Business Loan Program Temporary Changes; Paycheck Protection Program-Loan Forgiveness Requirements and Loan Review Procedures as Amended by Economic Aid Act, 8283-8299 [2021-02314]

Agencies

• SMALL BUSINESS ADMINISTRATION
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 86, Number 23 (Friday, February 5, 2021)]
[Rules and Regulations]
[Pages 8283-8299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02314]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

[Docket Number SBA-2021-0006]
RIN 3245-AH65

DEPARTMENT OF THE TREASURY

RIN 1505-AC75


Business Loan Program Temporary Changes; Paycheck Protection 
Program--Loan Forgiveness Requirements and Loan Review Procedures as 
Amended by Economic Aid Act

AGENCY: U.S. Small Business Administration; Department of the Treasury.

ACTION: Interim final rule.

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SUMMARY: This interim final rule implements changes related to the 
forgiveness and review of loans made under the Paycheck Protection 
Program (PPP), which was originally established under the Coronavirus 
Aid, Relief, and Economic Security Act (CARES Act) to provide economic 
relief to small businesses nationwide adversely impacted by the 
Coronavirus Disease 2019 (COVID-19). On December 27, 2020, the Economic 
Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic 
Aid Act) was enacted, extending the authority to make PPP loans through 
March 31, 2021, revising certain PPP requirements, and permitting 
second draw PPP loans. This interim final rule consolidates prior rules 
related to forgiveness and reviews of PPP loans and incorporates 
changes made by the Economic Aid Act, including with respect to 
forgiveness of second draw PPP loans.

DATES: 
    Effective date: Unless otherwise specified in the Economic Aid Act, 
the provisions of this interim final rule are effective February 3, 
2021.
    Applicability date: This interim final rule applies to Paycheck 
Protection Programs loans for which a loan forgiveness payment had not 
been remitted by SBA as of December 27, 2020. Parts IV.6.c., IV.7 and V 
of this interim final rule, Paycheck Protection Program SBA Loan Review 
Procedures and Related Borrower and Lender Responsibilities, apply to 
all Paycheck Protection Program loans.
    Comment date: Comments must be received on or before March 8, 2021.

ADDRESSES: You may submit comments, identified by number SBA-2021-0006 
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: A 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 March 13, 2020, President Trump declared the ongoing Coronavirus 
Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude 
to warrant an emergency declaration for all States, territories, and 
the District of Columbia. With the COVID-19 emergency, many small 
businesses nationwide continue to experience economic hardship as a 
direct result of the Federal, State, and local public health measures 
that continue to be taken to minimize the public's exposure to the 
virus. In addition, based on the advice of public health officials, 
other voluntary measures continue to be observed, resulting in a 
decrease in economic activity as the public avoids malls, retail 
stores, and other businesses.
    On March 27, 2020, the President signed the Coronavirus Aid, 
Relief, and

[[Page 8284]]

Economic Security Act (the CARES Act) (Pub. L. 116-136) to provide 
emergency assistance and health care response for individuals, 
families, and businesses affected by the coronavirus pandemic. The 
Small Business Administration (SBA) received funding and authority 
through the CARES Act to modify existing loan programs and establish a 
new loan program to assist small businesses nationwide adversely 
impacted by the COVID-19 emergency.
    Section 1102 of the CARES Act temporarily permitted SBA to 
guarantee 100 percent of 7(a) loans under a new program titled the 
``Paycheck Protection Program,'' pursuant to section 7(a)(36) of the 
Small Business Act (15 U.S.C. 636(a)(36)). Section 1106 of the CARES 
Act provided for forgiveness of up to the full principal amount of 
qualifying loans guaranteed under the Paycheck Protection Program 
(PPP). On April 24, 2020, the President signed the Paycheck Protection 
Program and Health Care Enhancement Act (Pub. L. 116-139), which 
provided additional funding and authority for the Paycheck Protection 
Program.
    On June 5, 2020, the President signed the Paycheck Protection 
Program Flexibility Act of 2020 (Flexibility Act) (Pub. L. 116-142), 
which changed provisions of the PPP relating to the maturity of PPP 
loans, the deferral of PPP loan payments, and the forgiveness of PPP 
loans. On July 4, 2020, Public Law 116-147 extended the authority for 
SBA to guarantee PPP loans to August 8, 2020.
    On December 27, 2020, the President signed the Economic Aid to 
Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act) 
(Pub. L. 116-260), which reauthorizes lending under the PPP through 
March 31, 2021, and among other things, modifies the PPP, including 
provisions relating to forgiveness of PPP loans. The Economic Aid Act 
added a new temporary section 7(a)(37) to the Small Business Act, which 
authorizes SBA to guarantee additional PPP loans to eligible borrowers 
under generally the same terms and conditions available under section 
7(a)(36) of the Small Business Act through March 31, 2021. The Economic 
Aid Act also redesignates section 1106 of the CARES Act as section 7A 
and transfers that section to the Small Business Act, to appear after 
section 7 of the Small Business Act.\1\
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    \1\ Because section 1106 of the CARES Act is now codified as 
section 7A of the Small Business Act, any reference to section 1106 
of the CARES Act in the rules that are being restated herein will 
refer to section 7A.
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    As described below, this interim final rule (1) provides borrowers 
and lenders with guidance on requirements governing forgiveness of PPP 
loans, and (2) informs borrowers and lenders of SBA's process for 
reviewing loan applications and loan forgiveness applications. SBA is 
incorporating and restating the prior interim final rules relating to 
loan forgiveness and loan reviews and making revisions to conform these 
prior interim final rules to the amendments made by the Economic Aid 
Act, including for PPP loans made under section 7(a)(37) of the Small 
Business Act. The prior interim final rules relating to loan 
forgiveness and loan reviews that are incorporated in this interim 
final rule are: The first interim final rule on loan forgiveness (85 FR 
33004) (June 1, 2020); the first interim final rule on SBA loan review 
procedures and related borrower and lender responsibilities (85 FR 
33010) (June 1, 2020); the interim final rule incorporating Flexibility 
Act Amendments (85 FR 38304) (June 26, 2020); the interim final rule on 
Treatment of Owners and Forgiveness of Certain Nonpayroll Costs (85 FR 
52881) (August 27, 2020); and the interim final rule on Additional 
Revisions to Loan Forgiveness and Loan Review Procedures Interim Final 
Rules (85 FR 66214) (October 19, 2020). The rule also incorporates the 
forgiveness portions of the interim final rules regarding individuals 
with self-employment income (85 FR 21747 (April 20, 2020) and 85 FR 
36997 (June 19, 2020)) and fishing boat owners (85 FR 39066) (June 30, 
2020).
    This rule should be interpreted consistently with the sets of 
Frequently Asked Questions (FAQs) regarding the PPP that are posted on 
SBA's and the Department of the Treasury's (Treasury) websites, the 
consolidated interim final rule implementing updates to the Paycheck 
Protection Program (86 FR 3692 (January 14, 2021)) and the interim 
final rule on second draw PPP loans (86 FR 3712 (January 14, 2021)); 
however, the Economic Aid Act overrides any conflicting guidance in the 
FAQs, and SBA will be revising the FAQs to fully conform to the 
Economic Aid Act as quickly as feasible.
    Most of this document restates existing regulatory provisions to 
provide PPP lenders and new and existing PPP borrowers a single 
regulation to consult on loan forgiveness and loan review requirements 
and processes. To enhance the readability of this document, SBA has not 
reproduced the policy and legal justifications for existing regulatory 
provisions restated here, except to the extent that those 
justifications may be helpful to the borrower or lender. However, those 
justifications from the original interim final rules are adopted here.
    Six provisions of this interim final rule are an exercise of 
rulemaking authority by Treasury either jointly with SBA or by Treasury 
alone: (1) The additional reference period option provided for seasonal 
employers, (2) the de minimis exemption provided with respect to 
certain offers of rehire, (3) the de minimis exemption from the full-
time equivalent employee reduction penalty when an employee is, for 
example, fired for cause, (4) the de minimis exemption from the full-
time equivalent employee reduction penalty when the borrower eliminates 
reductions by December 31, 2020 or, for a PPP loan made after December 
27, 2020, the last day of the loan's covered period, (5) the de minimis 
exemption from the full-time equivalent (FTE) employee reduction 
penalty for certain PPP loans of $50,000 or less, and (6) the de 
minimis exemption from the employee salary and wages reduction penalty 
for certain PPP loans of $50,000 or less. Otherwise, all provisions in 
this rule are an exercise of rulemaking authority by SBA alone.

