to Comply with the
Regulatory Flexibility Ac. Ch.1. p.9.
Since this rule is exempt from notice
and comment, SBA is not required to
conduct a regulatory flexibility analysis.
Authority: 15 U.S.C. 636(a)(36);
Coronavirus Aid, Relief, and Economic
Security Act, Pub. L. 116–136, section 1114
and Economic Aid to Hard-Hit Small
Businesses, Nonprofits, and Venues Act (Pub.
L. 116–260), section 303.
Jovita Carranza, Michael Faulkender,
Assistant Secretary for Economic Policy.
[FR Doc. 2021–00451 Filed 1–12–21; 4:15 pm]
BILLING CODE 8026–03–P
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 120 and 121
[Docket No. SBA–2021–0002]
RIN 3245–AH63
Business Loan Program Temporary
Changes; Paycheck Protection
Program Second Draw Loans
U.S. Small Business
Administration.
ACTION: Interim final rule.
AGENCY:
This interim final rule
announces the implementation of
section 311 of the Economic Aid to
Hard-Hit Small Businesses, Nonprofits,
and Venues Act (the Economic Aid Act).
The Economic Aid Act authorizes the
U.S. Small Business Administration to
guarantee additional loans under the
temporary Paycheck Protection
Program, which was originally
established under the Coronavirus Aid,
Relief, and Economic Security Act to
provide economic relief to small
businesses nationwide adversely
impacted under the Coronavirus Disease
2019 (COVID–19) Emergency
Declaration (COVID–19 Emergency
Declaration) issued by President Trump
on March 13, 2020. Section 311 of the
Economic Aid Act adds a second
temporary program to SBA’s 7(a) Loan
Program titled, ‘‘Paycheck Protection
Program Second Draw Loans.’’ This
interim final rule implements the key
provisions of section 311 of the
Economic Aid Act and requests public
comment.
DATES:
Effective Date: This interim final rule
is effective January 12, 2021.
Applicability Date: This interim final
rule applies to loan applications and
applications for loan forgiveness
submitted for Paycheck Protection
Program Second Draw Loans.
SUMMARY:
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Comment Date: Comments must be
received on or before February 16, 2021.
ADDRESSES: You may submit comments,
identified by number SBA–2021–0002
through the Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
SBA will post all comments on
www.regulations.gov. If you wish to
submit confidential business
information (CBI) as defined in the User
Notice at www.regulations.gov, please
send an email to ppp-ifr@sba.gov. All
other comments must be submitted
through the Federal eRulemaking Portal
described above. Highlight the
information that you consider to be CBI
and explain why you believe SBA
should hold this information as
confidential. SBA will review the
information and make the final
determination whether it will publish
the information.
FOR FURTHER INFORMATION CONTACT: Call
Center Representative at 833–572–0502,
or the local SBA Field Office; the list of
offices can be found at https://
www.sba.gov/tools/local-assistance/
districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On December 27, 2020, President
Trump signed the Economic Aid to
Hard-Hit Small Businesses, Nonprofits,
and Venues Act (the Economic Aid Act)
(Pub. L. 116–260) into law to provide
continued assistance to individuals and
businesses that have been financially
impacted by the ongoing coronavirus
pandemic. Section 311 of the Economic
Aid Act added a new temporary section
7(a)(37) to the Small Business Act (15
U.S.C. 636(a)(37)). This new section
authorizes the U.S. Small Business
Administration (SBA or the
Administration) to guarantee Paycheck
Protection Program Second Draw Loans
(PPP Second Draw Program), under
generally the same terms and conditions
available under the Paycheck Protection
Program (PPP) established under section
7(a)(36) of the Small Business Act (15
U.S.C. 636(a)(36)). Under section 311,
SBA may guarantee loans under the PPP
Second Draw Program through March
31, 2021 (‘‘Second Draw PPP Loans’’) to
borrowers that previously received a
PPP loan under section 7(a)(36) of the
Small Business Act (‘‘First Draw PPP
Loans’’) and 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.
Like First Draw PPP Loans, Second
Draw PPP Loans are intended to provide
expeditious relief to America’s small
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businesses. Second Draw PPP Loans
generally are guaranteed by SBA under
the same terms, conditions, and
processes as First Draw PPP Loans. SBA
guarantees 100 percent of Second Draw
PPP Loans and SBA may forgive up to
the full principal loan amount. Second
Draw PPP Loans are subject to SBA’s
and the Department of the Treasury’s
(Treasury’s) consolidated interim final
rules implementing updates to the
Paycheck Protection Program for First
Draw PPP Loans (‘‘Consolidated First
Draw PPP IFR’’) issued concurrently
with this interim final rule (IFR) 1 and
all PPP loan program requirements,
except as specified in this IFR. The key
differences between First Draw PPP
Loans and Second Draw PPP Loans are
described in this IFR, which explains
the loan terms, eligibility requirements,
and application process for Second
Draw PPP Loans.
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II. Comments and Immediate Effective
Date
This interim final rule is being issued
without advance notice and public
comment because section 303 of the
Economic Aid Act authorizes SBA to
issue regulations to implement the
Economic Aid Act without regard to
notice requirements. In addition, this
rule is being issued to allow for
immediate implementation of this
program. The intent of the Economic
Aid Act is that SBA provide relief to
America’s small businesses
expeditiously. The last day to apply for
and receive a PPP loan is March 31,
2021. Given the short duration of this
program, and the urgent need to issue
loans quickly, the Administrator in
consultation with the Secretary has
determined that it is impractical and not
in the public interest to provide a 30day delayed effective date. An
immediate effective date will give small
businesses the maximum amount of
time to apply for loans and lenders the
maximum amount of time to process
applications before the program ends.
This good cause justification also
supports waiver of the 60-day delayed
effective date for major rules under the
Congressional Review Act at 5 U.S.C.
808(2). Although this IFR is effective
immediately, comments are solicited
from interested members of the public
on all aspects of the interim final rule.
1 The Consolidated First Draw PPP IFR titled
‘‘Business Loan Program Temporary Changes:
Extension of and Changes to Paycheck Protection
Program’’ restates existing regulatory provisions to
provide lenders and new PPP borrowers a single
regulation to consult on borrower eligibility, lender
eligibility, and loan application and origination
requirements issues for new First Draw PPP loans,
as well as general rules relating to First Draw PPP
Loan increases and loan forgiveness.
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These comments must be submitted on
or before February 16, 2021. SBA will
consider these comments and the need
for making any revisions as a result of
these comments.
III. Summary of Key Terms of PPP
Second Draw Loans
The rules applicable to Second Draw
PPP Loans are published in section IV
of this IFR. This summary provides
additional information and explains the
key terms in the IFR. All references to
subsections refer to section IV.
Second Draw PPP Loans are generally
subject to the same terms, conditions
and requirements as First Draw PPP
Loans. These include, but are not
limited to the following terms:
• The guarantee percentage is 100
percent.
• No collateral will be required.
• No personal guarantees will be
required.
• The interest rate will be 100 basis
points or one percent, calculated on a
non-compounding, non-adjustable
basis.2
• The maturity is five years.
• All loans will be processed by all
lenders under delegated authority and
lenders will be permitted to rely on
certifications of the borrower to
determine the borrower’s eligibility and
use of loan proceeds.
Subsection (b) of this IFR confirms
that these terms apply to Second Draw
PPP Loans. Subsection (b) also confirms
that SBA’s Consolidated First Draw PPP
IFR, Frequently Asked Questions
(FAQs), and other guidance about PPP
loans under section 7(a)(36) of the Small
Business Act (15 U.S.C. 636(a)(36))
apply to Second Draw PPP Loans,
except as specified in this IFR.3
The Economic Aid Act includes terms
and conditions, including but not
limited to terms relating to eligibility
and a borrower’s maximum loan
amount, that apply only to Second Draw
PPP Loans and do not apply to First
Draw PPP Loans, regardless of when the
First Draw PPP Loan is made. These
terms and conditions specific to Second
Draw PPP Loans are summarized below.
A. Eligibility Requirements
1. General Eligibility Requirements
In general, the Economic Aid Act
made the eligibility requirements for
Second Draw PPP Loans narrower than
the eligibility requirements for First
Draw PPP Loans. The Economic Aid Act
2 Section 339 of the Economic Aid Act added
‘‘calculated on a non-compounding, non-adjustable
basis’’ to the maximum interest rate for a PPP loan.
3 SBA will be revising the FAQs to conform to the
Economic Aid Act as quickly as feasible.
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generally provides that a borrower is
eligible for a Second Draw PPP Loan
only if it has 300 or fewer employees
and experienced a revenue reduction in
2020 relative to 2019 (described further
below).4 In addition, the Economic Aid
Act provides that a Second Draw PPP
Loan may only be made to an eligible
borrower that (i) has received a First
Draw PPP Loan, and (ii) has used, or
will use, the full amount of the First
Draw PPP Loan on or before the
expected date on which the Second
Draw PPP Loan is disbursed to the
borrower.5 Accordingly, subsections
(c)(1)(i) through (c)(1)(iv) of this IFR
implement these criteria. Subsection
(c)(1)(ii) of the IFR clarifies that ‘‘the full
amount’’ of the borrower’s First Draw
PPP Loan includes the amount of any
increase on such First Draw PPP Loan
made pursuant to the Economic Aid
Act. In addition, subsection (c)(1)(ii) of
the IFR clarifies that the borrower must
have spent the full amount of its First
Draw PPP Loan on eligible expenses
under the PPP rules to be eligible for a
Second Draw PPP Loan. This
clarification will help ensure program
integrity by preventing a borrower from
receiving a Second Draw PPP Loan if
the borrower has not complied with PPP
loan program requirements.6
2. Revenue Reduction Requirement
The Economic Aid Act provides that,
to be eligible for a Second Draw PPP
Loan, the borrower must have
experienced a revenue reduction of 25%
or greater in 2020 relative to 2019.7 A
borrower must calculate this revenue
reduction by comparing the borrower’s
quarterly gross receipts for one quarter
in 2020 with the borrower’s gross
receipts for the corresponding quarter of
2019. For example, a borrower with
gross receipts of $50,000 in the second
quarter of 2019 and gross receipts of
$30,000 in the second quarter of 2020
has experienced a revenue reduction of
40 percent between the quarters, and is
therefore eligible for a Second Draw PPP
loan (assuming all other eligibility
criteria are met). Subsection (c)(1)(iv)(A)
of the IFR reflects this methodology.
Subsection (c)(1)(iv)(B) of the IFR
provides that a borrower that was in
operation in all four quarters of 2019 is
deemed to have experienced the
required revenue reduction if it
4 See paragraph 7(a)(37)(A)(iv) of the Small
Business Act.
5 See paragraph 7(a)(37)(O) of the Small Business
Act.
6 Subsection (B)(11) of the Consolidated First
Draw PPP IFR specifies that the proceeds of a PPP
loan may be spent only on certain eligible expenses.
7 See paragraph 7(a)(37)(A)(iv) of the Small
Business Act.
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experienced a reduction in annual
receipts of 25 percent or greater in 2020
compared to 2019 and the borrower
submits copies of its annual tax forms
substantiating the revenue decline. This
provision will allow a borrower to
provide annual tax return forms to
substantiate its revenue reduction. The
Administrator, in consultation with the
Secretary of the Treasury (Secretary),
has determined that this is necessary to
improve administrability of Second
Draw PPP Loans by providing borrowers
an additional verifiable method for
substantiating their revenue reduction.
This method will be particularly
important for small borrowers that may
not have quarterly revenue information
readily available. Moreover, this
approach is appropriate because, if
annual filings show a 25 percent
revenue reduction, then at least one
quarter in 2020 would have had at least
a 25 percent revenue reduction. A
borrower that did not experience a 25
percent annual decline in revenues, or
that was not in operation in all four
quarters of 2019, may still meet the
revenue reduction requirement under
one of the quarterly measurements
described above.
The Economic Aid Act does not
include a general definition of gross
receipts for purposes of determining a
borrower’s revenue reduction.8
Subsection (c)(2) of the IFR defines
gross receipts consistent with the
definition of receipts in 13 CFR 121.104
of SBA’s size regulations because this
definition appropriately captures the
type of income that is typically included
in a small business’s gross receipts.9
8 For an eligible nonprofit organization, a veterans
organization, an eligible nonprofit news
organization, eligible 501(c) organization, or eligible
destination marketing organization, gross receipts
has the meaning in section 6033 of the Internal
Revenue Code of 1986. See paragraph 7(a)(37)(I)(ii)
of the Small Business Act. Subsection (c)(2) of the
IFR clarifies that this definition, which generally
relates to eligible nonprofit organizations, applies
only to eligible nonprofit news organizations rather
than to all eligible news organizations.
9 Subsection (c)(2) of the IFR generally defines
gross receipts to include all revenue in whatever
form received or accrued (in accordance with the
entity’s accounting method) from whatever source,
including from the sales of products or services,
interest, dividends, rents, royalties, fees, or
commissions, reduced by returns and allowances.
Generally, receipts are considered ‘‘total income’’
(or in the case of a sole proprietorship, independent
contractor, or self-employed individual ‘‘gross
income’’) plus ‘‘cost of goods sold,’’ and excludes
net capital gains or losses as these terms are defined
and reported on IRS tax return forms. Gross receipts
do not include the following: Taxes collected for
and remitted to a taxing authority if included in
gross or total income (such as sales or other taxes
collected from customers and excluding taxes
levied on the concern or its employees); proceeds
from transactions between a concern and its
domestic or foreign affiliates; and amounts
collected for another by a travel agent, real estate
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Moreover, this definition will enhance
the administrability of Second Draw
PPP Loans because it is a definition
already used by the Administration and
many small businesses.
The IFR specifies that any forgiveness
amount of a First Draw PPP Loan that
a borrower received in calendar year
2020 is excluded from a borrower’s
gross receipts. Excluding the forgiveness
amount from a borrower’s gross receipts
is consistent with section 7A(i) of the
Small Business Act, which expressly
excludes PPP forgiveness amounts from
being taxed as income.10 This
clarification ensures the effectiveness of
the second draw loan program by
ensuring that a borrower is not
disqualified from receiving a Second
Draw PPP Loan because it received
forgiveness on a First Draw PPP Loan.
This furthers the purpose of the second
draw loan provisions, which is to
deliver additional aid to small
businesses that previously received a
First Draw PPP Loan.
3. Business Concerns With More Than
One Physical Location
Under the CARES Act, any single
business entity that is assigned a NAICS
code beginning with 72 (including
hotels and restaurants) and employs not
more than 500 employees per physical
location is eligible to receive a First
Draw PPP Loan.11 In addition, as
discussed below, under the
Consolidated First Draw PPP IFR, SBA’s
affiliation rules (13 CFR 121.301) do not
apply to any business entity that is
assigned a NAICS code beginning with
72 and that employs not more than a
total of 500 employees.12 As a result, if
each hotel or restaurant location owned
by a parent business is a separate legal
business entity and employs not more
than 500 employees, each hotel or
restaurant location is permitted to apply
for a separate PPP loan provided it uses
its unique EIN.
Section 317 of the Economic Aid Act
modified this provision for Second
agent, advertising agent, conference management
service provider, freight forwarder or customs
broker. All other items, such as subcontractor costs,
reimbursements for purchases a contractor makes at
a customer’s request, investment income, and
employee-based costs such as payroll taxes, may
not be excluded from gross receipts. Subsection
(c)(2) also adapts the methodology for calculating
affiliate receipts from 13 CFR 121.104.
10 Section 1106 of the CARES Act (15 U.S.C.
9005) was redesignated as section 7A, transferred to
the Small Business Act (15 U.S.C. 631 et seq.), and
inserted so as to appear after section 7 of the Small
Business Act (15 U.S.C. 636) in section 304(b) of the
Economic Aid Act.
11 Paragraph 7(a)(36)(D)(iii)(I) of the Small
Business Act.
12 Paragraph 7(a)(36)(D)(iv) of the Small Business
Act.
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Draw PPP Loans by reducing the limit
on employees per physical location to
300. Accordingly, a single business
entity that is assigned a NAICS code
beginning with 72 is eligible to receive
a Second Draw PPP Loan if it employs
no more than 300 employees per
physical location and meets the revenue
reduction requirements and otherwise
satisfies the eligibility criteria described
in this IFR.13 Under section 317 of the
Economic Aid Act, the same standard
applies to certain news organizations.14
Subsections (c)(3) and (c)(4) of the IFR
implement these statutory provisions.
Borrowers may consult PPP Frequently
Asked Question (FAQ) 24 15 for
guidance on these standards for
business concerns with more than one
physical location, except that, for
Second Draw PPP Loans, the number of
employees per physical location is
limited to 300 rather than 500.
B. Affiliation Rules
The same affiliation rules that apply
to First Draw PPP Loans apply to
Second Draw PPP Loans, except as
provided in this IFR. As with First Draw
PPP Loans, in most cases, a borrower is
considered together with its affiliates to
determine eligibility for the PPP.16
However, the CARES Act waived the
affiliation rules for certain categories of
borrowers.17 Paragraph 7(a)(37)(E) of the
Small Business Act, as amended by the
Economic Aid Act, applies the same
13 Paragraph
7(a)(37)(D) of the Small Business
Act.
14 Paragraph 7(a)(36)(D)(iii)(II) of the Small
Business Act.
15 See PPP FAQ #24 (posted April 13, 2020),
available at https://www.sba.gov/sites/default/files/
2020-12/Final%20PPP%20FAQs%20%28December
%209%202020%29-508.pdf.
16 Paragraph 7(a)(36)(D)(iv) of the Small Business
Act (15 U.S.C. 636(a)(36)(D)(iv), as added by the
CARES Act and amended by the Economic Aid Act,
waived the affiliation rules contained in § 121.103
for (1) any business concern with not more than 500
employees that, as of the date on which the loan
is disbursed, is assigned a NAICS code beginning
with 72; (2) any business concern operating as a
franchise that is assigned a franchise identifier code
by SBA; (3) any business concern that receives
financial assistance from a company licensed under
section 301 of the Small Business Investment Act
of 1958 (15 U.S.C. 681); and (4)(a) any business
concern (including any station which broadcasts
pursuant to a license granted by the Federal
Communications Commission under title III of the
Communications Act of 1934 (47 U.S.C. 301 et seq.)
without regard for whether such a station is a
concern as defined in 13 CFR 121.105, or any
successor thereto) that employs not more than 500
employees, or the size standard established by the
Administrator for the NAICS code applicable to the
business concern, per physical location of such
business concern and is majority owned or
controlled by a business concern that is assigned a
NAICS code beginning with 511110 or 5151; or (b)
any nonprofit organization that is assigned a NAICS
code beginning with 5151.
17 Paragraph 7(a)(36)(D)(iv) of the Small Business
Act.
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waivers to Second Draw PPP Loans,
adds a waiver for certain eligible news
organizations, and makes adjustments to
reflect the reduced size requirement for
Second Draw PPP Loans. Specifically,
business concerns with a NAICS code
beginning with 72 qualify for the
affiliation waiver for Second Draw PPP
Loans if they employ 300 or fewer
employees. Eligible news organizations
with a NAICS code beginning with
511110 or 5151 (or majority-owned or
controlled by a business concern with
those NAICS codes) may qualify for the
affiliation waiver for Second Draw PPP
Loans only if they employ 300 or fewer
employees per physical location.18
Subsection (d)(2) implements these
revised affiliation waivers. SBA also
adopted a religious exemption to the
affiliation rules by regulation,19 which
applies to Second Draw PPP loans.
C. Excluded Entities
An entity that is ineligible to receive
a First Draw PPP Loan under the CARES
Act or Consolidated First Draw PPP IFR
is also ineligible for a Second Draw PPP
Loan.20 Subsection (e)(1) of the IFR
implements this restriction. Subsection
(e)(1) ensures that a borrower that
received a First Draw PPP Loan despite
being ineligible to receive the loan is not
eligible to receive a Second Draw PPP
Loan.
The Economic Aid Act also prohibits
several additional categories of
borrowers from receiving a Second
Draw PPP Loan under section 7(a)(37) of
the Small Business Act. These
categories of prohibited borrowers are
listed in subsection (e) of the IFR:
• A business concern or entity
primarily engaged in political activities
or lobbying activities, including any
entity that is organized for research or
for engaging in advocacy in areas such
as public policy or political strategy or
that describes itself as a think tank in
any public documents; 21
• certain entities organized under the
laws of the People’s Republic of China
or the Special Administrative Region of
Hong Kong, or with other specified ties
to the People’s Republic of China or the
18 Paragraph
7(a)(37)(E) of the Small Business Act.
section (B)(3)(c) of the Consolidated First
Draw PPP IFR.
20 Paragraph 7(a)(37)(O) of the Small Business Act
provides that a Second Draw PPP Loan may be
made only to a borrower that received a First Draw
PPP Loan under paragraph 7(a)(36). In addition,
section 7(a)(37)(B) provides that the Administrator
may guarantee covered loans to eligible entities
under the same terms, conditions, and processes as
First Draw PPP Loans.
21 Paragraph 7(a)(37)(A)(iv)(III)(bb) of the Small
Business Act.
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19 See
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Special Administrative Region of Hong
Kong; 22
• any person required to submit a
registration statement under section 2 of
the Foreign Agents Registration Act of
1938 (22 U.S.C. 612); 23
• a person or entity that receives a
grant for shuttered venue operators
under section 324 of the Economic Aid
Act; 24
• entities in which the President, the
Vice President, the head of an Executive
department, or a Member of Congress, or
the spouse of such person owns,
controls, or holds at least 20 percent of
any class of equity; 25 or
• a publicly traded company, defined
as an issuer, the securities of which are
listed on an exchange registered as a
national securities exchange under
section 6 of the Securities Exchange Act
of 1934 (15 U.S.C. 78f).26
In addition, subsection (e)(9) of this IFR
provides that an entity that has
previously received a Second Draw PPP
Loan may not receive another Second
Draw PPP Loan, as required by the
Economic Aid Act.27 Subsection (e)(9)
also prohibits an entity that has
permanently closed from receiving a
Second Draw PPP Loan because
paragraph 7(a)(37)(A)(iv) of the Small
Business Act is best understood to
describe existing businesses. The
Administrator, in consultation with the
Secretary, has determined this provision
is also necessary to maintain program
integrity, prevent abuse, and preserve
the availability of Second Draw PPP
Loan funds for businesses still in
operation. Preserving funds for such
businesses is necessary because only
businesses that are still in operation will
retain employees, which is a primary
purpose of the PPP. A borrower that has
temporarily closed or temporarily
suspended its business remains eligible
for a Second Draw PPP Loan.
D. Payroll Cost Calculation
In general, section 307 of the
Economic Aid Act provides that the
maximum loan amount for a Second
Draw PPP Loan is equal to the lesser of
two and half months of the borrower’s
average monthly payroll costs or $2
million. Relative to First Draw PPP
loans, the Economic Aid Act adjusted
the methodology for calculating a
borrower’s payroll costs. Unlike First
22 Paragraph 7(a)(37)(A)(iv)(III)(cc) of the Small
Business Act.
23 Paragraph 7(a)(37)(A)(iv)(III)(dd) of the Small
Business Act.
24 Paragraph 7(a)(37)(A)(iv)(III)(ee) of the Small
Business Act.
25 Section 322 of the Economic Aid Act.
26 Section 342 of the Economic Aid Act.
27 Paragraph 7(a)(37)(F) of the Small Business Act.
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Draw PPP Loans, the Economic Aid Act
provides that the relevant time period
for calculating a borrower’s payroll costs
for a Second Draw PPP Loan is either
the twelve-month period prior to when
the loan is made or calendar year 2019.
The Act also provided tailored
methodologies for certain categories of
borrowers. These calculations are
reflected in subsection (f) of this IFR.
Subsection (f) of the IFR uses ‘‘calendar
year 2020’’ to refer to ‘‘the twelve-month
period prior to when the loan is made.’’
Calculating payroll costs based on
calendar year 2020 rather than the
twelve months preceding the date the
loan is made will simplify the
calculations and documentation
requirements for borrowers because
payroll records are more commonly
created and retained on a calendar-year
basis. Allowing borrowers to calculate
payroll costs based on calendar year
2020 is also not expected to result in a
significant difference in payroll costs
compared to the twelve months
preceding the date the loan is made
because all Second Draw PPP Loans will
be made in the first quarter of 2021.
However, the rule notes that Second
Draw PPP Loan borrowers who are not
self-employed (including sole
proprietorships and independent
contractors) are also permitted to use
the precise 1-year period before the date
on which the loan is made to calculate
payroll costs if they choose not to use
2019 or 2020 to calculate payroll costs.
Consistent with the Economic Aid
Act, subsections (f)(3) and (f)(4) of the
IFR include tailored calculation
methodologies for seasonal businesses,
new entities that did not exist for the
full twelve-month period preceding the
Second Draw PPP Loan, and borrowers
assigned a NAICS code beginning with
72 at the time of disbursement. For
borrowers assigned a NAICS code
beginning with 72 at the time of
disbursement, the Economic Aid Act
provides that the maximum loan
amount is equal to three-and-a-half (3.5)
months of payroll costs rather than twoand-a-half (2.5) months.28 These
subsections also provide that, for a
borrower with a NAICS code beginning
with 72 that would fall into more than
one category listed in subsection (f) (for
example, a business with a NAICS code
beginning with 72 that is also a seasonal
business or is also a new entity without
12 months of payroll costs), the
borrower may calculate its average
monthly payroll costs based on the
methodology that applies to the entity
but may use the 3.5 multiplier
28 Paragraph
Act.
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applicable to businesses with a NAICS
code beginning with 72. The
Administrator, in consultation with the
Secretary, has determined that this
methodology is necessary to provide
small businesses in the accommodation
and food services sector the full amount
of relief provided in the Economic Aid
Act while allowing these borrowers to
calculate their average monthly payroll
costs accurately.
The Economic Aid Act included a
new payroll cost calculation for farmers
and ranchers receiving First Draw PPP
Loans. However, it did not specify how
payroll costs should be calculated for
Second Draw PPP Loans to farmers and
ranchers. This IFR clarifies that the
same general calculation for farmers and
ranchers applicable to First Draw PPP
Loans applies to Second Draw PPP
Loans, with adjustments that (i)
eliminate the provision for refinancing
of an Economic Injury Disaster Loan
(EIDL), which does not apply to Second
Draw PPP Loans, and (ii) apply the
choice of time period for calculating a
farmer’s or rancher’s payroll costs for
Second Draw PPP Loans, consistent
with other Second Draw PPP Loans.
This IFR also specifies that, in
calculating a farmer’s or rancher’s
maximum loan amount, any employee
payroll costs should be subtracted from
the farmer’s or rancher’s gross income to
avoid double-counting amounts that
represent pay to the employees of the
farmer or rancher.
Subsections (f)(7) and (f)(8) of the IFR
include tailored calculation
methodologies for self-employed
individuals and partnerships. These
methodologies are based on the
corresponding methodologies for selfemployed individuals and partnerships
that are used for First Draw PPP
Loans.29 These methodologies have
been adjusted to eliminate the provision
for refinancing of an EIDL loan, which
does not apply to Second Draw PPP
loans and to apply the choice of time
period for calculating payroll costs,
consistent with other Second Draw PPP
loans.
Finally, subsection (f)(9) provides that
businesses that are part of a single
corporate group shall in no event
receive more than $4,000,000 of Second
Draw PPP Loans in the aggregate. The
Administrator, in consultation with the
Secretary, determined that limiting the
amount of Second Draw PPP Loans that
a single corporate group may receive
will promote the availability of PPP
loans to the largest possible number of
borrowers, consistent with the CARES
and Economic Aid Act. The
Administrator has concluded that a
limitation of $4,000,000 is appropriate
because it is proportional to the
$20,000,000 maximum amount for
corporate groups that is provided under
the Consolidated First Draw PPP IFR
when the maximum loan amount for a
single PPP loan is $10,000,000.
E. Second Draw PPP Loan Application
and Documentation Requirements
Subsection (g) of this IFR includes the
application and documentation
requirements for Second Draw PPP
Loans. The documentation required to
substantiate an applicant’s payroll cost
calculations is generally the same as
documentation required for First Draw
PPP Loans. However, no additional
documentation to substantiate payroll
costs will be required if the applicant (i)
used calendar year 2019 figures to
determine its First Draw PPP Loan
amount, (ii) used calendar year 2019
figures to determine its Second Draw
PPP Loan amount (instead of calendar
year 2020), and (iii) the lender for the
applicant’s Second Draw PPP Loan is
the same as the lender that made the
applicant’s First Draw PPP Loan. In
such cases, additional documentation is
not required because the lender already
has the relevant documentation
supporting the borrower’s payroll costs.
The lender may request additional
documentation, however, if on further
review the lender concludes that it
would be useful in conducting the
lender’s good-faith review of the
borrower’s loan amount calculation.
For loans with a principal amount
greater than $150,000, the applicant
must also submit documentation
adequate to establish that the applicant
experienced a revenue reduction of 25%
or greater in 2020 relative to 2019. (The
revenue reduction requirement is
addressed in subsection (c)(1)(iv) of this
IFR.) Such documentation may include
relevant tax forms, including annual tax
forms, or, if relevant tax forms are not
available, quarterly financial statements
or bank statements. For loans with a
principal amount of $150,000 or less,
such documentation is not required at
the time the borrower submits its
application for a loan, but must be
submitted on or before the date the
borrower applies for loan forgiveness, as
required under the Economic Aid Act.30
If a borrower does not submit an
application for loan forgiveness, such
documentation must be provided upon
SBA’s request.
F. Lender Requirements
Subsection (g) of this IFR contains the
provisions specific to lenders for
Second Draw PPP Loans. Paragraph
7(a)(37)(K) of the Small Business Act,
added by the Economic Aid Act, states
that a lender approved to make First
Draw PPP loans may make Second Draw
PPP Loans under the same terms and
conditions as new First Draw PPP
Loans. Subsection (g)(2) of this IFR
provides that lenders are subject to the
same requirements when making
Second Draw PPP Loans as when they
are making First Draw PPP Loans. These
provisions allow a lender approved to
make Second Draw PPP Loans to use
existing program guidance and standard
operating procedures to the maximum
extent practicable.31 The requirements
applicable to PPP lenders are in sections
(C) and (D) of the Consolidated First
Draw PPP IFR. If a borrower has not
submitted new payroll documentation
with its Second Draw PPP Loan
application because it previously
submitted 2019 payroll information to
the same lender when it applied for its
First Draw PPP Loan, then the lender
must confirm the borrower’s average
monthly payroll costs based on that
prior documentation.
In addition, for a Second Draw PPP
Loan greater than $150,000, the lender
must confirm the dollar amount and
percentage of the borrower’s revenue
reduction by performing a good faith
review, in a reasonable time, of the
borrower’s calculations and supporting
documents concerning the borrower’s
revenue reduction. If the lender
identifies errors in the borrower’s
calculation or a material lack of
substantiation in the borrower’s
supporting documents, the lender
should work with the borrower to
remedy the issue.
G. Loans to Borrowers With Unresolved
First Draw PPP Loans
As described in SBA’s interim final
rule on SBA Loan Review Procedures
and Related Borrower and Lender
Responsibilities, SBA may review any
PPP loan, as the Administrator deems
appropriate.32 Subsection (i) of the IFR
establishes procedures relating to the
handling of a Second Draw PPP Loan
application by a borrower whose First
Draw PPP Loan is under review by SBA
(‘‘unresolved borrower’’). If a borrower’s
First Draw PPP loan is under review by
SBA and/or information in SBA’s
possession indicates that the borrower
may have been ineligible for the First
31 Paragraph
29 See
subsections (B)(4)(b) and (B)(4)(e) of the
Consolidated First Draw PPP IFR.
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30 See
paragraph 7(a)(37)(I)(i) of the Small
Business Act.
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7(a)(37)(N) of the Small Business
Act.
32 85
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Draw PPP Loan it received or for the
loan amount it received, the lender will
receive notification from SBA when the
lender submits an application for a
guaranty of a Second Draw PPP Loan
and will not receive an SBA loan
number until the issue related to the
unresolved borrower’s First Draw PPP
Loan is resolved. SBA will resolve
issues related to unresolved borrowers
expeditiously. These procedures are
designed to promote compliance with
the eligibility requirements for Second
Draw PPP Loans by preventing
additional loans from being made to
borrowers that were not eligible for a
First Draw PPP Loan or received an
impermissible loan amount. At the same
time, these procedures do not disqualify
an eligible unresolved borrower from
receiving a Second Draw PPP Loan, in
recognition that many flags will be
resolved in the borrower’s favor. The
Administrator, in consultation with the
Secretary, has determined that these
procedures strike an appropriate
balance between promoting program
integrity and preventing abuse, while
making Second Draw PPP Loans
available to all eligible borrowers as
expeditiously as possible. SBA will set
aside available appropriations to fund
Second Draw PPP Loans applied for by
unresolved borrowers in the event they
are approved.
H. Loan Forgiveness
Loan forgiveness of Second Draw PPP
Loans and the loan review process for
Second Draw PPP Loans are generally
subject to the interim final rules
regarding Loan Forgiveness and SBA
Loan Review Procedures and Related
Borrower and Lender Responsibilities,
as modified to conform to the Economic
Aid Act by the Consolidated First Draw
PPP IFR, which is being published
concurrently with this IFR. Subsection
(j) contains forgiveness provisions
specific to Second Draw PPP loans.
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Table of Contents
(a) Second Draw PPP Loan Program
(b) What requirements apply to Second Draw
PPP Loans?
(c) Who is eligible for a Second Draw PPP
Loan?
(d) How do SBA’s affiliation rules affect an
applicant’s eligibility for a Second Draw
PPP Loan?
(e) Who is not eligible for a Second Draw PPP
Loan?
(f) What is the maximum loan amount for a
Second Draw PPP Loan?
(g) How do I submit an application for a
Second Draw PPP Loan and what
documentation must I provide to
demonstrate eligibility?
(h) What do lenders need to know and do?
(i) Will an applicant’s Second Draw PPP
Loan application be affected if there are
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unresolved issues regarding the
applicant’s First Draw PPP Loan?
(j) Are Second Draw PPP Loans eligible for
loan forgiveness?
IV. Paycheck Protection Program
Second Draw Loans
(a) Second Draw PPP Loan Program
Under section 7(a)(37) of the Small
Business Act (15 U.S.C. 636(a)(37)), SBA
is authorized to guarantee Paycheck
Protection Program Second Draw Loans
(‘‘Second Draw PPP Loans’’).
(b) What requirements apply to Second
Draw PPP Loans?
(1) Second Draw PPP Loans are
subject to SBA’s and the Department of
the Treasury’s (‘‘Treasury’s’’)
consolidated interim final rule
implementing the Paycheck Protection
Program (‘‘Consolidated First Draw PPP
IFR’’) and all PPP loan program
requirements, except as otherwise
provided in this section, including but
not limited to the following terms:
(i) The guarantee percentage is 100
percent.
(ii) No collateral will be required.
(iii) No personal guarantees will be
required.