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 
both the CARES Act and the Economic Aid Act is that SBA provides relief 
to America's small businesses expeditiously. The Economic Aid Act 
provided that several of the changes relating to loan forgiveness are 
effective as if included in the CARES Act and apply to any loan made 
pursuant to section 7(a)(36) of the Small Business Act before, on, or 
after December 27, 2020, including forgiveness of such a loan. 
Accordingly, loans that were made in 2020 but for which SBA has not yet 
remitted forgiveness to the lender will be forgiven based on changes 
made in the Economic Aid Act, as implemented in this interim final 
rule. Given the urgent need to provide borrowers that are eligible for 
loan forgiveness with timely relief, 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 allow SBA to continue remitting 
forgiveness payments to

[[Page 8285]]

lenders without disruption and in accordance with the amendments made 
by the Economic Aid Act. 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 interim 
final rule 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 March 8, 2021. SBA 
will consider these comments and the need for making any revisions as a 
result of these comments.

III. Paycheck Protection Program--Loan Forgiveness and Loan Review 
Procedures as Amended by Economic Aid Act

Overview

    The CARES Act was enacted to provide immediate assistance to 
individuals, families, and organizations affected by the COVID-19 
emergency. Among the provisions contained in the CARES Act are 
provisions authorizing SBA to temporarily guarantee loans under the 
Paycheck Protection Program (PPP). Loans under the PPP will be 100 
percent guaranteed by SBA, and the full principal amount of the loans 
may qualify for loan forgiveness.
    Under the CARES Act, as amended by the Economic Aid Act, SBA is 
authorized to guarantee loans under the PPP, a new temporary 7(a) 
program, through March 31, 2021. PPP loans made under section 7(a)(36) 
of the Small Business Act may be referred to as ``First Draw PPP 
Loans,'' and PPP loans made under section 7(a)(37) of the Small 
Business Act may be referred to as ``Second Draw PPP Loans.'' (Any 
reference to ``PPP loans'' or ``PPP loan'' herein refers to both First 
Draw PPP Loans and Second Draw PPP Loans.) The intent of the CARES Act 
and the Economic Aid Act is that SBA provide relief to America's small 
businesses expeditiously, which is expressed in the CARES Act by giving 
all lenders delegated authority and streamlining the requirements of 
the regular 7(a) loan program. This intent is also expressed in the 
Economic Aid Act through the statutory deadlines requiring that the 
Administrator issue certain guidance and regulations within 10 days of 
enactment.\2\
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    \2\ See, e.g., section 303 of the Economic Aid Act; section 
7(a)(37)(M) of the Small Business Act.
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    The Small Business Act authorizes the Administrator to conduct 
investigations to determine whether a recipient or participant in any 
assistance under a 7(a) program, including the PPP, is ineligible for a 
loan, or has violated section 7(a), or any rule, regulation or order 
issued thereunder.\3\ Additionally, under section 7(a), the 
Administrator is empowered to make loans in cooperation with lenders 
through agreements to participate on a deferred (guaranteed) basis.\4\ 
Further, the Administrator may make such rules and regulations as 
deemed necessary and take any and all actions determined to be 
necessary or desirable with respect to 7(a) loans.\5\ Pursuant to these 
provisions of the Small Business Act, SBA has issued regulations 
establishing the standards by which it will investigate whether a loan 
met program requirements and the circumstances under which SBA will be 
released from liability on a guarantee for such a loan.\6\ 
Additionally, section 7A(l)(1)(E) of the Small Business Act expressly 
provides that SBA may review and audit PPP loans of $150,000 or less 
and access any records the borrower is required to retain.
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    \3\ 15 U.S.C. 634(b)(11).
    \4\ 15 U.S.C. 636(a).
    \5\ 15 U.S.C. 634(b)(6) and (b)(7).
    \6\ 13 CFR 120.524.
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    In light of the structure of the PPP program established by the 
CARES Act and the PPP Interim Final Rules, in which loans and loan 
forgiveness are provided based on the borrower's certifications and 
documentation provided by the borrower, the Administrator, in 
consultation with the Secretary of the Treasury (Secretary), previously 
determined that it was appropriate to adopt additional procedures and 
criteria through which SBA will review whether an action by the 
borrower has resulted in its receipt of a PPP loan that did not meet 
program requirements.\7\ SBA's review of borrower certifications and 
representations regarding the borrower's eligibility for a PPP loan and 
loan forgiveness, and the borrower's use of PPP loan proceeds, is 
essential to ensure that PPP loans are directed to the entities 
Congress intended, and that PPP loan proceeds are used for the purposes 
Congress required, including the CARES Act's and the Economic Aid Act's 
central purposes of keeping workers paid and employed.
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    \7\ This interim final rule is an exercise of SBA's rulemaking 
authority under 15 U.S.C. 634(b), 15 U.S.C. 633(d), and 5 U.S.C. 
App., Reorg. Plan No. 4 of 1965, 11(b), 13(a) (abolishing Loan 
Policy Board and transferring functions to the Administrator); 
sections 1106(k) (now section 7A(k) of the Small Business Act) and 
1114 of the CARES Act, and section 307 of the Economic Aid Act.
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Table of Contents

IV. Paycheck Protection Program Loan Forgiveness Requirements
    1. General
    a. What amounts are eligible for forgiveness?
    b. For borrowers that are individuals with self-employment 
income who file a Form 1040, Schedule C or F, what amounts are 
eligible for forgiveness?
    2. Loan Forgiveness Process
    a. What is the general process to obtain loan forgiveness?
    b. When must a borrower apply for loan forgiveness or start 
making payments on a loan?
    3. Payroll Costs Eligible for Loan Forgiveness
    a. When must payroll costs be incurred and/or paid to be 
eligible for forgiveness?
    b. Are salary, wages, or commission payments to furloughed 
employees; bonuses; or hazard pay during the covered period eligible 
for loan forgiveness?
    c. Are there caps on the amount of loan forgiveness available 
for owner-employees and self-employed individuals' own payroll 
compensation?
    d. Are any individuals with an ownership stake in a PPP borrower 
exempt from application of the PPP owner-employee compensation rule 
when determining the amount of their compensation that is eligible 
for loan forgiveness?
    e. May a fishing boat owner include as payroll costs in its 
application for loan forgiveness any compensation paid to a 
crewmember who received his or her own PPP loan and is seeking 
forgiveness for amounts of compensation the crewmember received for 
performing services described in Section 3121(b)(20) of the Internal 
Revenue Code with respect to that owner's fishing boat?
    4. Nonpayroll Costs Eligible for Loan Forgiveness
    a. When must nonpayroll costs be incurred and/or paid to be 
eligible for forgiveness?
    b. Are advance payments of interest on mortgage obligations 
eligible for loan forgiveness?
    c. Are amounts attributable to the business operation of a 
tenant or sub-tenant of the PPP borrower or, in the context of home-
based businesses, household expenses, eligible for forgiveness?
    d. Are rent payments to a related party eligible for loan 
forgiveness?
    5. Reductions to Loan Forgiveness Amount
    a. Will a borrower's loan forgiveness amount be reduced if the 
borrower reduced the hours of an employee, then offered to restore 
the reduction in hours, but the employee declined the offer?
    b. What effect does a reduction in a borrower's number of full-
time equivalent (FTE) employees have on the loan forgiveness amount?
    c. What does ``full-time equivalent employee'' mean?
    d. How should a borrower calculate its number of FTE employees?
    e. What effect does a borrower's reduction in employees' salary 
or wages have on the loan forgiveness amount?

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    f. How should borrowers seeking loan forgiveness account for the 
reduction based on a reduction in the number of employees (section 
7A(d)(2)) relative to the reduction relating to salary and wages 
(section 7A(d)(3))?
    g. If a borrower restores reductions made to employee salaries 
and wages or FTE employees, can the borrower avoid a reduction in 
its loan forgiveness amount?
    h. Will a borrower's loan forgiveness amount be reduced if an 
employee is fired for cause, voluntarily resigns, or voluntarily 
requests a schedule reduction?
    i. Is a borrower with a loan of $50,000 or less exempt from any 
reductions to the loan forgiveness amount?
    6. Documentation Requirements
    a. What must borrowers submit for forgiveness of their PPP 
loans?
    b. What documentation must borrowers who are individuals with 
self-employment income who file a Form 1040, Schedule C or F, submit 
to their lender with their request for loan forgiveness?
    c. What additional documentation must a borrower submit when the 
President of the United States, Vice President of the United States, 
the head of an Executive department, or a Member of Congress, or the 
spouse of any of the preceding, directly or indirectly holds a 
controlling interest in the borrower?
    7. Lender Hold Harmless
V. Paycheck Protection Program SBA Loan Review Procedures and 
Related Borrower and Lender Responsibilities
    1. SBA Reviews of Individual PPP Loans
    a. Will SBA review individual PPP loans?
    b. What borrower representations and statements will SBA review?
    c. When will SBA undertake a loan review?
    d. Will I have the opportunity to respond to SBA's questions in 
a review?
    e. If SBA determines that a borrower is ineligible for a PPP 
loan, can the loan be forgiven?
    f. May a borrower appeal SBA's determination that the borrower 
is ineligible for a PPP loan or ineligible for the loan amount or 
the loan forgiveness amount claimed by the borrower?
    2. The Loan Forgiveness Process for Lenders
    a. What should a lender review?
    b. What is the timeline for the lender's decision on a loan 
forgiveness application?
    c. What should a lender do if it receives notice that SBA is 
reviewing a loan?
    d. What should a lender do if a borrower submits documentation 
of eligible costs that exceed a borrower's PPP Loan Amount?
    3. Lender Fees