(iv) The interest rate will be 100 basis
points or one percent, calculated on a
non-compounding, non-adjustable basis.
(v) The maturity is five years.
(vi) All loans will be processed by all
lenders under delegated authority and
lenders will be permitted to rely on
certifications of the borrower in order to
determine eligibility of the borrower
and the use of loan proceeds.
(2) Frequently Asked Questions and
other guidance issued by SBA or by
SBA in consultation with the
Department of the Treasury with respect
to PPP loans under section 7(a)(36) of
the Small Business Act (15 U.S.C.
636(a)(36)) (‘‘First Draw PPP Loans’’)
apply to Second Draw PPP Loans,
except as otherwise provided in this
section.
(c) Who is eligible for a Second Draw
PPP Loan?
Subject to subsection (e) of this
section, below, the following applicants
are eligible for Second Draw PPP Loans:
(1) An applicant is eligible for a
Second Draw PPP Loan if it is a
business concern, independent
contractor, eligible self-employed
individual, sole proprietor, nonprofit
organization eligible for a First Draw
PPP Loan, veterans organization, Tribal
business concern, housing cooperative,
small agricultural cooperative, eligible
501(c)(6) organization or destination
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3717
marketing organization, or an eligible
nonprofit news organization 33 that:
(i) Previously received a First Draw
PPP loan in accordance with the
eligibility criteria in the Consolidated
First Draw PPP IFR;
(ii) has used, or will use, the full
amount of its First Draw PPP Loan
(including the amount of any increase
on such First Draw PPP Loan) on
authorized uses under subsection
(B)(11) of the Consolidated First Draw
PPP IFR on or before the expected date
on which the Second Draw PPP Loan
will be disbursed; 34
(iii) employs not more than 300
employees, unless it satisfies the
alternative criteria for businesses with a
North American Industry Classification
System (‘‘NAICS’’) code beginning with
72 and eligible news organizations with
more than one physical location
described in subsection (c)(3) or (c)(4) of
this section; and
(iv) (A) experienced a reduction in
revenue in calendar year 2020,
measured as follows:
(1) the applicant had gross receipts
during the first, second, third, or fourth
quarter in 2020 that demonstrate at least
a 25 percent reduction from the
applicant’s gross receipts during the
same quarter in 2019 (for example, an
applicant that had gross receipts of
$50,000 in the second quarter of 2019
and had gross receipts of $30,000 in the
second quarter of 2020 experienced a 40
percent revenue reduction between
these two quarters);
(2) if the applicant was not in
business during the first or second
quarter of 2019, but was in business
during the third and fourth quarters of
2019, the applicant had gross receipts
during the first, second, third, or fourth
quarter of 2020 that demonstrate at least
a 25 percent reduction from the
applicant’s gross receipts during the
third or fourth quarter of 2019 (for
example, an applicant that had gross
receipts of $50,000 in the third quarter
of 2019 and had gross receipts of
$30,000 in the third quarter of 2020–
demonstrating a reduction of 40 percent
from the applicant’s gross receipts
during the third quarter in 2019);
(3) if the applicant was not in
business during the first, second, or
third quarter of 2019, but was in
business during the fourth quarter of
2019, the applicant had gross receipts
33 All terms in this subsection have the same
definitions as in sections 7(a)(36) and (37) of the
Small Business Act and the Consolidated First
Draw PPP IFR, as applicable.
34 A lender must make disbursement of the loan
within ten calendar days of loan approval. See
subsection (D)(7) of the Consolidated First Draw
PPP IFR.
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during the first, second, third, or fourth
quarter of 2020 that demonstrate at least
a 25 percent reduction from the fourth
quarter of 2019 (for example, an
applicant that had gross receipts of
$50,000 in the fourth quarter of 2019
and had gross receipts of $30,000 in the
fourth quarter of 2020–demonstrating a
reduction of 40 percent from the
applicant’s gross receipts during the
fourth quarter in 2019); or
(4) if the applicant was not in
business during 2019, but was in
operation on February 15, 2020, the
applicant had gross receipts during the
second, third, or fourth quarter of 2020
that demonstrate at least a 25 percent
reduction from the gross receipts of the
entity during the first quarter of 2020
(for example, an applicant that had
gross receipts of $50,000 in the first
quarter of 2020 and had gross receipts
of $30,000 in the fourth quarter of
2020—demonstrating a reduction of 40
percent from the applicant’s gross
receipts during the first quarter in 2020).
(B) An applicant that was in operation
in all four quarters of 2019 is deemed to
have experienced the revenue reduction
in subsection (c)(1)(iv)(A)(1) if it
experienced a reduction in annual
receipts of 25 percent or greater in 2020
compared to 2019 and the borrower
submits copies of its annual tax forms
substantiating the revenue decline.
(2)(i) Gross receipts includes all
revenue in whatever form received or
accrued (in accordance with the entity’s
accounting method) from whatever
source, including from the sales of
products or services, interest, dividends,
rents, royalties, fees, or commissions,
reduced by returns and allowances.
Generally, receipts are considered ‘‘total
income’’ (or in the case of a sole
proprietorship, independent contractor,
or self-employed individual ‘‘gross
income’’) plus ‘‘cost of goods sold,’’ and
excludes net capital gains or losses as
these terms are defined and reported on
IRS tax return forms. Gross receipts do
not include the following: Taxes
collected for and remitted to a taxing
authority if included in gross or total
income (such as sales or other taxes
collected from customers and excluding
taxes levied on the concern or its
employees); proceeds from transactions
between a concern and its domestic or
foreign affiliates; and amounts collected
for another by a travel agent, real estate
agent, advertising agent, conference
management service provider, freight
forwarder or customs broker. All other
items, such as subcontractor costs,
reimbursements for purchases a
contractor makes at a customer’s
request, investment income, and
employee-based costs such as payroll
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taxes, may not be excluded from gross
receipts.
(ii) Gross receipts of affiliates are
calculated as follows:
(A) Gross receipts of a borrower with
affiliates is calculated by adding the
gross receipts of the business concern
with the gross receipts of each affiliate.
(B) If a borrower has acquired an
affiliate or been acquired as an affiliate
during 2020, gross receipts includes the
receipts of the acquired or acquiring
concern. This aggregation applies for the
entire period of measurement, not just
the period after the affiliation arose.
However, if a concern acquired a
segregable division of another business
concern during 2020, gross receipts do
not include the receipts of the acquired
division prior to the acquisition.
(C) The gross receipts of a former
affiliate are not included. This exclusion
of gross receipts of such former affiliate
applies during the entire period of
measurement, rather than only for the
period after which affiliation ceased.
However, if a borrower sold a segregable
division during 2020, the gross receipts
will continue to include the receipts of
the division that was sold.
(D) All terms in this subsection shall
have the meaning attributed to them by
the IRS.
(iii) For an eligible nonprofit
organization, a veterans organization, an
eligible nonprofit news organization, an
eligible 501(c)(6) organization, or
eligible destination marketing
organization, gross receipts means gross
receipts within the meaning of section
6033 of the Internal Revenue Code of
1986.
(iv) The amount of any forgiven First
Draw PPP Loan shall not be included
toward any borrower’s gross receipts.
(3) Any business concern that has
more than one physical location and
that employs not more than 300
employees per physical location is
eligible to receive a Second Draw PPP
Loan if it is assigned a NAICS code
beginning with 72 at the time of loan
disbursement and otherwise meets the
eligibility criteria in subsection (c)(1).
(4) Any business concern, or any
station which broadcasts pursuant to a
license granted by the Federal
Communications Commission under
title III of the Communications Act of
1934 (47 U.S.C. 301 et seq.), that has
more than one physical location and
that employs not more than 300
employees per physical location is
eligible to receive a Second Draw PPP
Loan if it meets the eligibility criteria in
subsection (c)(1) and: (1) Is majority
owned or controlled by a business
concern that is assigned a NAICS code
beginning with 511110 or 5151 or, with
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respect to a public broadcasting entity
(as defined in section 397(11) of the
Communications Act of 1934 (47 U.S.C.
397(11))), has a trade or business that
falls under such a code; and (2) makes
a good faith certification that proceeds
of the loan will be used to support
expenses at the component of the
organization that produces or distributes
locally focused or emergency
information.
(d) How do SBA’s affiliation rules affect
an applicant’s eligibility for a Second
Draw PPP Loan?
(1) Eligibility for Second Draw PPP
Loans is governed by the same
affiliations rules (and waivers) as First
Draw PPP Loans, except as described in
subsection (d)(2).
(2) The affiliation rules under 13 CFR
121.301(f) are waived with respect to
eligibility for a Second Draw PPP Loan
for:
(i) Any business concern with not
more than 300 employees that, as of the
date on which the covered loan is
disbursed, is assigned a NAICS code
beginning with 72; and
(ii) (A) any business concern
(including any station which broadcasts
pursuant to a license granted by the
Federal Communications Commission
under title III of the Communications
Act of 1934 (47 U.S.C. 301 et seq.)
without regard for whether such a
station is a concern as defined in 13
CFR 121.105, or any successor thereto)
that employs not more than 300
employees, per physical location of
such business concern and is majority
owned or controlled by a business
concern that is assigned a NAICS code
beginning with 511110 or 5151; or
(B) any nonprofit organization that is
assigned a NAICS code beginning with
5151.
(e) Who is not eligible for a Second
Draw PPP Loan?
An applicant is not eligible for a
Second Draw PPP Loan, even if it meets
the eligibility requirements of
subsection (c) of this section, if the
applicant is:
(1) Excluded from eligibility under
the Consolidated First Draw PPP IFR; 35
(2) a business concern or entity
primarily engaged in political activities
or lobbying activities, as defined in
section 3 of the Lobbying Disclosure Act
of 1995 (2 U.S.C. 1602), including any
entity that is organized for research or
for engaging in advocacy in areas such
as public policy or political strategy or
35 See generally section (B)(2) of the Consolidated
First Draw PPP IFR.
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otherwise describes itself as a think tank
in any public documents;
(3) any business concern or entity:
(i) For which an entity created in or
organized under the laws of the People’s
Republic of China or the Special
Administrative Region of Hong Kong, or
that has significant operations in the
People’s Republic of China or the
Special Administrative Region of Hong
Kong, owns or holds, directly or
indirectly, not less than 20 percent of
the economic interest of the business
concern or entity, including as equity
shares or a capital or profit interest in
a limited liability company or
partnership; or
(ii) that retains, as a member of the
board of directors of the business
concern, a person who is a resident of
the People’s Republic of China;
(4) any person required to submit a
registration statement under section 2 of
the Foreign Agents Registration Act of
1938 (22 U.S.C. 612);
(5) any person or entity that receives
a grant for shuttered venue operators
under section 324 of the Economic Aid
to Hard-Hit Small Businesses,
Nonprofits, and Venues Act;
(6) any entity in which the President,
the Vice President, the head of an
Executive department, or a Member of
Congress, or the spouse of such person
as determined under applicable
common law, directly or indirectly
holds a controlling interest in the entity,
where:
(i) ‘‘controlling interest’’ means
owning, controlling, or holding not less
than 20 percent, by vote or value, of the
outstanding amount of any class of
equity interest in an entity;
(ii) ‘‘equity interest’’ means:
(A) A share in an entity, without
regard to whether the share is
transferable or classified as stock or
anything similar;
(B) a capital or profit interest in a
limited liability company or
partnership; or
(C) a warrant or right, other than a
right to convert, to purchase, sell, or
subscribe to a share or interest described
in (A) or (B), respectively;
(iii) ‘‘Executive department’’ has the
meaning given the term in section 101
of title 5, United States Code;
(iv) ‘‘Member of Congress’’ means a
Member of the Senate or House of
Representatives, a Delegate to the House
of Representatives, and the Resident
Commissioner from Puerto Rico; and
(v) For the purpose of determining
whether a person has a controlling
interest in the entity, the securities
owned, controlled, or held by the
President, the Vice President, the head
of an Executive department, or a
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Member of Congress, shall be aggregated
with the securities held by his or her
spouse as determined under applicable
common law;
(7) any issuer, the securities of which
are listed on an exchange registered as
a national securities exchange under
section 6 of the Securities Exchange Act
of 1934 (15 U.S.C. 78f), where the terms
‘‘exchange,’’ ‘‘issuer,’’ and ‘‘security’’
have the meanings given those terms in
section 3(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)) (except
SBA will not consider whether a news
organization that is eligible under
subsection (c)(4) is affiliated with an
entity, which includes any entity that
owns or controls such news
organization, that is an issuer);
(8) an entity that has previously
received a Second Draw PPP Loan; or
(9) an entity that has permanently
closed.
(f) What is the maximum loan amount
for a Second Draw PPP Loan?
(1) In general, the maximum loan
amount for a Second Draw PPP Loan is
equal to the lesser of two and half
months of the borrower’s average
monthly payroll costs or $2 million,
except as otherwise specified in this
subsection (e). A borrower’s average
monthly payroll costs may be based on
calendar year 2020, calendar year
2019,36 or as otherwise specified in
subsections (f)(2) through (f)(9) of this
section. ‘‘Payroll costs’’ has the same
meaning as in subsections (B)(4)(g) and
(B)(4)(h) of the Consolidated First Draw
PPP IFR and is calculated in the same
manner. In calculating a borrower’s
payroll costs, the borrower must
subtract any compensation paid to an
employee in excess of $100,000 on an
annualized basis, as prorated for the
time period during which the payments
are made or the obligation to make the
payments is incurred.
(2) Except as otherwise provided in
subsection (f)(3) through (f)(7), the
maximum amount of a Second Draw
PPP Loan is calculated as the lesser of:
(i) The product obtained by
multiplying:
(A) The average total monthly
payment for payroll costs incurred or
paid by the borrower during 2019 or
2020 (at the election of the borrower); by
(B) 2.5; or
(ii) $2,000,000.
36 Second Draw PPP Loan borrowers who are not
self-employed, sole proprietorships, or independent
contractors are also permitted to use the precise 1year period before the date on which the loan is
made to calculate payroll costs if they choose not
to use 2019 or 2020. Since most borrowers will use
2019 or 2020 the rule text refers only to 2019 or
2020 for simplicity and readability.
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(3) The maximum amount of a Second
Draw PPP Loan to a borrower that is a
seasonal employer (meaning an
employer that does not operate for more
than 7 months in any calendar year or
that during the preceding calendar year,
had gross receipts for any 6 months of
that year that were not more than 33.33
percent of the gross receipts of the
employer for the other 6 months of that
year) is calculated as the lesser of:
(i) The product obtained by
multiplying:
(A) At the election of the borrower,
the average total monthly payments for
payroll costs incurred or paid by the
borrower for any 12-week period
between February 15, 2019 and
February 15, 2020; by
(B) 2.5 (or, only for a borrower
assigned a NAICS code beginning with
72 at the time of disbursement as
defined in subsection (f)(10), 3.5); or
(ii) $2,000,000.
(4) The maximum amount of a Second
Draw PPP Loan to a borrower that did
not exist during the 1-year period
preceding February 15, 2020, but was in
operation on February 15, 2020 (‘‘new
entity’’), is calculated as the lesser of:
(i) The product obtained by
multiplying:
(A) The quotient obtained by
dividing:
(1) The sum of the total monthly
payments by the borrower for payroll
costs paid or incurred by the borrower
as of the date on which the borrower
applies for the Second Draw PPP Loan;
by
(2) the number of months in which
those payroll costs were paid or
incurred; by
(B) 2.5 (or, only for a borrower
assigned a NAICS code beginning with
72 at the time of disbursement as
defined in subsection (f)(10), 3.5); or
(ii) $2,000,000.
(5) The maximum amount of a Second
Draw PPP Loan made to a borrower
assigned a NAICS code beginning with
72 at the time of disbursement as
defined in subsection (f)(10) (that is not
a seasonal employer or new entity
addressed in subsection (f)(3) or (f)(4) or
a borrower with self-employment
income or a partnership addressed in
subsection (f)(7) or (f)(8) of this section)
is calculated as the lesser of:
(i) The product obtained by
multiplying:
(A) The average total monthly
payment for payroll costs incurred or
paid by the borrower during either 2019
or 2020 (at the borrower’s election) by
(B) 3.5; or
(ii) $2,000,000.
(6) (i) The maximum amount of a
Second Draw PPP Loan to a farmer or
rancher that:
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(A) Operates as a sole proprietorship
or as an independent contractor, or is an
eligible self-employed individual;
(B) reports farm income or expenses
on a Schedule F (IRS Form 1040); and
(C) was in business as of February 15,
2020; is calculated according to (ii) or
(iii) of this subsection(e)(6), depending
on whether the borrower has employees.
(ii) If a borrower meeting the criteria
in subsection (6)(i) of this section does
not have any employees, the maximum
loan amount is the product obtained by
multiplying:
(A) The gross income of the borrower
in 2019 or 2020, as reported on a
Schedule F (IRS Form 1040), that is not
more than $100,000, divided by 12; and
(B) 2.5.
(iii) If a borrower meeting the criteria
in subsection (6)(i) of this section has
employees, the maximum loan amount
is calculated as the lesser of:
(A) The product obtained by
multiplying:
(1) The sum of (i) the difference
between gross income and employee
payroll costs of the borrower in 2019 or
2020 (at the election of the borrower), as
reported on a Schedule F (IRS Form
1040), that is not more than $100,000,
divided by 12, and (ii) the average total
monthly payment for employee payroll
costs incurred or paid by the borrower
during the same year elected by the
borrower; by
(2) 2.5; or
(B) $2,000,000.
(7) The maximum amount of a Second
Draw PPP Loan to a borrower that has
income from self-employment and files
a Form 1040, Schedule C, is calculated
as follows, depending on whether the
borrower has employees:
(i) For a borrower that has income
from self-employment and does not
have any employees, the maximum loan
amount is the lesser of:
(A) The product obtained by
multiplying:
(1) The net profit of the borrower in
2019 or 2020, as reported on IRS Form
1040 Schedule C, that is not more than
$100,000, divided by 12; and
(2) 2.5 (or, only for a borrower
assigned a NAICS code beginning with
72 as defined in subsection (f)(10) at the
time of disbursement, 3.5).
(ii) For a borrower that has income
from self-employment and has
employees, the maximum loan amount
is the lesser of:
(A) The product obtained by
multiplying:
(1) The sum of (i) the net profit of the
borrower in 2019 or 2020 (at the
election of the borrower), as reported on
IRS Form 1040 Schedule C, that is not
more than $100,000, divided by 12; (ii)
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the average total monthly payment for
employee payroll costs incurred or paid
by the borrower during the same year
elected by the borrower; by
(2) 2.5 (or, only for a borrower
assigned a NAICS code beginning with
72 at the time of disbursement as
defined in subsection (f)(10), 3.5); or
(B) $2,000,000.
(8) The maximum amount of a Second
Draw PPP Loan to a borrower that files
taxes as a partnership is calculated as
the lesser of:
(i) The product obtained by
multiplying:
(A) The sum of (1) net earnings from
self-employment of individual general
partners in 2019 or 2020 (at the election
of the borrower), as reported on IRS
Form 1065 K–1, reduced by section 179
expense deduction claimed,
unreimbursed partnership expenses
claimed, and depletion claimed on oil
and gas properties, multiplied by
0.9235,37 that is not more than
$100,000, divided by 12; (2) the average
total monthly payment for employee
payroll costs incurred or paid by the
borrower during the same year elected
by the borrower; by
(B) 2.5 (or, only for a borrower
assigned a NAICS code beginning with
72 as defined in subsection (f)(10) at the
time of disbursal, 3.5); or
(ii) $2,000,000.
(9) Businesses that are part of a single
corporate group shall in no event
receive more than $4,000,000 of Second
Draw PPP Loans in the aggregate.
Corporate group has the same meaning
as in subsection (B)(4)(f) of the
Consolidated First Draw PPP IFR.
(10) For purposes of calculating a
borrower’s maximum payroll costs, a
borrower may multiply its average
monthly payroll costs by 3.5 only if the
borrower is in the Accommodation and
Food Services sector and has reported a
NAICS code beginning with 72 as its
business activity code on its most recent
IRS income tax return.
(g) How do I submit an application for
a Second Draw PPP Loan and what
documentation must I provide to
demonstrate eligibility?
(1) The applicant must submit to the
lender SBA Form 2483–SD (Paycheck
Protection Program Second Draw
Borrower Application Form) or the
lender’s equivalent form including the
required certifications and the
documentation in subsection (g)(2).
37 This treatment follows the computation of selfemployment tax from IRS Form 1040 Schedule SE
Section A line 4 and removes the ‘‘employer’’ share
of self-employment tax, consistent with how payroll
costs for employees in the partnership are
determined.
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(2) At the time an applicant submits
its loan application form, it must submit
the following unless the documentation
was submitted to the lender for the First
Draw PPP Loan (i.e., the applicant used
calendar year 2019 figures to determine
both its First Draw PPP Loan amount
and its Second Draw PPP Loan amount,
and the lender for the applicant’s
Second Draw PPP Loan is the same as
the lender that made the applicant’s
First Draw PPP Loan):
(i) If the applicant is not selfemployed, the applicant’s Form 941 (or
other tax forms containing similar
information) and state quarterly wage
unemployment insurance tax reporting
forms from each quarter in 2019 or 2020
(whichever was used to calculate
payroll), as applicable, or equivalent
payroll processor records, along with
evidence of any retirement and
employee group health, life, disability,
vision and dental insurance
contributions, must be provided. A
partnership must also include its IRS
Form 1065 K–1s.
(ii) If the applicant is self-employed
and has employees, the applicant’s 2019
or 2020 (whichever was used to
calculate loan amount) IRS Form 1040
Schedule C, Form 941 (or other tax
forms or equivalent payroll processor
records containing similar information)
and state quarterly wage unemployment
insurance tax reporting forms from each
quarter in 2019 or 2020 (whichever was
used to calculate loan amount), as
applicable, or equivalent payroll
processor records, along with evidence
of any retirement and employee group
health, life, disability, vision and dental
insurance contributions, if applicable,
must be provided. A payroll statement
or similar documentation from the pay
period that covered February 15, 2020
must be provided to establish the
applicant was in operation on February
15, 2020.
(iii) If the applicant is self-employed
and does not have employees, the
applicant must provide (a) its 2019 or
2020 (whichever was used to calculate
loan amount) Form 1040 Schedule C, (b)
a 2019 or 2020 (whichever was used to
calculate loan amount) IRS Form 1099–
MISC detailing nonemployee
compensation received (box 7), invoice,
bank statement, or book of record that
establishes that the applicant is selfemployed; and (c) a 2020 invoice, bank
statement, or book of record to establish
that the applicant was in operation on
or around February 15, 2020.
(iv) For loans with a principal amount
greater than $150,000, documentation
sufficient to establish that the applicant
experienced a reduction in revenue, as
provided in subsection(c)(1)(iv), must be
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provided at the time of application,
which may include relevant tax forms,
including annual tax forms, or, if
relevant tax forms are not available, a
copy of the applicant’s quarterly income
statements or bank statements.
(v) For loans with a principal amount
of $150,000 or less, the applicant must
submit documentation sufficient to
establish that the applicant experienced
a reduction in revenue as provided in
subsection (c)(1)(i) of this section at the
time of application, on or before the
date the borrower submits an
application for loan forgiveness, or, if
the borrower does not apply for loan
forgiveness, at SBA’s request. Such
documentation may include relevant tax
forms, including annual tax forms, or, if
relevant tax forms are not available, a
copy of the applicant’s quarterly income
statements or bank statements.
(3) On the Second Draw PPP Loan
borrower application, an authorized
representative of the applicant 38 must
make the certifications listed in
subsection (B)(12) of the Consolidated
First Draw PPP IFR, except:
(i) Instead of the certification in
subsection (B)(12)(v) of the
Consolidated First Draw PPP IFR, the
applicant must certify that the applicant
has not and will not receive another
Second Draw Paycheck Protection
Program Loan; and
(ii) an authorized representative of the
applicant must also certify:
(A) The Applicant has realized a
reduction in gross receipts in excess of
25% relative to the relevant comparison
time period. For loans greater than
$150,000, Applicant has provided
documentation to the lender
substantiating the decline in gross
receipts. For loans of $150,000 or less,
Applicant will provide documentation
substantiating the decline in gross
receipts upon or before seeking loan
forgiveness for the Second Draw
Paycheck Protection Program Loan or
upon SBA request.
(B) The Applicant received a First
Draw Paycheck Protection Program
Loan and, before the Second Draw
Paycheck Protection Program Loan is
disbursed, will have used the full loan
amount (including any increase) of the
First Draw Paycheck Protection Program
Loan only for eligible expenses.
(C) The Applicant is not a business
concern or entity (a) for which an entity
created in or organized under the laws
of the People’s Republic of China or the
Special Administrative Region of Hong
Kong, or that has significant operations
38 A representative of the applicant can certify for
the business as a whole if the representative is
legally authorized to do so.
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in the People’s Republic of China or the
Special Administrative Region of Hong
Kong, owns or holds, directly or
indirectly, not less than 20 percent of
the economic interest of the business
concern or entity, including as equity
shares or a capital or profit interest in
a limited liability company or
partnership; or (b) that retains, as a
member of the board of directors of the
business concern, a person who is a
resident of the People’s Republic of
China.
(D) The Applicant is not required to
submit a registration statement under
section 2 of the Foreign Agents
Registration Act of 1938 (22 U.S.C. 612).
(E) The Applicant is not a business
concern or entity primarily engaged in
political or lobbying activities,
including any entity that is organized
for research or for engaging in advocacy
in areas such as public policy or
political strategy or otherwise describes
itself as a think tank in any public
documents.
(4) A lender must submit SBA Form
2484–SD (Paycheck Protection Program
Lender’s Application—Second Draw
Loan Guaranty) electronically in
accordance with program requirements
and maintain the forms and supporting
documentation in its files.
(h) What do lenders need to know and
do?
(1) A lender approved to make First
Draw PPP Loans may make Second
Draw PPP Loans under the same terms
and conditions applicable to First Draw
PPP Loans, including all requirements
under sections (C) and (D) of the
Consolidated First Draw PPP IFR,
except as otherwise provided in this
section.
(2) What do lenders have to do in
terms of loan underwriting?
(i) Each lender shall:
(A) Confirm receipt of borrower
certifications contained in Paycheck
Protection Program Second Draw
Borrower Application Form (SBA Form
2483–SD) or lender’s equivalent;
(B) Confirm receipt of information
demonstrating that a borrower was
either an eligible self-employed
individual, independent contractor, or
sole proprietorship with no employees
or had employees for whom the
borrower paid salaries and payroll taxes
on or around February 15, 2020;
(C) Confirm the dollar amount of
average monthly payroll costs for 2019
or 2020 (whichever was used to
calculate loan amount) by reviewing the
payroll documentation submitted with
the borrower’s application;
(D) For a Second Draw PPP Loan
greater than $150,000 or a loan of
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3721
$150,000 or less where the borrower
provides documentation of revenue
reduction, confirm the dollar amount
and percentage of the borrower’s
revenue reduction by performing a good
faith review, in a reasonable time, of the
borrower’s calculations and supporting
documents concerning the borrower’s
revenue reduction. For a loan of
$150,000 or less where the borrower
does not provide documentation of
revenue reduction with its application,
the lender shall perform this review
when the borrower provides such
documentation. If the lender identifies
errors in the borrower’s calculation or
material lack of substantiation in the
borrower’s supporting documents, the
lender should work with the borrower
to remedy the issue.
(E) Follow applicable BSA
requirements (listed in subsection
(C)(3)(d) of the Consolidated First Draw
PPP IFR); and
(ii) Each lender’s underwriting
obligation under the Second Draw PPP
is limited to the items above and
reviewing the ‘‘Paycheck Protection
Program Second Draw Borrower
Application Form’’ (SBA Form 2483–
SD) or lender’s equivalent form.
(iii) A lender may rely on any
certification or documentation
submitted by an applicant for a PPP
loan or an eligible recipient or eligible
entity that (A) is submitted pursuant to
all applicable statutory requirements,
regulations, and guidance related to a
PPP loan, including under sections
7(a)(36) or (37) of the Small Business
Act (15 U.S.C. 636(a)(36) and (37)); and
(B) attests that the applicant, eligible
recipient, or eligible entity, as
applicable, has accurately provided the
certification or documentation to the
lender in accordance with the statutory
requirements, regulations, and guidance
related to PPP loans. With respect to a
lender that relies on such a certification
or documentation related to a Second
Draw PPP Loan, an enforcement action
may not be taken against the lender, and
the lender shall not be subject to any
penalties relating to loan origination or
forgiveness of the Second Draw PPP
Loan, if—(A) the lender acts in good
faith relating to loan origination or
forgiveness of the Second Draw PPP
Loan based on that reliance; and (B) all
other relevant Federal, State, local, and
other statutory and regulatory
requirements applicable to the lender
are satisfied with respect to the Second
Draw PPP Loan.
(3) SBA will pay lenders fees for
processing Second Draw PPP Loans in
the following amounts:
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(i) for a Second Draw PPP Loan of up
to (and including) $50,000, in an
amount equal to the lesser of:
(A) 50 percent of the balance of the
financing outstanding at the time of
disbursement of the loan; or
(B) $2,500; and
(ii) for a Second Draw PPP Loan of
more than $50,000, in an amount that is:
(A) 5 percent of the balance of the
financing outstanding at the time of
disbursement of the loan for a loan up
to (and including) $350,000; and
(B) 3 percent of the balance of the
financing outstanding at the time of
disbursement of the loan for a loan
above $350,000.
(i) Will an applicant’s Second Draw PPP
Loan application be affected if there are
unresolved issues regarding the
applicant’s First Draw PPP Loan?
(1) If a First Draw PPP Loan is under
review pursuant to PPP rules and/or
information in SBA’s possession
indicates that the borrower may have
been ineligible for the First Draw PPP
Loan it received or for the loan amount
received by the borrower, the lender
will receive notification from SBA when
the lender submits an application for
guaranty of a Second Draw PPP Loan
(‘‘unresolved borrower’’).
(2) If the lender receives notification
that the Applicant for a Second Draw
PPP Loan is an unresolved borrower, the
lender will not receive an SBA loan
number. SBA will resolve the issue
related to the unresolved borrower
expeditiously and will notify the lender
of the process to obtain an SBA loan
number for the Second Draw PPP Loan,
if appropriate.
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(j) Are Second Draw PPP Loans eligible
for loan forgiveness?
Second Draw PPP Loans are eligible
for loan forgiveness on the same terms
and conditions as First Draw PPP Loans,
except that Second Draw PPP Loan
borrowers with a principal amount of
$150,000 or less are required to provide
documentation of revenue reduction if
such documentation was not provided
at the time of the loan application as
specified in subsections (g)(2)(iv) and
(v) of this section.
V. Additional Information
SBA may provide further guidance, if
needed, through SBA notices and a
program guide which will be posted on
SBA’s website at www.sba.gov.
Questions on the Paycheck Protection
Program 7(a) Loans (First Draw PPP
Loans and Second Draw PPP Loans)
may be directed to the Lender Relations
Specialist in the local SBA Field Office.
The local SBA Field Office may be
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found at https://www.sba.gov/tools/
local-assistance/districtoffices.
Compliance With Executive Orders
12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44 U.S.C.
Ch. 35), and the Regulatory Flexibility
Act (5 U.S.C. 601–612)
Executive Orders 12866, 13563, and
13771
This interim final rule is
economically significant for the
purposes of Executive Orders 12866 and
13563, and the Office of Management
and Budget’s Office of Information and
Regulatory Affairs (OIRA) had
determined that this is a major rule
under the Congressional Review Act (5
U.S.C. 804(2)). SBA, however, is
proceeding under the emergency
provision at Executive Order 12866
section 6(a)(3)(D) based on the need to
move expeditiously to mitigate the
current economic conditions arising
from the COVID–19 emergency. This
rule’s designation under Executive
Order 13771 will be informed by public
comment.
This rule is necessary to implement
the Economic Aid Act in order to
provide economic relief to small
businesses nationwide adversely
impacted under the COVID–19
Emergency Declaration. We anticipate
that this rule will result in substantial
benefits to small businesses, their
employees, and the communities they
serve. However, we lack data to estimate
the effects of this rule.
The Administrator of OIRA has
determined that this is a major rule for
purposes of the Congressional Review
Act (5 U.S.C. 801 et seq.) (CRA). Under
section 801(3) of the CRA, a major rule
takes effect 60 days after the rule is
published in the Federal Register.
Notwithstanding this requirement,
section 808(2) of the CRA allows
agencies to dispense with the
requirements of section 801 when the
agency for good cause finds that such
procedure would be impracticable,
unnecessary, or contrary to the public
interest and the rule shall take effect at
such time as the agency promulgating
the rule determines. Pursuant to section
808(2) of the CRA, SBA finds, for good
cause, that a 60-day delay in the
effective date is unnecessary and
contrary to the public interest.
As discussed elsewhere in this
interim final rule, the last day to apply
for and receive a PPP loan is March 31,
2021. Given the short duration of this
program, and the urgent need to issue
loans quickly, the Administrator in
consultation with the Secretary has
determined that it is impractical and not
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in the public interest to provide a
delayed effective date. An immediate
effective date will give small businesses
the maximum amount of time to apply
for loans and lenders the maximum
amount of time to process applications
before the program ends.
Executive Order 12988
SBA has drafted this rule, to the
extent practicable, in accordance with
the standards set forth in section 3(a)
and 3(b)(2) of Executive Order 12988, to
minimize litigation, eliminate
ambiguity, and reduce burden. The rule
has no preemptive or retroactive effect.
Executive Order 13132
SBA has determined that this rule
will not have substantial direct effects
on the States, on the relationship
between the National Government and
the States, or on the distribution of
power and responsibilities among the
various layers of government. Therefore,
SBA has determined that this rule has
no federalism implications warranting
preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C.
Chapter 35
SBA has determined that this rule
will impose new recordkeeping or
reporting requirements under the
Paperwork Reduction Act (‘‘PRA’’). This
information collection (IC) consists of
SBA Form 2483–SD (Paycheck
Protection Program Second Draw
Application Form) and SBA Form 2484–
SD (Paycheck Protection Program
Lender’s Application—Second Draw
Loan Guaranty. SBA has requested
emergency approval for the IC required
to implement the Second Draw PPP
Program described above.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA)
generally requires that when an agency
issues a proposed rule, or a final rule
pursuant to section 553(b) of the APA or
another law, the agency must prepare a
regulatory flexibility analysis that meets
the requirements of the RFA and
publish such analysis in the Federal
Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to
describe the impact of a rulemaking on
small entities by providing a regulatory
impact analysis. Such analysis must
address the consideration of regulatory
options that would lessen the economic
effect of the rule on small entities. The
RFA defines a ‘‘small entity’’ as (1) a
proprietary firm meeting the size
standards of the Small Business
Administration (SBA); (2) a nonprofit
organization that is not dominant in its
field; or (3) a small government
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jurisdiction with a population of less
than 50,000. 5 U.S.C. 601(3)–(6). Except
for small government jurisdictions with
a population of less than 50,000, neither
State nor local governments are ‘‘small
entities.’’