IV. Paycheck Protection Program Loan Forgiveness Requirements

1. General

a. What amounts are eligible for forgiveness? \8\
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    \8\ This subsection was originally published at 85 FR 33004, 
section III.1. (June 1, 2020) and has been modified to conform to 
section 304 of the Economic Aid Act.
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    Section 7A(b) of the Small Business Act provides that, subject to 
several important limitations, borrowers shall be eligible for 
forgiveness of their PPP loan in an amount equal to the sum of the 
following costs incurred and payments made during the covered period 
(as described in section IV.3. below).
    (1) Payroll costs.\9\ Payroll costs consist of compensation to 
employees (whose principal place of residence is the United States) in 
the form of salary, wages, commissions, or similar compensation; cash 
tips or the equivalent (based on employer records of past tips or, in 
the absence of such records, a reasonable, good-faith employer estimate 
of such tips); payment for vacation, parental, family, medical, or sick 
leave; allowance for separation or dismissal; payment for the provision 
of employee benefits consisting of group health care or group life, 
disability, vision, or dental insurance, including insurance premiums, 
and retirement; payment of state and local taxes assessed on 
compensation of employees; and for an independent contractor or sole 
proprietor, wages, commissions, income, or net earnings from self-
employment, or similar compensation. Payroll costs that are qualified 
wages taken into account in determining the Employer Retention Credit 
are not eligible for loan forgiveness.\10\
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    \9\ ``Payroll costs'' has the same meaning as in subsections 
III.B.4.g. and h. of the consolidated interim final rule 
implementing updates to the Paycheck Protection Program. 86 FR 3692, 
3702 (Jan. 14, 2021).
    \10\ Section 7(a)(37)(J)(iii) of the Small Business Act provides 
these amounts are not eligible for forgiveness for Second Draw PPP 
Loans. This provision similarly provides that these amounts are not 
eligible for forgiveness for First Draw PPP Loans in order to 
provide consistent treatment and to prevent a borrower from 
receiving forgiveness for amounts for which the borrower will also 
receive a tax credit.
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    (2) Interest payments on any business mortgage obligation on real 
or personal property that was incurred before February 15, 2020 (but 
not any prepayment or payment of principal).
    (3) Payments on business rent obligations on real or personal 
property under a lease agreement in force before February 15, 2020.
    (4) Business utility payments for the distribution of electricity, 
gas, water, transportation, telephone, or internet access for which 
service began before February 15, 2020.
    (5) Covered operations expenditures. A covered operations 
expenditure is a payment for any business software or cloud computing 
service that facilitates business operations, product or service 
delivery, the processing, payment, or tracking of payroll expenses, 
human resources, sales and billing functions, or accounting or tracking 
of supplies, inventory, records and expenses.\11\
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    \11\ This eligible nonpayroll cost was added by section 304 of 
the Economic Aid Act.
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    (6) Covered property damage costs. A covered property damage cost 
is a cost related to property damage and vandalism or looting due to 
public disturbances that occurred during 2020 that was not covered by 
insurance or other compensation.\12\
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    \12\ This eligible nonpayroll cost was added by section 304 of 
the Economic Aid Act.
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    (7) Covered supplier costs. A covered supplier cost means an 
expenditure made by a borrower to a supplier of goods for the supply of 
goods that--(A) are essential to the operations of the borrower at the 
time at which the expenditure is made; and (B) is made pursuant to a 
contract, order, or purchase order--(i) in effect at any time before 
the covered period with respect to the applicable covered loan; or (ii) 
with respect to perishable goods, in effect before or at any time 
during the covered period with respect to the applicable covered 
loan.\13\
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    \13\ This eligible nonpayroll cost was added by section 304 of 
the Economic Aid Act.
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    (8) Covered worker protection expenditures. A covered worker 
protection expenditure:
    (A) Means an operating or a capital expenditure to facilitate the 
adaptation of the business activities of an entity to comply with 
requirements established or guidance issued by the Department of Health 
and Human Services, the Centers for Disease Control, or the 
Occupational Safety and Health Administration, or any equivalent 
requirements established or guidance issued by a State or local 
government related to the maintenance of standards for sanitation, 
social distancing, or any other worker or customer safety requirement 
related to COVID-19, during the period beginning on March 1, 2020 and 
ending the date on which the national emergency declared by the 
President under the National Emergencies Act (50 U.S.C. 1601 et seq.) 
with respect to the Coronavirus Disease 2019 (COVID-19) expires;
    (B) may include--

[[Page 8287]]

    (i) the purchase, maintenance, or renovation of assets that create 
or expand--
    (I) a drive-through window facility;
    (II) an indoor, outdoor, or combined air or air pressure 
ventilation or filtration system;
    (III) a physical barrier such as a sneeze guard;
    (IV) an expansion of additional indoor, outdoor, or combined 
business space;
    (V) an onsite or offsite health screening capability; or
    (VI) other assets relating to the compliance with the requirements 
or guidance described in subsection (A), as determined by the 
Administrator in consultation with the Secretary of Health and Human 
Services and the Secretary of Labor; and
    (ii) the purchase of--
    (I) covered materials described in Sec.  328.103(a) of title 44, 
Code of Federal Regulations, or any successor regulation;
    (II) particulate filtering facepiece respirators approved by the 
National Institute for Occupational Safety and Health, including those 
approved only for emergency use authorization; or
    (III) other kinds of personal protective equipment, as determined 
by the Administrator in consultation with the Secretary of Health and 
Human Services and the Secretary of Labor; and
    (C) does not include residential real property or intangible 
property.\14\
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    \14\ This eligible nonpayroll cost was added by section 304 of 
the Economic Aid Act.
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    This interim final rule uses the term ``nonpayroll costs'' to refer 
to the payments described in (2)-(8) above. Eligible nonpayroll costs 
cannot exceed 40 percent of the loan forgiveness amount.\15\ A borrower 
may receive forgiveness for the nonpayroll costs described in (5), (6), 
(7) and (8) only if SBA had not yet remitted a forgiveness payment on 
the borrower's loan to the borrower's PPP lender as of December 27, 
2020 (the date of the Economic Aid Act's enactment).
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    \15\ See section 7A(d)(8) of the Small Business Act.
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b. For borrowers that are individuals with self-employment income who 
file a Form 1040, Schedule C or F, what amounts are eligible for 
forgiveness? 16
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    \16\ This subsection was originally published at 85 FR 21747, 
subsection III.1.f. (Apr. 20, 2020) and has been modified to conform 
to subsequent rules or guidance and sections 306, 313, and 344 of 
the Economic Aid Act.
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    The amount of loan forgiveness can be up to the full principal 
amount of the loan plus accrued interest. The actual amount of loan 
forgiveness will depend, in part, on the total amount spent during the 
covered period (as described in section IV.3 below) \17\ on:
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    \17\ The Economic Aid Act amended the definition of the 
forgiveness covered period.
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    i. Payroll costs including salary, wages, and tips, up to $100,000 
of annualized pay per employee, as prorated for the period during which 
the payments are made or the obligation to make the payments is 
incurred (maximum per individual is $100,000 prorated for the covered 
period, e.g., for an 8-week covered period a maximum of $15,385 and for 
a 24-week covered period a maximum of $46,154),\18\ as well as covered 
benefits for employees (but not owners), including health care 
expenses, retirement contributions, and state taxes imposed on employee 
payroll paid by the employer (such as unemployment insurance premiums), 
but excluding any qualified wages taken into account in determining the 
Employer Retention Credit;
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    \18\ Due to the amended definition of forgiveness covered period 
in the Economic Aid Act, this calculated amount has changed.
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    ii. owner compensation replacement, calculated based on 2019 or 
2020 \19\ net profit \20\ as described in subsection 3.c. below; 
forgiveness of such amounts is limited to either (a) the prorated 
portion of 2019 or 2020 net profit for a covered period up to 2.5 
months, or (b) 2.5 months' worth (2.5/12) of 2019 or 2020 net profit 
(up to $20,833) for a covered period greater than 2.5 months,\21\ 
excluding any qualified sick leave equivalent amount for which a credit 
is claimed under section 7002 of the Families First Coronavirus 
Response Act (FFCRA) (Pub. L. 116-127) or qualified family leave 
equivalent amount for which a credit is claimed under section 7004 of 
FFCRA;
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    \19\ For First Draw PPP loans made in 2020, borrowers use 2019. 
For First Draw PPP loans made in 2021 and Second Draw PPP Loans, 
borrowers use the year (2019 or 2020) that was used to calculate the 
borrower's loan amount.
    \20\ For self-employed borrowers that file Form 1040, Schedule F 
and have no employees, gross income may be used instead of net 
profit throughout this calculation. For self-employed borrowers that 
file Schedule F and have employees, the difference between gross 
income and employee payroll costs may be used instead of net profit 
throughout this calculation. See section 313 of the Economic Aid 
Act.
    \21\ Section 306 of the Economic Aid Act allows the borrower to 
select a covered period between 8 weeks and 24 weeks.
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    iii. payments of interest on mortgage obligations on real or 
personal property incurred before February 15, 2020, to the extent they 
are deductible on Form 1040 Schedule C or F (business mortgage 
payments);
    iv. rent payments on lease agreements in force before February 15, 
2020, to the extent they are deductible on Form 1040 Schedule C or F 
(business rent payments);
    v. utility payments under service agreements dated before February 
15, 2020 to the extent they are deductible on Form 1040 Schedule C or F 
(business utility payments);
    vi. any covered operations expenditures to the extent they are 
deductible on Form 1040 Schedule C or F; \22\
---------------------------------------------------------------------------

    \22\ This eligible nonpayroll cost was added by section 304 of 
the Economic Aid Act.
---------------------------------------------------------------------------

    vii. any covered property damage costs to the extent they are 
deductible on Form 1040 Schedule C or F; \23\
---------------------------------------------------------------------------

    \23\ This eligible nonpayroll cost was added by section 304 of 
the Economic Aid Act.
---------------------------------------------------------------------------

    viii. Any covered supplier costs to the extent they are deductible 
on Form 1040 Schedule C or F; \24\ and
---------------------------------------------------------------------------

    \24\ This eligible nonpayroll cost was added by section 304 of 
the Economic Aid Act.
---------------------------------------------------------------------------

    ix. any covered worker protection expenditures to the extent they 
are deductible on Form 1040 Schedule C or F.\25\
---------------------------------------------------------------------------

    \25\ This eligible nonpayroll cost was added by section 304 of 
the Economic Aid Act.
---------------------------------------------------------------------------

    A borrower may receive forgiveness for the new nonpayroll costs 
described in vi., vii., viii., and ix. only if SBA had not yet remitted 
a forgiveness payment on the borrower's loan to the borrower's PPP 
lender as of December 27, 2020.