The requirement to conduct a
regulatory impact analysis does not
apply if the head of the agency ‘‘certifies
that the rule will not, if promulgated,
have a significant economic impact on
a substantial number of small entities.’’
5 U.S.C. 605(b). The agency must,
however, publish the certification in the
Federal Register at the time of
publication of the rule, ‘‘along with a
statement providing the factual basis for
such certification.’’ If the agency head
has not waived the requirements for a
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regulatory flexibility analysis in
accordance with the RFA’s waiver
provision, and no other RFA exception
applies, the agency must prepare the
regulatory flexibility analysis and
publish it in the Federal Register at the
time of promulgation or, if the rule is
promulgated in response to an
emergency that makes timely
compliance impracticable, within 180
days of publication of the final rule. 5
U.S.C. 604(a), 608(b).
Rules that are exempt from notice and
comment are also exempt from the RFA
requirements, including conducting a
regulatory flexibility analysis, when
among other things the agency for good
cause finds that notice and public
procedure are impracticable,
PO 00000
Frm 00033
Fmt 4701
Sfmt 9990
3723
unnecessary, or contrary to the public
interest. Small Business
Administration’s Office of Advocacy
guide: How to Comply with the
Regulatory Flexibility Ac. Ch.1. p.9.
Since this rule is exempt from notice
and comment, SBA is not required to
conduct a regulatory flexibility analysis.
Authority: 15 U.S.C. 636(a)(36);
Coronavirus Aid, Relief, and Economic
Security Act, Pub. L. 116–136, section 1114;
and Economic Aid to Hard-Hit Small
Businesses, Nonprofits, and Venues Act, Pub.
L. 116–260, section 303.
Jovita Carranza,
Administrator.
[FR Doc. 2021–00452 Filed 1–12–21; 4:15 pm]
BILLING CODE 8026–03–P
E:\FR\FM\14JAR6.SGM
14JAR6
Agencies
[Federal Register Volume 86, Number 9 (Thursday, January 14, 2021)]
[Rules and Regulations]
[Pages 3712-3723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00452]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 120 and 121
[Docket No. SBA-2021-0002]
RIN 3245-AH63
Business Loan Program Temporary Changes; Paycheck Protection
Program Second Draw Loans
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule.
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SUMMARY: This interim final rule announces the implementation of
section 311 of the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act (the Economic Aid Act). The Economic Aid Act
authorizes the U.S. Small Business Administration to guarantee
additional loans under the temporary Paycheck Protection Program, which
was originally established under the Coronavirus Aid, Relief, and
Economic Security Act to provide economic relief to small businesses
nationwide adversely impacted under the Coronavirus Disease 2019
(COVID-19) Emergency Declaration (COVID-19 Emergency Declaration)
issued by President Trump on March 13, 2020. Section 311 of the
Economic Aid Act adds a second temporary program to SBA's 7(a) Loan
Program titled, ``Paycheck Protection Program Second Draw Loans.'' This
interim final rule implements the key provisions of section 311 of the
Economic Aid Act and requests public comment.
DATES:
Effective Date: This interim final rule is effective January 12,
2021.
Applicability Date: This interim final rule applies to loan
applications and applications for loan forgiveness submitted for
Paycheck Protection Program Second Draw Loans.
Comment Date: Comments must be received on or before February 16,
2021.
ADDRESSES: You may submit comments, identified by number SBA-2021-0002
through the Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please send an email to [email protected].
All other comments must be submitted through the Federal eRulemaking
Portal described above. Highlight the information that you consider to
be CBI and explain why you believe SBA should hold this information as
confidential. SBA will review the information and make the final
determination whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: Call Center Representative at 833-572-
0502, or the local SBA Field Office; the list of offices can be found
at https://www.sba.gov/tools/local-assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On December 27, 2020, President Trump signed the Economic Aid to
Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid
Act) (Pub. L. 116-260) into law to provide continued assistance to
individuals and businesses that have been financially impacted by the
ongoing coronavirus pandemic. Section 311 of the Economic Aid Act added
a new temporary section 7(a)(37) to the Small Business Act (15 U.S.C.
636(a)(37)). This new section authorizes the U.S. Small Business
Administration (SBA or the Administration) to guarantee Paycheck
Protection Program Second Draw Loans (PPP Second Draw Program), under
generally the same terms and conditions available under the Paycheck
Protection Program (PPP) established under section 7(a)(36) of the
Small Business Act (15 U.S.C. 636(a)(36)). Under section 311, SBA may
guarantee loans under the PPP Second Draw Program through March 31,
2021 (``Second Draw PPP Loans'') to borrowers that previously received
a PPP loan under section 7(a)(36) of the Small Business Act (``First
Draw PPP Loans'') and 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.
Like First Draw PPP Loans, Second Draw PPP Loans are intended to
provide expeditious relief to America's small
[[Page 3713]]
businesses. Second Draw PPP Loans generally are guaranteed by SBA under
the same terms, conditions, and processes as First Draw PPP Loans. SBA
guarantees 100 percent of Second Draw PPP Loans and SBA may forgive up
to the full principal loan amount. Second Draw PPP Loans are subject to
SBA's and the Department of the Treasury's (Treasury's) consolidated
interim final rules implementing updates to the Paycheck Protection
Program for First Draw PPP Loans (``Consolidated First Draw PPP IFR'')
issued concurrently with this interim final rule (IFR) \1\ and all PPP
loan program requirements, except as specified in this IFR. The key
differences between First Draw PPP Loans and Second Draw PPP Loans are
described in this IFR, which explains the loan terms, eligibility
requirements, and application process for Second Draw PPP Loans.
---------------------------------------------------------------------------
\1\ The Consolidated First Draw PPP IFR titled ``Business Loan
Program Temporary Changes: Extension of and Changes to Paycheck
Protection Program'' restates existing regulatory provisions to
provide lenders and new PPP borrowers a single regulation to consult
on borrower eligibility, lender eligibility, and loan application
and origination requirements issues for new First Draw PPP loans, as
well as general rules relating to First Draw PPP Loan increases and
loan forgiveness.
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II. Comments and Immediate Effective Date
This interim final rule is being issued without advance notice and
public comment because section 303 of the Economic Aid Act authorizes
SBA to issue regulations to implement the Economic Aid Act without
regard to notice requirements. In addition, this rule is being issued
to allow for immediate implementation of this program. The intent of
the Economic Aid Act is that SBA provide relief to America's small
businesses expeditiously. The last day to apply for and receive a PPP
loan is March 31, 2021. Given the short duration of this program, and
the urgent need to issue loans quickly, the Administrator in
consultation with the Secretary has determined that it is impractical
and not in the public interest to provide a 30-day delayed effective
date. An immediate effective date will give small businesses the
maximum amount of time to apply for loans and lenders the maximum
amount of time to process applications before the program ends. This
good cause justification also supports waiver of the 60-day delayed
effective date for major rules under the Congressional Review Act at 5
U.S.C. 808(2). Although this IFR is effective immediately, comments are
solicited from interested members of the public on all aspects of the
interim final rule. These comments must be submitted on or before
February 16, 2021. SBA will consider these comments and the need for
making any revisions as a result of these comments.
III. Summary of Key Terms of PPP Second Draw Loans
The rules applicable to Second Draw PPP Loans are published in
section IV of this IFR. This summary provides additional information
and explains the key terms in the IFR. All references to subsections
refer to section IV.
Second Draw PPP Loans are generally subject to the same terms,
conditions and requirements as First Draw PPP Loans. These include, but
are not limited to the following terms:
The guarantee percentage is 100 percent.
No collateral will be required.
No personal guarantees will be required.
The interest rate will be 100 basis points or one percent,
calculated on a non-compounding, non-adjustable basis.\2\
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\2\ Section 339 of the Economic Aid Act added ``calculated on a
non-compounding, non-adjustable basis'' to the maximum interest rate
for a PPP loan.
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The maturity is five years.
All loans will be processed by all lenders under delegated
authority and lenders will be permitted to rely on certifications of
the borrower to determine the borrower's eligibility and use of loan
proceeds.
Subsection (b) of this IFR confirms that these terms apply to
Second Draw PPP Loans. Subsection (b) also confirms that SBA's
Consolidated First Draw PPP IFR, Frequently Asked Questions (FAQs), and
other guidance about PPP loans under section 7(a)(36) of the Small
Business Act (15 U.S.C. 636(a)(36)) apply to Second Draw PPP Loans,
except as specified in this IFR.\3\
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\3\ SBA will be revising the FAQs to conform to the Economic Aid
Act as quickly as feasible.
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The Economic Aid Act includes terms and conditions, including but
not limited to terms relating to eligibility and a borrower's maximum
loan amount, that apply only to Second Draw PPP Loans and do not apply
to First Draw PPP Loans, regardless of when the First Draw PPP Loan is
made. These terms and conditions specific to Second Draw PPP Loans are
summarized below.
A. Eligibility Requirements
1. General Eligibility Requirements
In general, the Economic Aid Act made the eligibility requirements
for Second Draw PPP Loans narrower than the eligibility requirements
for First Draw PPP Loans. The Economic Aid Act generally provides that
a borrower is eligible for a Second Draw PPP Loan only if it has 300 or
fewer employees and experienced a revenue reduction in 2020 relative to
2019 (described further below).\4\ In addition, the Economic Aid Act
provides that a Second Draw PPP Loan may only be made to an eligible
borrower that (i) has received a First Draw PPP Loan, and (ii) has
used, or will use, the full amount of the First Draw PPP Loan on or
before the expected date on which the Second Draw PPP Loan is disbursed
to the borrower.\5\ Accordingly, subsections (c)(1)(i) through
(c)(1)(iv) of this IFR implement these criteria. Subsection (c)(1)(ii)
of the IFR clarifies that ``the full amount'' of the borrower's First
Draw PPP Loan includes the amount of any increase on such First Draw
PPP Loan made pursuant to the Economic Aid Act. In addition, subsection
(c)(1)(ii) of the IFR clarifies that the borrower must have spent the
full amount of its First Draw PPP Loan on eligible expenses under the
PPP rules to be eligible for a Second Draw PPP Loan. This clarification
will help ensure program integrity by preventing a borrower from
receiving a Second Draw PPP Loan if the borrower has not complied with
PPP loan program requirements.\6\
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\4\ See paragraph 7(a)(37)(A)(iv) of the Small Business Act.
\5\ See paragraph 7(a)(37)(O) of the Small Business Act.
\6\ Subsection (B)(11) of the Consolidated First Draw PPP IFR
specifies that the proceeds of a PPP loan may be spent only on
certain eligible expenses.
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2. Revenue Reduction Requirement
The Economic Aid Act provides that, to be eligible for a Second
Draw PPP Loan, the borrower must have experienced a revenue reduction
of 25% or greater in 2020 relative to 2019.\7\ A borrower must
calculate this revenue reduction by comparing the borrower's quarterly
gross receipts for one quarter in 2020 with the borrower's gross
receipts for the corresponding quarter of 2019. For example, a borrower
with gross receipts of $50,000 in the second quarter of 2019 and gross
receipts of $30,000 in the second quarter of 2020 has experienced a
revenue reduction of 40 percent between the quarters, and is therefore
eligible for a Second Draw PPP loan (assuming all other eligibility
criteria are met). Subsection (c)(1)(iv)(A) of the IFR reflects this
methodology. Subsection (c)(1)(iv)(B) of the IFR provides that a
borrower that was in operation in all four quarters of 2019 is deemed
to have experienced the required revenue reduction if it
[[Page 3714]]
experienced a reduction in annual receipts of 25 percent or greater in
2020 compared to 2019 and the borrower submits copies of its annual tax
forms substantiating the revenue decline. This provision will allow a
borrower to provide annual tax return forms to substantiate its revenue
reduction. The Administrator, in consultation with the Secretary of the
Treasury (Secretary), has determined that this is necessary to improve
administrability of Second Draw PPP Loans by providing borrowers an
additional verifiable method for substantiating their revenue
reduction. This method will be particularly important for small
borrowers that may not have quarterly revenue information readily
available. Moreover, this approach is appropriate because, if annual
filings show a 25 percent revenue reduction, then at least one quarter
in 2020 would have had at least a 25 percent revenue reduction. A
borrower that did not experience a 25 percent annual decline in
revenues, or that was not in operation in all four quarters of 2019,
may still meet the revenue reduction requirement under one of the
quarterly measurements described above.
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\7\ See paragraph 7(a)(37)(A)(iv) of the Small Business Act.
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The Economic Aid Act does not include a general definition of gross
receipts for purposes of determining a borrower's revenue reduction.\8\
Subsection (c)(2) of the IFR defines gross receipts consistent with the
definition of receipts in 13 CFR 121.104 of SBA's size regulations
because this definition appropriately captures the type of income that
is typically included in a small business's gross receipts.\9\
Moreover, this definition will enhance the administrability of Second
Draw PPP Loans because it is a definition already used by the
Administration and many small businesses.
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\8\ For an eligible nonprofit organization, a veterans
organization, an eligible nonprofit news organization, eligible
501(c) organization, or eligible destination marketing organization,
gross receipts has the meaning in section 6033 of the Internal
Revenue Code of 1986. See paragraph 7(a)(37)(I)(ii) of the Small
Business Act. Subsection (c)(2) of the IFR clarifies that this
definition, which generally relates to eligible nonprofit
organizations, applies only to eligible nonprofit news organizations
rather than to all eligible news organizations.
\9\ Subsection (c)(2) of the IFR generally defines gross
receipts to include all revenue in whatever form received or accrued
(in accordance with the entity's accounting method) from whatever
source, including from the sales of products or services, interest,
dividends, rents, royalties, fees, or commissions, reduced by
returns and allowances. Generally, receipts are considered ``total
income'' (or in the case of a sole proprietorship, independent
contractor, or self-employed individual ``gross income'') plus
``cost of goods sold,'' and excludes net capital gains or losses as
these terms are defined and reported on IRS tax return forms. Gross
receipts do not include the following: Taxes collected for and
remitted to a taxing authority if included in gross or total income
(such as sales or other taxes collected from customers and excluding
taxes levied on the concern or its employees); proceeds from
transactions between a concern and its domestic or foreign
affiliates; and amounts collected for another by a travel agent,
real estate agent, advertising agent, conference management service
provider, freight forwarder or customs broker. All other items, such
as subcontractor costs, reimbursements for purchases a contractor
makes at a customer's request, investment income, and employee-based
costs such as payroll taxes, may not be excluded from gross
receipts. Subsection (c)(2) also adapts the methodology for
calculating affiliate receipts from 13 CFR 121.104.
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The IFR specifies that any forgiveness amount of a First Draw PPP
Loan that a borrower received in calendar year 2020 is excluded from a
borrower's gross receipts. Excluding the forgiveness amount from a
borrower's gross receipts is consistent with section 7A(i) of the Small
Business Act, which expressly excludes PPP forgiveness amounts from
being taxed as income.\10\ This clarification ensures the effectiveness
of the second draw loan program by ensuring that a borrower is not
disqualified from receiving a Second Draw PPP Loan because it received
forgiveness on a First Draw PPP Loan. This furthers the purpose of the
second draw loan provisions, which is to deliver additional aid to
small businesses that previously received a First Draw PPP Loan.
---------------------------------------------------------------------------
\10\ Section 1106 of the CARES Act (15 U.S.C. 9005) was
redesignated as section 7A, transferred to the Small Business Act
(15 U.S.C. 631 et seq.), and inserted so as to appear after section
7 of the Small Business Act (15 U.S.C. 636) in section 304(b) of the
Economic Aid Act.
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3. Business Concerns With More Than One Physical Location
Under the CARES Act, any single business entity that is assigned a
NAICS code beginning with 72 (including hotels and restaurants) and
employs not more than 500 employees per physical location is eligible
to receive a First Draw PPP Loan.\11\ In addition, as discussed below,
under the Consolidated First Draw PPP IFR, SBA's affiliation rules (13
CFR 121.301) do not apply to any business entity that is assigned a
NAICS code beginning with 72 and that employs not more than a total of
500 employees.\12\ As a result, if each hotel or restaurant location
owned by a parent business is a separate legal business entity and
employs not more than 500 employees, each hotel or restaurant location
is permitted to apply for a separate PPP loan provided it uses its
unique EIN.
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\11\ Paragraph 7(a)(36)(D)(iii)(I) of the Small Business Act.
\12\ Paragraph 7(a)(36)(D)(iv) of the Small Business Act.
---------------------------------------------------------------------------
Section 317 of the Economic Aid Act modified this provision for
Second Draw PPP Loans by reducing the limit on employees per physical
location to 300. Accordingly, a single business entity that is assigned
a NAICS code beginning with 72 is eligible to receive a Second Draw PPP
Loan if it employs no more than 300 employees per physical location and
meets the revenue reduction requirements and otherwise satisfies the
eligibility criteria described in this IFR.\13\ Under section 317 of
the Economic Aid Act, the same standard applies to certain news
organizations.\14\ Subsections (c)(3) and (c)(4) of the IFR implement
these statutory provisions. Borrowers may consult PPP Frequently Asked
Question (FAQ) 24 \15\ for guidance on these standards for business
concerns with more than one physical location, except that, for Second
Draw PPP Loans, the number of employees per physical location is
limited to 300 rather than 500.
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\13\ Paragraph 7(a)(37)(D) of the Small Business Act.
\14\ Paragraph 7(a)(36)(D)(iii)(II) of the Small Business Act.
\15\ See PPP FAQ #24 (posted April 13, 2020), available at
https://www.sba.gov/sites/default/files/2020-12/Final%20PPP%20FAQs%20%28December%209%202020%29-508.pdf.