2. Loan Forgiveness Process

a. What is the general process to obtain loan forgiveness? 
26
---------------------------------------------------------------------------

    \26\ This subsection was originally published at 85 FR 33004, 
section III.2. (June 1, 2020) and was amended by 85 FR 38304, 
subsection III.2.a. (June 26, 2020) and 85 FR 66214, subsections 
III.2.a. and b. (Oct. 19, 2020) and has been modified to conform to 
section 307 of the Economic Aid Act.
---------------------------------------------------------------------------

    To receive loan forgiveness on either a First Draw PPP Loan or a 
Second Draw PPP Loan, a borrower must complete and submit the Loan 
Forgiveness Application \27\ to its lender (or to the lender servicing 
its loan). For Second Draw PPP Loans in excess of $150,000, the 
borrower must submit its loan forgiveness application for the First 
Draw PPP Loan before or simultaneously with the loan forgiveness 
application for the Second Draw PPP Loan, even if the calculated amount 
of forgiveness on the First Draw PPP Loan is zero.\28\
---------------------------------------------------------------------------

    \27\ SBA Form 3508, 3508EZ, 3508S, as applicable, or lender 
equivalent. Loan Forgiveness Application forms were amended to 
conform to the Economic Aid Act, including section 307, which 
requires a simplified forgiveness application for loans of not more 
than $150,000. The Simplified Forgiveness Application is SBA Form 
3508S (as amended).
    \28\ This requirement is necessary to provide information 
relevant to the borrower's eligibility for the Second Draw PPP Loan 
and loan forgiveness. A borrower is eligible for a Second Draw PPP 
Loan if they have 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 on or before the expected date on 
which the Second Draw PPP Loan will be disbursed. See interim final 
rule on Second Draw PPP Loans. 86 FR 3712, 3717 (Jan. 14, 2021). 
This requirement does not apply to Second Draw PPP Loans of $150,000 
or less that use the simplified forgiveness application (SBA Form 
3508S).

---------------------------------------------------------------------------

[[Page 8288]]

    As a general matter, the lender will review the application and 
make a decision regarding loan forgiveness. The lender has 60 days from 
receipt of a complete application to issue a decision to SBA. If the 
lender determines that the borrower is entitled to forgiveness of some 
or all of the amount applied for under the statute and applicable 
regulations, the lender must request payment from SBA at the time the 
lender issues its decision to SBA. SBA will, subject to any SBA review 
of the borrower's loan(s) or loan application(s), remit the appropriate 
forgiveness amount to the lender, plus any interest accrued through the 
date of payment, not later than 90 days after the lender issues its 
decision to SBA. The EIDL Advance Amount received by the borrower will 
not reduce the amount of forgiveness to which the borrower is entitled 
and will not be deducted from the forgiveness payment amount that SBA 
remits to the Lender.\29\ If SBA determines in the course of its review 
that the borrower was ineligible for the PPP loan under the statute, 
the SBA rules or guidance available at the time of the borrower's loan 
application, or the terms of the borrower's PPP loan application (for 
example, because the borrower lacked an adequate basis for the 
certifications that it made in its PPP loan application), the loan will 
not be eligible for loan forgiveness. The lender must notify the 
borrower of the forgiveness amount. If only a portion of the loan is 
forgiven, or if the forgiveness request is denied, any remaining 
balance due on the loan must be repaid by the borrower on or before the 
maturity date of the loan. The lender must notify the borrower of 
remittance by SBA of (i) the loan forgiveness amount (or that SBA 
determined that no amount of the loan is eligible for forgiveness), and 
(ii) the date on which the borrower's first payment is due, if 
applicable. If SBA determines that the full amount of the loan is 
eligible for forgiveness and remits the full amount of the loan to the 
lender, the lender must mark the PPP loan note as ``paid in full'' and 
report the status of the loan as ``paid in full'' on the next monthly 
1502 report filed by the lender.\30\
---------------------------------------------------------------------------

    \29\ Section 333 of the Economic Aid Act repealed the CARES Act 
provision requiring SBA to deduct EIDL Advance Amounts received by 
borrowers from the forgiveness payment amounts remitted by SBA to 
the lender. Any EIDL Advance Amounts previously deducted from a 
borrower's forgiveness amount will be remitted to the lender, 
together with interest through the remittance date.
    \30\ Although the note is marked ``Paid in Full,'' the forgiven 
amount is considered canceled indebtedness under section 7A(c)(1) of 
the Small Business Act.
---------------------------------------------------------------------------

    The general loan forgiveness process described above applies only 
to loan forgiveness applications that are not reviewed by SBA prior to 
the lender's decision on the forgiveness application. Part V of this 
interim final rule describes SBA's procedures for reviewing PPP loan 
applications and loan forgiveness applications.
b. When must a borrower apply for loan forgiveness or start making 
payments on a loan? 31
---------------------------------------------------------------------------

    \31\ This subsection was originally published at 85 FR 38304, 
section III.1.c. (June 26, 2020) and has been modified to conform to 
sections 306 and 307 of the Economic Aid Act.
---------------------------------------------------------------------------

    A borrower may submit a loan forgiveness application any time on or 
before the maturity date of the loan if the borrower has used all of 
the loan proceeds for which the borrower is requesting forgiveness, 
except that a borrower applying for forgiveness of a Second Draw PPP 
Loan that is more than $150,000 must submit the loan forgiveness 
application for its First Draw PPP Loan before or simultaneously with 
the loan forgiveness application for its Second Draw PPP Loan.\32\ If 
the borrower does not apply for loan forgiveness within 10 months after 
the last day of the maximum covered period of 24 weeks,\33\ or if SBA 
determines that the loan is not eligible for forgiveness (in whole or 
in part), the PPP loan is no longer deferred and the borrower must 
begin paying principal and interest. If this occurs, the lender must 
notify the borrower of the date the first payment is due. The lender 
must report that the loan is no longer deferred to SBA on the next 
monthly SBA Form 1502 report filed by the lender.
---------------------------------------------------------------------------

    \32\ Because section 306 of the Economic Aid Act allows the 
borrower to select a covered period between 8 weeks and 24 weeks, 
there is no longer a need to allow a borrower to apply for 
forgiveness ``before the end of the covered period'' and that text 
has been deleted.
    \33\ The Economic Aid Act is silent on what covered period 
applies for a borrower who does not apply for forgiveness, so SBA 
will apply the longest available covered period to such borrowers.
---------------------------------------------------------------------------

3. Payroll Costs Eligible for Loan Forgiveness

a. When must payroll costs be incurred and/or paid to be eligible for 
forgiveness? 34
---------------------------------------------------------------------------

    \34\ This subsection was originally published at 85 FR 33004, 
subsection III.3.a. (June 1, 2020) and amended by 85 FR 38304, 
subsection III.1.d. (June 26, 2020) and has been modified to conform 
to section 306 of the Economic Aid Act and for readability.
---------------------------------------------------------------------------

    In general, payroll costs paid or incurred during the covered 
period are eligible for forgiveness. For purposes of loan forgiveness, 
the covered period is the period beginning on the date the lender 
disburses the PPP loan and ending on a date selected by the borrower 
that occurs during the period (i) beginning on the date that is 8 weeks 
after the date of disbursement, and (ii) ending on the date that is 24 
weeks after the date of disbursement.\35\ The covered periods for a 
First Draw PPP Loan and a Second Draw PPP Loan cannot overlap; the 
borrower must use all proceeds of the First Draw PPP Loan for eligible 
expenses before disbursement of the Second Draw PPP Loan.
---------------------------------------------------------------------------

    \35\ Amended to conform to the section 306 of Economic Aid Act 
change to definition of covered period. The option to elect an 
alternative covered period has been removed because the Economic Aid 
Act provided borrowers flexibility to choose the end of their 
covered period.
---------------------------------------------------------------------------

    Payroll costs are considered paid on the day that paychecks are 
distributed or the borrower originates an ACH credit transaction. 
Payroll costs incurred during the borrower's last pay period of the 
covered period are eligible for forgiveness if paid on or before the 
next regular payroll date; otherwise, payroll costs must be paid during 
the covered period to be eligible for forgiveness. Payroll costs 
generally are incurred on the day the employee's pay is earned (i.e., 
on the day the employee worked). For employees who are not performing 
work but are still on the borrower's payroll, payroll costs are 
incurred based on the schedule established by the borrower (typically, 
each day that the employee would have performed work).
b. Are salary, wages, or commission payments to furloughed employees; 
bonuses; or hazard pay during the covered period eligible for loan 
forgiveness? 36
---------------------------------------------------------------------------

    \36\ This subsection was originally published at 85 FR 33004, 
subsection III.3.b. (June 1, 2020) and has been modified to conform 
to section 344 of the Economic Aid Act.
---------------------------------------------------------------------------

    Yes. The CARES Act defines the term ``payroll costs'' broadly to 
include compensation in the form of salary, wages, commissions, or 
similar compensation. If a borrower pays furloughed employees their 
salary,

[[Page 8289]]

wages, or commissions during the covered period, those payments are 
eligible for forgiveness as long as they do not exceed an annual salary 
of $100,000, as prorated for the period during which the payments are 
made or the obligation to make the payments is incurred. The 
Administrator, in consultation with the Secretary, has also determined 
that, if an employee's total compensation does not exceed $100,000 on 
an annualized basis, as prorated for the period during which the 
payments are made or the obligation to make the payments is incurred, 
the employee's hazard pay and bonuses are eligible for loan forgiveness 
because they constitute a supplement to salary or wages, and are thus a 
similar form of compensation.
c. Are there caps on the amount of loan forgiveness available for 
owner-employees and self-employed individuals' own payroll 
compensation? 37
---------------------------------------------------------------------------

    \37\ This subsection was originally published at 85 FR 33004, 
subsection III.3.c. (June 1, 2020) and amended by 85 FR 38304, 
subsection III.1.d (June 26, 2020) and has been modified to conform 
to sections 308 and 344 of the Economic Aid Act and for readability.
---------------------------------------------------------------------------

    Yes. Forgiveness is capped at 2.5 months' worth (2.5/12) of an 
owner-employee or self-employed individual's 2019 or 2020 \38\ 
compensation (up to a maximum $20,833 per individual in total across 
all businesses). The individual's total compensation may not exceed 
$100,000 on an annualized basis, as prorated for the period during 
which the payments are made or the obligation to make the payments is 
incurred. For example, for borrowers that elect to use an eight-week 
covered period, the amount of loan forgiveness requested for owner-
employees and self-employed individuals' payroll compensation is capped 
at eight weeks' worth (8/52) of 2019 or 2020 compensation (i.e., 
approximately 15.38 percent of 2019 or 2020 compensation) or $15,385 
per individual, whichever is less, in total across all businesses. For 
borrowers that elect to use a ten-week covered period, the cap is ten 
weeks' worth (10/52) of 2019 or 2020 compensation (approximately 19.23 
percent) or $19,231 per individual, whichever is less, in total across 
all businesses. For a covered period longer than 2.5 months, the amount 
of loan forgiveness requested for owner-employees and self-employed 
individuals' payroll compensation is capped at 2.5 months' worth (2.5/
12) of 2019 or 2020 compensation (up to $20,833) in total across all 
businesses.
---------------------------------------------------------------------------