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B. Affiliation Rules
The same affiliation rules that apply to First Draw PPP Loans apply
to Second Draw PPP Loans, except as provided in this IFR. As with First
Draw PPP Loans, in most cases, a borrower is considered together with
its affiliates to determine eligibility for the PPP.\16\ However, the
CARES Act waived the affiliation rules for certain categories of
borrowers.\17\ Paragraph 7(a)(37)(E) of the Small Business Act, as
amended by the Economic Aid Act, applies the same
[[Page 3715]]
waivers to Second Draw PPP Loans, adds a waiver for certain eligible
news organizations, and makes adjustments to reflect the reduced size
requirement for Second Draw PPP Loans. Specifically, business concerns
with a NAICS code beginning with 72 qualify for the affiliation waiver
for Second Draw PPP Loans if they employ 300 or fewer employees.
Eligible news organizations with a NAICS code beginning with 511110 or
5151 (or majority-owned or controlled by a business concern with those
NAICS codes) may qualify for the affiliation waiver for Second Draw PPP
Loans only if they employ 300 or fewer employees per physical
location.\18\ Subsection (d)(2) implements these revised affiliation
waivers. SBA also adopted a religious exemption to the affiliation
rules by regulation,\19\ which applies to Second Draw PPP loans.
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\16\ Paragraph 7(a)(36)(D)(iv) of the Small Business Act (15
U.S.C. 636(a)(36)(D)(iv), as added by the CARES Act and amended by
the Economic Aid Act, waived the affiliation rules contained in
Sec. 121.103 for (1) any business concern with not more than 500
employees that, as of the date on which the loan is disbursed, is
assigned a NAICS code beginning with 72; (2) any business concern
operating as a franchise that is assigned a franchise identifier
code by SBA; (3) any business concern that receives financial
assistance from a company licensed under section 301 of the Small
Business Investment Act of 1958 (15 U.S.C. 681); and (4)(a) any
business concern (including any station which broadcasts pursuant to
a license granted by the Federal Communications Commission under
title III of the Communications Act of 1934 (47 U.S.C. 301 et seq.)
without regard for whether such a station is a concern as defined in
13 CFR 121.105, or any successor thereto) that employs not more than
500 employees, or the size standard established by the Administrator
for the NAICS code applicable to the business concern, per physical
location of such business concern and is majority owned or
controlled by a business concern that is assigned a NAICS code
beginning with 511110 or 5151; or (b) any nonprofit organization
that is assigned a NAICS code beginning with 5151.
\17\ Paragraph 7(a)(36)(D)(iv) of the Small Business Act.
\18\ Paragraph 7(a)(37)(E) of the Small Business Act.
\19\ See section (B)(3)(c) of the Consolidated First Draw PPP
IFR.
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C. Excluded Entities
An entity that is ineligible to receive a First Draw PPP Loan under
the CARES Act or Consolidated First Draw PPP IFR is also ineligible for
a Second Draw PPP Loan.\20\ Subsection (e)(1) of the IFR implements
this restriction. Subsection (e)(1) ensures that a borrower that
received a First Draw PPP Loan despite being ineligible to receive the
loan is not eligible to receive a Second Draw PPP Loan.
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\20\ Paragraph 7(a)(37)(O) of the Small Business Act provides
that a Second Draw PPP Loan may be made only to a borrower that
received a First Draw PPP Loan under paragraph 7(a)(36). In
addition, section 7(a)(37)(B) provides that the Administrator may
guarantee covered loans to eligible entities under the same terms,
conditions, and processes as First Draw PPP Loans.
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The Economic Aid Act also prohibits several additional categories
of borrowers from receiving a Second Draw PPP Loan under section
7(a)(37) of the Small Business Act. These categories of prohibited
borrowers are listed in subsection (e) of the IFR:
A business concern or entity primarily engaged in
political activities or lobbying activities, including any entity that
is organized for research or for engaging in advocacy in areas such as
public policy or political strategy or that describes itself as a think
tank in any public documents; \21\
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\21\ Paragraph 7(a)(37)(A)(iv)(III)(bb) of the Small Business
Act.
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certain entities organized under the laws of the People's
Republic of China or the Special Administrative Region of Hong Kong, or
with other specified ties to the People's Republic of China or the
Special Administrative Region of Hong Kong; \22\
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\22\ Paragraph 7(a)(37)(A)(iv)(III)(cc) of the Small Business
Act.
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any person required to submit a registration statement
under section 2 of the Foreign Agents Registration Act of 1938 (22
U.S.C. 612); \23\
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\23\ Paragraph 7(a)(37)(A)(iv)(III)(dd) of the Small Business
Act.
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a person or entity that receives a grant for shuttered
venue operators under section 324 of the Economic Aid Act; \24\
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\24\ Paragraph 7(a)(37)(A)(iv)(III)(ee) of the Small Business
Act.
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entities in which the President, the Vice President, the
head of an Executive department, or a Member of Congress, or the spouse
of such person owns, controls, or holds at least 20 percent of any
class of equity; \25\ or
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\25\ Section 322 of the Economic Aid Act.
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a publicly traded company, defined as an issuer, the
securities of which are listed on an exchange registered as a national
securities exchange under section 6 of the Securities Exchange Act of
1934 (15 U.S.C. 78f).\26\
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\26\ Section 342 of the Economic Aid Act.
In addition, subsection (e)(9) of this IFR provides that an entity that
has previously received a Second Draw PPP Loan may not receive another
Second Draw PPP Loan, as required by the Economic Aid Act.\27\
Subsection (e)(9) also prohibits an entity that has permanently closed
from receiving a Second Draw PPP Loan because paragraph 7(a)(37)(A)(iv)
of the Small Business Act is best understood to describe existing
businesses. The Administrator, in consultation with the Secretary, has
determined this provision is also necessary to maintain program
integrity, prevent abuse, and preserve the availability of Second Draw
PPP Loan funds for businesses still in operation. Preserving funds for
such businesses is necessary because only businesses that are still in
operation will retain employees, which is a primary purpose of the PPP.
A borrower that has temporarily closed or temporarily suspended its
business remains eligible for a Second Draw PPP Loan.
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\27\ Paragraph 7(a)(37)(F) of the Small Business Act.
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D. Payroll Cost Calculation
In general, section 307 of the Economic Aid Act provides that the
maximum loan amount for a Second Draw PPP Loan is equal to the lesser
of two and half months of the borrower's average monthly payroll costs
or $2 million. Relative to First Draw PPP loans, the Economic Aid Act
adjusted the methodology for calculating a borrower's payroll costs.
Unlike First Draw PPP Loans, the Economic Aid Act provides that the
relevant time period for calculating a borrower's payroll costs for a
Second Draw PPP Loan is either the twelve-month period prior to when
the loan is made or calendar year 2019. The Act also provided tailored
methodologies for certain categories of borrowers. These calculations
are reflected in subsection (f) of this IFR. Subsection (f) of the IFR
uses ``calendar year 2020'' to refer to ``the twelve-month period prior
to when the loan is made.'' Calculating payroll costs based on calendar
year 2020 rather than the twelve months preceding the date the loan is
made will simplify the calculations and documentation requirements for
borrowers because payroll records are more commonly created and
retained on a calendar-year basis. Allowing borrowers to calculate
payroll costs based on calendar year 2020 is also not expected to
result in a significant difference in payroll costs compared to the
twelve months preceding the date the loan is made because all Second
Draw PPP Loans will be made in the first quarter of 2021. However, the
rule notes that Second Draw PPP Loan borrowers who are not self-
employed (including sole proprietorships and independent contractors)
are also permitted to use the precise 1-year period before the date on
which the loan is made to calculate payroll costs if they choose not to
use 2019 or 2020 to calculate payroll costs.
Consistent with the Economic Aid Act, subsections (f)(3) and (f)(4)
of the IFR include tailored calculation methodologies for seasonal
businesses, new entities that did not exist for the full twelve-month
period preceding the Second Draw PPP Loan, and borrowers assigned a
NAICS code beginning with 72 at the time of disbursement. For borrowers
assigned a NAICS code beginning with 72 at the time of disbursement,
the Economic Aid Act provides that the maximum loan amount is equal to
three-and-a-half (3.5) months of payroll costs rather than two-and-a-
half (2.5) months.\28\ These subsections also provide that, for a
borrower with a NAICS code beginning with 72 that would fall into more
than one category listed in subsection (f) (for example, a business
with a NAICS code beginning with 72 that is also a seasonal business or
is also a new entity without 12 months of payroll costs), the borrower
may calculate its average monthly payroll costs based on the
methodology that applies to the entity but may use the 3.5 multiplier
[[Page 3716]]
applicable to businesses with a NAICS code beginning with 72. The
Administrator, in consultation with the Secretary, has determined that
this methodology is necessary to provide small businesses in the
accommodation and food services sector the full amount of relief
provided in the Economic Aid Act while allowing these borrowers to
calculate their average monthly payroll costs accurately.
---------------------------------------------------------------------------
\28\ Paragraph 7(a)(37)(C)(iv) of the Small Business Act.
---------------------------------------------------------------------------
The Economic Aid Act included a new payroll cost calculation for
farmers and ranchers receiving First Draw PPP Loans. However, it did
not specify how payroll costs should be calculated for Second Draw PPP
Loans to farmers and ranchers. This IFR clarifies that the same general
calculation for farmers and ranchers applicable to First Draw PPP Loans
applies to Second Draw PPP Loans, with adjustments that (i) eliminate
the provision for refinancing of an Economic Injury Disaster Loan
(EIDL), which does not apply to Second Draw PPP Loans, and (ii) apply
the choice of time period for calculating a farmer's or rancher's
payroll costs for Second Draw PPP Loans, consistent with other Second
Draw PPP Loans. This IFR also specifies that, in calculating a farmer's
or rancher's maximum loan amount, any employee payroll costs should be
subtracted from the farmer's or rancher's gross income to avoid double-
counting amounts that represent pay to the employees of the farmer or
rancher.
Subsections (f)(7) and (f)(8) of the IFR include tailored
calculation methodologies for self-employed individuals and
partnerships. These methodologies are based on the corresponding
methodologies for self-employed individuals and partnerships that are
used for First Draw PPP Loans.\29\ These methodologies have been
adjusted to eliminate the provision for refinancing of an EIDL loan,
which does not apply to Second Draw PPP loans and to apply the choice
of time period for calculating payroll costs, consistent with other
Second Draw PPP loans.
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\29\ See subsections (B)(4)(b) and (B)(4)(e) of the Consolidated
First Draw PPP IFR.
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Finally, subsection (f)(9) provides that businesses that are part
of a single corporate group shall in no event receive more than
$4,000,000 of Second Draw PPP Loans in the aggregate. The
Administrator, in consultation with the Secretary, determined that
limiting the amount of Second Draw PPP Loans that a single corporate
group may receive will promote the availability of PPP loans to the
largest possible number of borrowers, consistent with the CARES and
Economic Aid Act. The Administrator has concluded that a limitation of
$4,000,000 is appropriate because it is proportional to the $20,000,000
maximum amount for corporate groups that is provided under the
Consolidated First Draw PPP IFR when the maximum loan amount for a
single PPP loan is $10,000,000.
E. Second Draw PPP Loan Application and Documentation Requirements
Subsection (g) of this IFR includes the application and
documentation requirements for Second Draw PPP Loans. The documentation
required to substantiate an applicant's payroll cost calculations is
generally the same as documentation required for First Draw PPP Loans.
However, no additional documentation to substantiate payroll costs will
be required if the applicant (i) used calendar year 2019 figures to
determine its First Draw PPP Loan amount, (ii) used calendar year 2019
figures to determine its Second Draw PPP Loan amount (instead of
calendar year 2020), and (iii) the lender for the applicant's Second
Draw PPP Loan is the same as the lender that made the applicant's First
Draw PPP Loan. In such cases, additional documentation is not required
because the lender already has the relevant documentation supporting
the borrower's payroll costs. The lender may request additional
documentation, however, if on further review the lender concludes that
it would be useful in conducting the lender's good-faith review of the
borrower's loan amount calculation.
For loans with a principal amount greater than $150,000, the
applicant must also submit documentation adequate to establish that the
applicant experienced a revenue reduction of 25% or greater in 2020
relative to 2019. (The revenue reduction requirement is addressed in
subsection (c)(1)(iv) of this IFR.) Such documentation may include
relevant tax forms, including annual tax forms, or, if relevant tax
forms are not available, quarterly financial statements or bank
statements. For loans with a principal amount of $150,000 or less, such
documentation is not required at the time the borrower submits its
application for a loan, but must be submitted on or before the date the
borrower applies for loan forgiveness, as required under the Economic
Aid Act.\30\ If a borrower does not submit an application for loan
forgiveness, such documentation must be provided upon SBA's request.
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\30\ See paragraph 7(a)(37)(I)(i) of the Small Business Act.
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F. Lender Requirements
Subsection (g) of this IFR contains the provisions specific to
lenders for Second Draw PPP Loans. Paragraph 7(a)(37)(K) of the Small
Business Act, added by the Economic Aid Act, states that a lender
approved to make First Draw PPP loans may make Second Draw PPP Loans
under the same terms and conditions as new First Draw PPP Loans.
Subsection (g)(2) of this IFR provides that lenders are subject to the
same requirements when making Second Draw PPP Loans as when they are
making First Draw PPP Loans. These provisions allow a lender approved
to make Second Draw PPP Loans to use existing program guidance and
standard operating procedures to the maximum extent practicable.\31\
The requirements applicable to PPP lenders are in sections (C) and (D)
of the Consolidated First Draw PPP IFR. If a borrower has not submitted
new payroll documentation with its Second Draw PPP Loan application
because it previously submitted 2019 payroll information to the same
lender when it applied for its First Draw PPP Loan, then the lender
must confirm the borrower's average monthly payroll costs based on that
prior documentation.
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\31\ Paragraph 7(a)(37)(N) of the Small Business Act.
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In addition, for a Second Draw PPP Loan greater than $150,000, the
lender must confirm the dollar amount and percentage of the borrower's
revenue reduction by performing a good faith review, in a reasonable
time, of the borrower's calculations and supporting documents
concerning the borrower's revenue reduction. If the lender identifies
errors in the borrower's calculation or a material lack of
substantiation in the borrower's supporting documents, the lender
should work with the borrower to remedy the issue.
G. Loans to Borrowers With Unresolved First Draw PPP Loans
As described in SBA's interim final rule on SBA Loan Review
Procedures and Related Borrower and Lender Responsibilities, SBA may
review any PPP loan, as the Administrator deems appropriate.\32\
Subsection (i) of the IFR establishes procedures relating to the
handling of a Second Draw PPP Loan application by a borrower whose
First Draw PPP Loan is under review by SBA (``unresolved borrower'').
If a borrower's First Draw PPP loan is under review by SBA and/or
information in SBA's possession indicates that the borrower may have
been ineligible for the First
[[Page 3717]]
Draw PPP Loan it received or for the loan amount it received, the
lender will receive notification from SBA when the lender submits an
application for a guaranty of a Second Draw PPP Loan and will not
receive an SBA loan number until the issue related to the unresolved
borrower's First Draw PPP Loan is resolved. SBA will resolve issues
related to unresolved borrowers expeditiously. These procedures are
designed to promote compliance with the eligibility requirements for
Second Draw PPP Loans by preventing additional loans from being made to
borrowers that were not eligible for a First Draw PPP Loan or received
an impermissible loan amount. At the same time, these procedures do not
disqualify an eligible unresolved borrower from receiving a Second Draw
PPP Loan, in recognition that many flags will be resolved in the
borrower's favor. The Administrator, in consultation with the
Secretary, has determined that these procedures strike an appropriate
balance between promoting program integrity and preventing abuse, while
making Second Draw PPP Loans available to all eligible borrowers as
expeditiously as possible. SBA will set aside available appropriations
to fund Second Draw PPP Loans applied for by unresolved borrowers in
the event they are approved.
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\32\ 85 FR 33010, 33012.
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H. Loan Forgiveness
Loan forgiveness of Second Draw PPP Loans and the loan review
process for Second Draw PPP Loans are generally subject to the interim
final rules regarding Loan Forgiveness and SBA Loan Review Procedures
and Related Borrower and Lender Responsibilities, as modified to
conform to the Economic Aid Act by the Consolidated First Draw PPP IFR,
which is being published concurrently with this IFR. Subsection (j)
contains forgiveness provisions specific to Second Draw PPP loans.
Table of Contents
(a) Second Draw PPP Loan Program
(b) What requirements apply to Second Draw PPP Loans?
(c) Who is eligible for a Second Draw PPP Loan?
(d) How do SBA's affiliation rules affect an applicant's eligibility
for a Second Draw PPP Loan?
(e) Who is not eligible for a Second Draw PPP Loan?
(f) What is the maximum loan amount for a Second Draw PPP Loan?
(g) How do I submit an application for a Second Draw PPP Loan and
what documentation must I provide to demonstrate eligibility?
(h) What do lenders need to know and do?
(i) Will an applicant's Second Draw PPP Loan application be affected
if there are unresolved issues regarding the applicant's First Draw
PPP Loan?
(j) Are Second Draw PPP Loans eligible for loan forgiveness?
IV. Paycheck Protection Program Second Draw Loans
(a) Second Draw PPP Loan Program
Under section 7(a)(37) of the Small Business Act (15 U.S.C.
636(a)(37)), SBA is authorized to guarantee Paycheck Protection Program
Second Draw Loans (``Second Draw PPP Loans'').
(b) What requirements apply to Second Draw PPP Loans?
(1) Second Draw PPP Loans are subject to SBA's and the Department
of the Treasury's (``Treasury's'') consolidated interim final rule
implementing the Paycheck Protection Program (``Consolidated First Draw
PPP IFR'') and all PPP loan program requirements, except as otherwise
provided in this section, including but not limited to the following
terms:
(i) The guarantee percentage is 100 percent.
(ii) No collateral will be required.
(iii) No personal guarantees will be required.
(iv) The interest rate will be 100 basis points or one percent,
calculated on a non-compounding, non-adjustable basis.
(v) The maturity is five years.
(vi) All loans will be processed by all lenders under delegated
authority and lenders will be permitted to rely on certifications of
the borrower in order to determine eligibility of the borrower and the
use of loan proceeds.
(2) Frequently Asked Questions and other guidance issued by SBA or
by SBA in consultation with the Department of the Treasury with respect
to PPP loans under section 7(a)(36) of the Small Business Act (15
U.S.C. 636(a)(36)) (``First Draw PPP Loans'') apply to Second Draw PPP
Loans, except as otherwise provided in this section.
(c) Who is eligible for a Second Draw PPP Loan?
Subject to subsection (e) of this section, below, the following
applicants are eligible for Second Draw PPP Loans:
(1) An applicant is eligible for a Second Draw PPP Loan if it is a
business concern, independent contractor, eligible self-employed
individual, sole proprietor, nonprofit organization eligible for a
First Draw PPP Loan, veterans organization, Tribal business concern,
housing cooperative, small agricultural cooperative, eligible 501(c)(6)
organization or destination marketing organization, or an eligible
nonprofit news organization \33\ that:
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\33\ All terms in this subsection have the same definitions as
in sections 7(a)(36) and (37) of the Small Business Act and the
Consolidated First Draw PPP IFR, as applicable.
---------------------------------------------------------------------------
(i) Previously received a First Draw PPP loan in accordance with
the eligibility criteria in the Consolidated First Draw PPP IFR;
(ii) has used, or will use, the full amount of its First Draw PPP
Loan (including the amount of any increase on such First Draw PPP Loan)
on authorized uses under subsection (B)(11) of the Consolidated First
Draw PPP IFR on or before the expected date on which the Second Draw
PPP Loan will be disbursed; \34\
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\34\ A lender must make disbursement of the loan within ten
calendar days of loan approval. See subsection (D)(7) of the
Consolidated First Draw PPP IFR.
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(iii) employs not more than 300 employees, unless it satisfies the
alternative criteria for businesses with a North American Industry
Classification System (``NAICS'') code beginning with 72 and eligible
news organizations with more than one physical location described in
subsection (c)(3) or (c)(4) of this section; and
(iv) (A) experienced a reduction in revenue in calendar year 2020,
measured as follows:
(1) the applicant had gross receipts during the first, second,
third, or fourth quarter in 2020 that demonstrate at least a 25 percent
reduction from the applicant's gross receipts during the same quarter
in 2019 (for example, an applicant that had gross receipts of $50,000
in the second quarter of 2019 and had gross receipts of $30,000 in the
second quarter of 2020 experienced a 40 percent revenue reduction
between these two quarters);
(2) if the applicant was not in business during the first or second
quarter of 2019, but was in business during the third and fourth
quarters of 2019, the applicant had gross receipts during the first,
second, third, or fourth quarter of 2020 that demonstrate at least a 25
percent reduction from the applicant's gross receipts during the third
or fourth quarter of 2019 (for example, an applicant that had gross
receipts of $50,000 in the third quarter of 2019 and had gross receipts
of $30,000 in the third quarter of 2020-demonstrating a reduction of 40
percent from the applicant's gross receipts during the third quarter in
2019);
(3) if the applicant was not in business during the first, second,
or third quarter of 2019, but was in business during the fourth quarter
of 2019, the applicant had gross receipts
[[Page 3718]]
during the first, second, third, or fourth quarter of 2020 that
demonstrate at least a 25 percent reduction from the fourth quarter of
2019 (for example, an applicant that had gross receipts of $50,000 in
the fourth quarter of 2019 and had gross receipts of $30,000 in the
fourth quarter of 2020-demonstrating a reduction of 40 percent from the
applicant's gross receipts during the fourth quarter in 2019); or
(4) if the applicant was not in business during 2019, but was in
operation on February 15, 2020, the applicant had gross receipts during
the second, third, or fourth quarter of 2020 that demonstrate at least
a 25 percent reduction from the gross receipts of the entity during the
first quarter of 2020 (for example, an applicant that had gross
receipts of $50,000 in the first quarter of 2020 and had gross receipts
of $30,000 in the fourth quarter of 2020--demonstrating a reduction of
40 percent from the applicant's gross receipts during the first quarter
in 2020).
(B) An applicant that was in operation in all four quarters of 2019
is deemed to have experienced the revenue reduction in subsection
(c)(1)(iv)(A)(1) if it experienced a reduction in annual receipts of 25
percent or greater in 2020 compared to 2019 and the borrower submits
copies of its annual tax forms substantiating the revenue decline.
(2)(i) Gross receipts includes all revenue in whatever form
received or accrued (in accordance with the entity's accounting method)
from whatever source, including from the sales of products or services,
interest, dividends, rents, royalties, fees, or commissions, reduced by
returns and allowances. Generally, receipts are considered ``total
income'' (or in the case of a sole proprietorship, independent
contractor, or self-employed individual ``gross income'') plus ``cost
of goods sold,'' and excludes net capital gains or losses as these
terms are defined and reported on IRS tax return forms. Gross receipts
do not include the following: Taxes collected for and remitted to a
taxing authority if included in gross or total income (such as sales or
other taxes collected from customers and excluding taxes levied on the
concern or its employees); proceeds from transactions between a concern
and its domestic or foreign affiliates; and amounts collected for
another by a travel agent, real estate agent, advertising agent,
conference management service provider, freight forwarder or customs
broker. All other items, such as subcontractor costs, reimbursements
for purchases a contractor makes at a customer's request, investment
income, and employee-based costs such as payroll taxes, may not be
excluded from gross receipts.
(ii) Gross receipts of affiliates are calculated as follows:
(A) Gross receipts of a borrower with affiliates is calculated by
adding the gross receipts of the business concern with the gross
receipts of each affiliate.
(B) If a borrower has acquired an affiliate or been acquired as an
affiliate during 2020, gross receipts includes the receipts of the
acquired or acquiring concern. This aggregation applies for the entire
period of measurement, not just the period after the affiliation arose.
However, if a concern acquired a segregable division of another
business concern during 2020, gross receipts do not include the
receipts of the acquired division prior to the acquisition.
(C) The gross receipts of a former affiliate are not included. This
exclusion of gross receipts of such former affiliate applies during the
entire period of measurement, rather than only for the period after
which affiliation ceased. However, if a borrower sold a segregable
division during 2020, the gross receipts will continue to include the
receipts of the division that was sold.
(D) All terms in this subsection shall have the meaning attributed
to them by the IRS.
(iii) For an eligible nonprofit organization, a veterans
organization, an eligible nonprofit news organization, an eligible
501(c)(6) organization, or eligible destination marketing organization,
gross receipts means gross receipts within the meaning of section 6033
of the Internal Revenue Code of 1986.
(iv) The amount of any forgiven First Draw PPP Loan shall not be
included toward any borrower's gross receipts.
(3) Any business concern that has more than one physical location
and that employs not more than 300 employees per physical location is
eligible to receive a Second Draw PPP Loan if it is assigned a NAICS
code beginning with 72 at the time of loan disbursement and otherwise
meets the eligibility criteria in subsection (c)(1).
(4) Any business concern, or any station which broadcasts pursuant
to a license granted by the Federal Communications Commission under
title III of the Communications Act of 1934 (47 U.S.C. 301 et seq.),
that has more than one physical location and that employs not more than
300 employees per physical location is eligible to receive a Second
Draw PPP Loan if it meets the eligibility criteria in subsection (c)(1)
and: (1) Is majority owned or controlled by a business concern that is
assigned a NAICS code beginning with 511110 or 5151 or, with respect to
a public broadcasting entity (as defined in section 397(11) of the
Communications Act of 1934 (47 U.S.C. 397(11))), has a trade or
business that falls under such a code; and (2) makes a good faith
certification that proceeds of the loan will be used to support
expenses at the component of the organization that produces or
distributes locally focused or emergency information.
(d) How do SBA's affiliation rules affect an applicant's eligibility
for a Second Draw PPP Loan?
(1) Eligibility for Second Draw PPP Loans is governed by the same
affiliations rules (and waivers) as First Draw PPP Loans, except as
described in subsection (d)(2).
(2) The affiliation rules under 13 CFR 121.301(f) are waived with
respect to eligibility for a Second Draw PPP Loan for:
(i) Any business concern with not more than 300 employees that, as
of the date on which the covered loan is disbursed, is assigned a NAICS
code beginning with 72; and
(ii) (A) any business concern (including any station which
broadcasts pursuant to a license granted by the Federal Communications
Commission under title III of the Communications Act of 1934 (47 U.S.C.
301 et seq.) without regard for whether such a station is a concern as
defined in 13 CFR 121.105, or any successor thereto) that employs not
more than 300 employees, per physical location of such business concern
and is majority owned or controlled by a business concern that is
assigned a NAICS code beginning with 511110 or 5151; or
(B) any nonprofit organization that is assigned a NAICS code
beginning with 5151.
(e) Who is not eligible for a Second Draw PPP Loan?
An applicant is not eligible for a Second Draw PPP Loan, even if it
meets the eligibility requirements of subsection (c) of this section,
if the applicant is:
(1) Excluded from eligibility under the Consolidated First Draw PPP
IFR; \35\
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\35\ See generally section (B)(2) of the Consolidated First Draw
PPP IFR.
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(2) a business concern or entity primarily engaged in political
activities or lobbying activities, as defined in section 3 of the
Lobbying Disclosure Act of 1995 (2 U.S.C. 1602), including any entity
that is organized for research or for engaging in advocacy in areas
such as public policy or political strategy or
[[Page 3719]]
otherwise describes itself as a think tank in any public documents;
(3) any business concern or entity:
(i) For which an entity created in or organized under the laws of
the People's Republic of China or the Special Administrative Region of
Hong Kong, or that has significant operations in the People's Republic
of China or the Special Administrative Region of Hong Kong, owns or
holds, directly or indirectly, not less than 20 percent of the economic
interest of the business concern or entity, including as equity shares
or a capital or profit interest in a limited liability company or
partnership; or
(ii) that retains, as a member of the board of directors of the
business concern, a person who is a resident of the People's Republic
of China;
(4) any person required to submit a registration statement under
section 2 of the Foreign Agents Registration Act of 1938 (22 U.S.C.
612);
(5) any person or entity that receives a grant for shuttered venue
operators under section 324 of the Economic Aid to Hard-Hit Small
Businesses, Nonprofits, and Venues Act;
(6) any entity in which the President, the Vice President, the head
of an Executive department, or a Member of Congress, or the spouse of
such person as determined under applicable common law, directly or
indirectly holds a controlling interest in the entity, where:
(i) ``controlling interest'' means owning, controlling, or holding
not less than 20 percent, by vote or value, of the outstanding amount
of any class of equity interest in an entity;
(ii) ``equity interest'' means:
(A) A share in an entity, without regard to whether the share is
transferable or classified as stock or anything similar;
(B) a capital or profit interest in a limited liability company or
partnership; or
(C) a warrant or right, other than a right to convert, to purchase,
sell, or subscribe to a share or interest described in (A) or (B),
respectively;
(iii) ``Executive department'' has the meaning given the term in
section 101 of title 5, United States Code;
(iv) ``Member of Congress'' means a Member of the Senate or House
of Representatives, a Delegate to the House of Representatives, and the
Resident Commissioner from Puerto Rico; and
(v) For the purpose of determining whether a person has a
controlling interest in the entity, the securities owned, controlled,
or held by the President, the Vice President, the head of an Executive
department, or a Member of Congress, shall be aggregated with the
securities held by his or her spouse as determined under applicable
common law;
(7) any issuer, the securities of which are listed on an exchange
registered as a national securities exchange under section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f), where the terms
``exchange,'' ``issuer,'' and ``security'' have the meanings given
those terms in section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)) (except SBA will not consider whether a news
organization that is eligible under subsection (c)(4) is affiliated
with an entity, which includes any entity that owns or controls such
news organization, that is an issuer);
(8) an entity that has previously received a Second Draw PPP Loan;
or
(9) an entity that has permanently closed.
(f) What is the maximum loan amount for a Second Draw PPP Loan?
(1) In general, the maximum loan amount for a Second Draw PPP Loan
is equal to the lesser of two and half months of the borrower's average
monthly payroll costs or $2 million, except as otherwise specified in
this subsection (e). A borrower's average monthly payroll costs may be
based on calendar year 2020, calendar year 2019,\36\ or as otherwise
specified in subsections (f)(2) through (f)(9) of this section.
``Payroll costs'' has the same meaning as in subsections (B)(4)(g) and
(B)(4)(h) of the Consolidated First Draw PPP IFR and is calculated in
the same manner. In calculating a borrower's payroll costs, the
borrower must subtract any compensation paid to an employee in excess
of $100,000 on an annualized basis, as prorated for the time period
during which the payments are made or the obligation to make the
payments is incurred.
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\36\ Second Draw PPP Loan borrowers who are not self-employed,
sole proprietorships, or independent contractors are also permitted
to use the precise 1-year period before the date on which the loan
is made to calculate payroll costs if they choose not to use 2019 or
2020. Since most borrowers will use 2019 or 2020 the rule text
refers only to 2019 or 2020 for simplicity and readability.
---------------------------------------------------------------------------
(2) Except as otherwise provided in subsection (f)(3) through
(f)(7), the maximum amount of a Second Draw PPP Loan is calculated as
the lesser of:
(i) The product obtained by multiplying:
(A) The average total monthly payment for payroll costs incurred or
paid by the borrower during 2019 or 2020 (at the election of the
borrower); by
(B) 2.5; or
(ii) $2,000,000.
(3) The maximum amount of a Second Draw PPP Loan to a borrower that
is a seasonal employer (meaning an employer that does not operate for
more than 7 months in any calendar year or that during the preceding
calendar year, had gross receipts for any 6 months of that year that
were not more than 33.33 percent of the gross receipts of the employer
for the other 6 months of that year) is calculated as the lesser of:
(i) The product obtained by multiplying:
(A) At the election of the borrower, the average total monthly
payments for payroll costs incurred or paid by the borrower for any 12-
week period between February 15, 2019 and February 15, 2020; by
(B) 2.5 (or, only for a borrower assigned a NAICS code beginning
with 72 at the time of disbursement as defined in subsection (f)(10),
3.5); or
(ii) $2,000,000.
(4) The maximum amount of a Second Draw PPP Loan to a borrower that
did not exist during the 1-year period preceding February 15, 2020, but
was in operation on February 15, 2020 (``new entity''), is calculated
as the lesser of:
(i) The product obtained by multiplying:
(A) The quotient obtained by dividing:
(1) The sum of the total monthly payments by the borrower for
payroll costs paid or incurred by the borrower as of the date on which
the borrower applies for the Second Draw PPP Loan; by
(2) the number of months in which those payroll costs were paid or
incurred; by
(B) 2.5 (or, only for a borrower assigned a NAICS code beginning
with 72 at the time of disbursement as defined in subsection (f)(10),
3.5); or
(ii) $2,000,000.
(5) The maximum amount of a Second Draw PPP Loan made to a borrower
assigned a NAICS code beginning with 72 at the time of disbursement as
defined in subsection (f)(10) (that is not a seasonal employer or new
entity addressed in subsection (f)(3) or (f)(4) or a borrower with
self-employment income or a partnership addressed in subsection (f)(7)
or (f)(8) of this section) is calculated as the lesser of:
(i) The product obtained by multiplying:
(A) The average total monthly payment for payroll costs incurred or
paid by the borrower during either 2019 or 2020 (at the borrower's
election) by
(B) 3.5; or
(ii) $2,000,000.
(6) (i) The maximum amount of a Second Draw PPP Loan to a farmer or
rancher that:
[[Page 3720]]
(A) Operates as a sole proprietorship or as an independent
contractor, or is an eligible self-employed individual;
(B) reports farm income or expenses on a Schedule F (IRS Form
1040); and
(C) was in business as of February 15, 2020; is calculated
according to (ii) or (iii) of this subsection(e)(6), depending on
whether the borrower has employees.
(ii) If a borrower meeting the criteria in subsection (6)(i) of
this section does not have any employees, the maximum loan amount is
the product obtained by multiplying:
(A) The gross income of the borrower in 2019 or 2020, as reported
on a Schedule F (IRS Form 1040), that is not more than $100,000,
divided by 12; and
(B) 2.5.
(iii) If a borrower meeting the criteria in subsection (6)(i) of
this section has employees, the maximum loan amount is calculated as
the lesser of:
(A) The product obtained by multiplying:
(1) The sum of (i) the difference between gross income and employee
payroll costs of the borrower in 2019 or 2020 (at the election of the
borrower), as reported on a Schedule F (IRS Form 1040), that is not
more than $100,000, divided by 12, and (ii) the average total monthly
payment for employee payroll costs incurred or paid by the borrower
during the same year elected by the borrower; by
(2) 2.5; or
(B) $2,000,000.
(7) The maximum amount of a Second Draw PPP Loan to a borrower that
has income from self-employment and files a Form 1040, Schedule C, is
calculated as follows, depending on whether the borrower has employees:
(i) For a borrower that has income from self-employment and does
not have any employees, the maximum loan amount is the lesser of:
(A) The product obtained by multiplying:
(1) The net profit of the borrower in 2019 or 2020, as reported on
IRS Form 1040 Schedule C, that is not more than $100,000, divided by
12; and
(2) 2.5 (or, only for a borrower assigned a NAICS code beginning
with 72 as defined in subsection (f)(10) at the time of disbursement,
3.5).
(ii) For a borrower that has income from self-employment and has
employees, the maximum loan amount is the lesser of:
(A) The product obtained by multiplying:
(1) The sum of (i) the net profit of the borrower in 2019 or 2020
(at the election of the borrower), as reported on IRS Form 1040
Schedule C, that is not more than $100,000, divided by 12; (ii) the
average total monthly payment for employee payroll costs incurred or
paid by the borrower during the same year elected by the borrower; by
(2) 2.5 (or, only for a borrower assigned a NAICS code beginning
with 72 at the time of disbursement as defined in subsection (f)(10),
3.5); or
(B) $2,000,000.
(8) The maximum amount of a Second Draw PPP Loan to a borrower that
files taxes as a partnership is calculated as the lesser of:
(i) The product obtained by multiplying:
(A) The sum of (1) net earnings from self-employment of individual
general partners in 2019 or 2020 (at the election of the borrower), as
reported on IRS Form 1065 K-1, reduced by section 179 expense deduction
claimed, unreimbursed partnership expenses claimed, and depletion
claimed on oil and gas properties, multiplied by 0.9235,\37\ that is
not more than $100,000, divided by 12; (2) the average total monthly
payment for employee payroll costs incurred or paid by the borrower
during the same year elected by the borrower; by
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\37\ This treatment follows the computation of self-employment
tax from IRS Form 1040 Schedule SE Section A line 4 and removes the
``employer'' share of self-employment tax, consistent with how
payroll costs for employees in the partnership are determined.
---------------------------------------------------------------------------
(B) 2.5 (or, only for a borrower assigned a NAICS code beginning
with 72 as defined in subsection (f)(10) at the time of disbursal,
3.5); or
(ii) $2,000,000.
(9) Businesses that are part of a single corporate group shall in
no event receive more than $4,000,000 of Second Draw PPP Loans in the
aggregate. Corporate group has the same meaning as in subsection
(B)(4)(f) of the Consolidated First Draw PPP IFR.
(10) For purposes of calculating a borrower's maximum payroll
costs, a borrower may multiply its average monthly payroll costs by 3.5
only if the borrower is in the Accommodation and Food Services sector
and has reported a NAICS code beginning with 72 as its business
activity code on its most recent IRS income tax return.
(g) How do I submit an application for a Second Draw PPP Loan and what
documentation must I provide to demonstrate eligibility?
(1) The applicant must submit to the lender SBA Form 2483-SD
(Paycheck Protection Program Second Draw Borrower Application Form) or
the lender's equivalent form including the required certifications and
the documentation in subsection (g)(2).
(2) At the time an applicant submits its loan application form, it
must submit the following unless the documentation was submitted to the
lender for the First Draw PPP Loan (i.e., the applicant used calendar
year 2019 figures to determine both its First Draw PPP Loan amount and
its Second Draw PPP Loan amount, and the lender for the applicant's
Second Draw PPP Loan is the same as the lender that made the
applicant's First Draw PPP Loan):
(i) If the applicant is not self-employed, the applicant's Form 941
(or other tax forms containing similar information) and state quarterly
wage unemployment insurance tax reporting forms from each quarter in
2019 or 2020 (whichever was used to calculate payroll), as applicable,
or equivalent payroll processor records, along with evidence of any
retirement and employee group health, life, disability, vision and
dental insurance contributions, must be provided. A partnership must
also include its IRS Form 1065 K-1s.
(ii) If the applicant is self-employed and has employees, the
applicant's 2019 or 2020 (whichever was used to calculate loan amount)
IRS Form 1040 Schedule C, Form 941 (or other tax forms or equivalent
payroll processor records containing similar information) and state
quarterly wage unemployment insurance tax reporting forms from each
quarter in 2019 or 2020 (whichever was used to calculate loan amount),
as applicable, or equivalent payroll processor records, along with
evidence of any retirement and employee group health, life, disability,
vision and dental insurance contributions, if applicable, must be
provided. A payroll statement or similar documentation from the pay
period that covered February 15, 2020 must be provided to establish the
applicant was in operation on February 15, 2020.
(iii) If the applicant is self-employed and does not have
employees, the applicant must provide (a) its 2019 or 2020 (whichever
was used to calculate loan amount) Form 1040 Schedule C, (b) a 2019 or
2020 (whichever was used to calculate loan amount) IRS Form 1099-MISC
detailing nonemployee compensation received (box 7), invoice, bank
statement, or book of record that establishes that the applicant is
self-employed; and (c) a 2020 invoice, bank statement, or book of
record to establish that the applicant was in operation on or around
February 15, 2020.
(iv) For loans with a principal amount greater than $150,000,
documentation sufficient to establish that the applicant experienced a
reduction in revenue, as provided in subsection(c)(1)(iv), must be
[[Page 3721]]
provided at the time of application, which may include relevant tax
forms, including annual tax forms, or, if relevant tax forms are not
available, a copy of the applicant's quarterly income statements or
bank statements.
(v) For loans with a principal amount of $150,000 or less, the
applicant must submit documentation sufficient to establish that the
applicant experienced a reduction in revenue as provided in subsection
(c)(1)(i) of this section at the time of application, on or before the
date the borrower submits an application for loan forgiveness, or, if
the borrower does not apply for loan forgiveness, at SBA's request.
Such documentation may include relevant tax forms, including annual tax
forms, or, if relevant tax forms are not available, a copy of the
applicant's quarterly income statements or bank statements.
(3) On the Second Draw PPP Loan borrower application, an authorized
representative of the applicant \38\ must make the certifications
listed in subsection (B)(12) of the Consolidated First Draw PPP IFR,
except:
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\38\ A representative of the applicant can certify for the
business as a whole if the representative is legally authorized to
do so.
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(i) Instead of the certification in subsection (B)(12)(v) of the
Consolidated First Draw PPP IFR, the applicant must certify that the
applicant has not and will not receive another Second Draw Paycheck
Protection Program Loan; and
(ii) an authorized representative of the applicant must also
certify:
(A) The Applicant has realized a reduction in gross receipts in
excess of 25% relative to the relevant comparison time period. For
loans greater than $150,000, Applicant has provided documentation to
the lender substantiating the decline in gross receipts. For loans of
$150,000 or less, Applicant will provide documentation substantiating
the decline in gross receipts upon or before seeking loan forgiveness
for the Second Draw Paycheck Protection Program Loan or upon SBA
request.
(B) The Applicant received a First Draw Paycheck Protection Program
Loan and, before the Second Draw Paycheck Protection Program Loan is
disbursed, will have used the full loan amount (including any increase)
of the First Draw Paycheck Protection Program Loan only for eligible
expenses.
(C) The Applicant is not a business concern or entity (a) for which
an entity created in or organized under the laws of the People's
Republic of China or the Special Administrative Region of Hong Kong, or
that has significant operations in the People's Republic of China or
the Special Administrative Region of Hong Kong, owns or holds, directly
or indirectly, not less than 20 percent of the economic interest of the
business concern or entity, including as equity shares or a capital or
profit interest in a limited liability company or partnership; or (b)
that retains, as a member of the board of directors of the business
concern, a person who is a resident of the People's Republic of China.
(D) The Applicant is not required to submit a registration
statement under section 2 of the Foreign Agents Registration Act of
1938 (22 U.S.C. 612).
(E) The Applicant is not a business concern or entity primarily
engaged in political or lobbying activities, including any entity that
is organized for research or for engaging in advocacy in areas such as
public policy or political strategy or otherwise describes itself as a
think tank in any public documents.
(4) A lender must submit SBA Form 2484-SD (Paycheck Protection
Program Lender's Application--Second Draw Loan Guaranty) electronically
in accordance with program requirements and maintain the forms and
supporting documentation in its files.
(h) What do lenders need to know and do?
(1) A lender approved to make First Draw PPP Loans may make Second
Draw PPP Loans under the same terms and conditions applicable to First
Draw PPP Loans, including all requirements under sections (C) and (D)
of the Consolidated First Draw PPP IFR, except as otherwise provided in
this section.
(2) What do lenders have to do in terms of loan underwriting?
(i) Each lender shall:
(A) Confirm receipt of borrower certifications contained in
Paycheck Protection Program Second Draw Borrower Application Form (SBA
Form 2483-SD) or lender's equivalent;
(B) Confirm receipt of information demonstrating that a borrower
was either an eligible self-employed individual, independent
contractor, or sole proprietorship with no employees or had employees
for whom the borrower paid salaries and payroll taxes on or around
February 15, 2020;
(C) Confirm the dollar amount of average monthly payroll costs for
2019 or 2020 (whichever was used to calculate loan amount) by reviewing
the payroll documentation submitted with the borrower's application;
(D) For a Second Draw PPP Loan greater than $150,000 or a loan of
$150,000 or less where the borrower provides documentation of revenue
reduction, confirm the dollar amount and percentage of the borrower's
revenue reduction by performing a good faith review, in a reasonable
time, of the borrower's calculations and supporting documents
concerning the borrower's revenue reduction. For a loan of $150,000 or
less where the borrower does not provide documentation of revenue
reduction with its application, the lender shall perform this review
when the borrower provides such documentation. If the lender identifies
errors in the borrower's calculation or material lack of substantiation
in the borrower's supporting documents, the lender should work with the
borrower to remedy the issue.
(E) Follow applicable BSA requirements (listed in subsection
(C)(3)(d) of the Consolidated First Draw PPP IFR); and
(ii) Each lender's underwriting obligation under the Second Draw
PPP is limited to the items above and reviewing the ``Paycheck
Protection Program Second Draw Borrower Application Form'' (SBA Form
2483-SD) or lender's equivalent form.
(iii) A lender may rely on any certification or documentation
submitted by an applicant for a PPP loan or an eligible recipient or
eligible entity that (A) is submitted pursuant to all applicable
statutory requirements, regulations, and guidance related to a PPP
loan, including under sections 7(a)(36) or (37) of the Small Business
Act (15 U.S.C. 636(a)(36) and (37)); and (B) attests that the
applicant, eligible recipient, or eligible entity, as applicable, has
accurately provided the certification or documentation to the lender in
accordance with the statutory requirements, regulations, and guidance
related to PPP loans. With respect to a lender that relies on such a
certification or documentation related to a Second Draw PPP Loan, an
enforcement action may not be taken against the lender, and the lender
shall not be subject to any penalties relating to loan origination or
forgiveness of the Second Draw PPP Loan, if--(A) the lender acts in
good faith relating to loan origination or forgiveness of the Second
Draw PPP Loan based on that reliance; and (B) all other relevant
Federal, State, local, and other statutory and regulatory requirements
applicable to the lender are satisfied with respect to the Second Draw
PPP Loan.
(3) SBA will pay lenders fees for processing Second Draw PPP Loans
in the following amounts:
[[Page 3722]]
(i) for a Second Draw PPP Loan of up to (and including) $50,000, in
an amount equal to the lesser of:
(A) 50 percent of the balance of the financing outstanding at the
time of disbursement of the loan; or
(B) $2,500; and
(ii) for a Second Draw PPP Loan of more than $50,000, in an amount
that is:
(A) 5 percent of the balance of the financing outstanding at the
time of disbursement of the loan for a loan up to (and including)
$350,000; and
(B) 3 percent of the balance of the financing outstanding at the
time of disbursement of the loan for a loan above $350,000.
(i) Will an applicant's Second Draw PPP Loan application be affected if
there are unresolved issues regarding the applicant's First Draw PPP
Loan?
(1) If a First Draw PPP Loan is under review pursuant to PPP rules
and/or information in SBA's possession indicates that the borrower may
have been ineligible for the First Draw PPP Loan it received or for the
loan amount received by the borrower, the lender will receive
notification from SBA when the lender submits an application for
guaranty of a Second Draw PPP Loan (``unresolved borrower'').
(2) If the lender receives notification that the Applicant for a
Second Draw PPP Loan is an unresolved borrower, the lender will not
receive an SBA loan number. SBA will resolve the issue related to the
unresolved borrower expeditiously and will notify the lender of the
process to obtain an SBA loan number for the Second Draw PPP Loan, if
appropriate.
(j) Are Second Draw PPP Loans eligible for loan forgiveness?
Second Draw PPP Loans are eligible for loan forgiveness on the same
terms and conditions as First Draw PPP Loans, except that Second Draw
PPP Loan borrowers with a principal amount of $150,000 or less are
required to provide documentation of revenue reduction if such
documentation was not provided at the time of the loan application as
specified in subsections (g)(2)(iv) and (v) of this section.
V. Additional Information
SBA may provide further guidance, if needed, through SBA notices
and a program guide which will be posted on SBA's website at
www.sba.gov.
Questions on the Paycheck Protection Program 7(a) Loans (First Draw
PPP Loans and Second Draw PPP Loans) may be directed to the Lender
Relations Specialist in the local SBA Field Office. The local SBA Field
Office may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the
purposes of Executive Orders 12866 and 13563, and the Office of
Management and Budget's Office of Information and Regulatory Affairs
(OIRA) had determined that this is a major rule under the Congressional
Review Act (5 U.S.C. 804(2)). SBA, however, is proceeding under the
emergency provision at Executive Order 12866 section 6(a)(3)(D) based
on the need to move expeditiously to mitigate the current economic
conditions arising from the COVID-19 emergency. This rule's designation
under Executive Order 13771 will be informed by public comment.
This rule is necessary to implement the Economic Aid Act in order
to provide economic relief to small businesses nationwide adversely
impacted under the COVID-19 Emergency Declaration. We anticipate that
this rule will result in substantial benefits to small businesses,
their employees, and the communities they serve. However, we lack data
to estimate the effects of this rule.
The Administrator of OIRA has determined that this is a major rule
for purposes of the Congressional Review Act (5 U.S.C. 801 et seq.)
(CRA). Under section 801(3) of the CRA, a major rule takes effect 60
days after the rule is published in the Federal Register.
Notwithstanding this requirement, section 808(2) of the CRA allows
agencies to dispense with the requirements of section 801 when the
agency for good cause finds that such procedure would be impracticable,
unnecessary, or contrary to the public interest and the rule shall take
effect at such time as the agency promulgating the rule determines.
Pursuant to section 808(2) of the CRA, SBA finds, for good cause, that
a 60-day delay in the effective date is unnecessary and contrary to the
public interest.
As discussed elsewhere in this interim final rule, the last day to
apply for and receive a PPP loan is March 31, 2021. Given the short
duration of this program, and the urgent need to issue loans quickly,
the Administrator in consultation with the Secretary has determined
that it is impractical and not in the public interest to provide a
delayed effective date. An immediate effective date will give small
businesses the maximum amount of time to apply for loans and lenders
the maximum amount of time to process applications before the program
ends.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance
with the standards set forth in section 3(a) and 3(b)(2) of Executive
Order 12988, to minimize litigation, eliminate ambiguity, and reduce
burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
SBA has determined that this rule will not have substantial direct
effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various layers of government. Therefore, SBA
has determined that this rule has no federalism implications warranting
preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA has determined that this rule will impose new recordkeeping or
reporting requirements under the Paperwork Reduction Act (``PRA'').
This information collection (IC) consists of SBA Form 2483-SD (Paycheck
Protection Program Second Draw Application Form) and SBA Form 2484-SD
(Paycheck Protection Program Lender's Application--Second Draw Loan
Guaranty. SBA has requested emergency approval for the IC required to
implement the Second Draw PPP Program described above.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule, or a final rule pursuant to section
553(b) of the APA or another law, the agency must prepare a regulatory
flexibility analysis that meets the requirements of the RFA and publish
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to describe the impact of a
rulemaking on small entities by providing a regulatory impact analysis.
Such analysis must address the consideration of regulatory options that
would lessen the economic effect of the rule on small entities. The RFA
defines a ``small entity'' as (1) a proprietary firm meeting the size
standards of the Small Business Administration (SBA); (2) a nonprofit
organization that is not dominant in its field; or (3) a small
government
[[Page 3723]]
jurisdiction with a population of less than 50,000. 5 U.S.C. 601(3)-
(6). Except for small government jurisdictions with a population of
less than 50,000, neither State nor local governments are ``small
entities.''
The requirement to conduct a regulatory impact analysis does not
apply if the head of the agency ``certifies that the rule will not, if
promulgated, have a significant economic impact on a substantial number
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish
the certification in the Federal Register at the time of publication of
the rule, ``along with a statement providing the factual basis for such
certification.'' If the agency head has not waived the requirements for
a regulatory flexibility analysis in accordance with the RFA's waiver
provision, and no other RFA exception applies, the agency must prepare
the regulatory flexibility analysis and publish it in the Federal
Register at the time of promulgation or, if the rule is promulgated in
response to an emergency that makes timely compliance impracticable,
within 180 days of publication of the final rule. 5 U.S.C. 604(a),
608(b).
Rules that are exempt from notice and comment are also exempt from
the RFA requirements, including conducting a regulatory flexibility
analysis, when among other things the agency for good cause finds that
notice and public procedure are impracticable, unnecessary, or contrary
to the public interest. Small Business Administration's Office of
Advocacy guide: How to Comply with the Regulatory Flexibility Ac. Ch.1.
p.9. Since this rule is exempt from notice and comment, SBA is not
required to conduct a regulatory flexibility analysis.
Authority: 15 U.S.C. 636(a)(36); Coronavirus Aid, Relief, and
Economic Security Act, Pub. L. 116-136, section 1114; and Economic
Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, Pub.
L. 116-260, section 303.
Jovita Carranza,
Administrator.
[FR Doc. 2021-00452 Filed 1-12-21; 4:15 pm]
BILLING CODE 8026-03-P