    \38\ For First Draw PPP loans made in 2020, borrowers use 2019. 
For First Draw PPP loans made in 2021 and Second Draw PPP loans, 
borrowers use the year (2019 or 2020) that was used to calculate the 
borrower's loan amount.
---------------------------------------------------------------------------

    In particular, C-corporation owner-employees are capped by the 
prorated amount of their 2019 or 2020 \39\ employee cash compensation 
and employer retirement and health, life, disability, vision and dental 
insurance contributions made on their behalf. S-corporation owner-
employees are capped by the prorated amount of their 2019 or 2020 \40\ 
employee cash compensation and employer retirement contributions made 
on their behalf. However, employer health, life, disability, vision and 
dental insurance contributions made on their behalf cannot be 
separately added; those payments are already included in their employee 
cash compensation. Schedule C or F filers are capped by the prorated 
amount of their owner compensation replacement, calculated based on 
2019 or 2020 net profit.\41\ General partners are capped by the 
prorated amount of their 2019 or 2020 net earnings from self-employment 
(reduced by claimed section 179 expense deduction, unreimbursed 
partnership expenses, and depletion from oil and gas properties) 
multiplied by 0.9235. For self-employed individuals, including Schedule 
C or F filers and general partners, retirement and health, life, 
disability, vision or dental insurance contributions are included in 
their net self-employment income and therefore cannot be separately 
added to their payroll calculation. LLC members are subject to the 
rules based on their LLC's tax filing status in the reference year used 
to determine their loan amount.
---------------------------------------------------------------------------

    \39\ Use whichever year was used to calculate the borrower's 
loan amount.
    \40\ Use whichever year was used to calculate the borrower's 
loan amount.
    \41\ For self-employed borrowers that file Form 1040, Schedule F 
and have no employees, gross income may be used instead of net 
profit. For self-employed borrowers that file Schedule F and have 
employees, the difference between gross income and employee payroll 
costs may be used instead of net profit. See section 313 of the 
Economic Aid Act.
---------------------------------------------------------------------------

d. Are any individuals with an ownership stake in a PPP borrower exempt 
from application of the PPP owner-employee compensation rule when 
determining the amount of their compensation that is eligible for loan 
forgiveness? 42
---------------------------------------------------------------------------

    \42\ This subsection was originally published at 85 FR 52881, 
section III.1. (Aug. 27, 2020) and has been modified for 
readability.
---------------------------------------------------------------------------

    Yes, owner-employees with less than a 5 percent ownership stake in 
a C- or S-corporation are not subject to the owner-employee 
compensation rule in subsection IV.3.c. above.
e. May a fishing boat owner include as payroll costs in its application 
for loan forgiveness any compensation paid to a crewmember who received 
his or her own PPP loan and is seeking forgiveness for amounts of 
compensation the crewmember received for performing services described 
in Section 3121(b)(20) of the Internal Revenue Code with respect to 
that owner's fishing boat? 43
---------------------------------------------------------------------------

    \43\ This subsection was originally published at 85 FR 39066, 
subsection III.2. (June 30, 2020) and has been modified for 
consistency with the Economic Aid Act.
---------------------------------------------------------------------------

    No. If a fishing boat crewmember obtains his or her own PPP loan 
during the fishing boat owner's covered period and seeks forgiveness of 
that loan based in part on compensation from a particular fishing boat 
owner, the fishing boat owner cannot also obtain PPP loan forgiveness 
based on compensation paid to that same crewmember. This restriction 
applies only if the crewmember is performing services described in 
section 3121(b)(20) of the Internal Revenue Code for the particular 
fishing boat owner. The fishing boat owner is responsible for 
determining whether any of its crewmembers received their own PPP loans 
during the fishing boat owner's loan forgiveness covered period.

4. Nonpayroll Costs Eligible for Loan Forgiveness

a. When must nonpayroll costs be incurred and/or paid to be eligible 
for forgiveness? 44
---------------------------------------------------------------------------

    \44\ This subsection was originally published at 85 FR 33004, 
subsection III.4.a. (June 1, 2020) and amended by 85 FR 38304, 
subsection III.1.e (June 26, 2020) and has been modified for 
readability.
---------------------------------------------------------------------------

    A nonpayroll cost is eligible for forgiveness if it was:
    i. Paid during the covered period; or
    ii. incurred during the covered period and paid on or before the 
next regular billing date, even if the billing date is after the 
covered period.
    Example: A borrower that received a loan before June 5, 2020 uses a 
24-week covered period that begins on June 1 and ends on November 15. 
The borrower pays its electricity bills for June through October during 
the covered period and pays its November electricity bill on December 
10, which is the next regular billing date. The borrower may seek loan 
forgiveness for its June through October electricity bills, because 
they were paid during the covered period. In addition, the borrower may 
seek loan forgiveness for the portion of its November electricity bill 
through November 15 (the end of the covered period), because it was

[[Page 8290]]

incurred during the covered period and paid on the next regular billing 
date.
b. Are advance payments of interest on mortgage obligations eligible 
for loan forgiveness? 45
---------------------------------------------------------------------------

    \45\ This subsection was originally published at 85 FR 33004, 
subsection III.4.b. (June 1, 2020).
---------------------------------------------------------------------------

    No. Advance payments of interest on a covered mortgage obligation 
are not eligible for loan forgiveness because the CARES Act's loan 
forgiveness provisions regarding mortgage obligations specifically 
exclude ``prepayments.'' Principal on mortgage obligations is not 
eligible for forgiveness under any circumstances.
c. Are amounts attributable to the business operation of a tenant or 
sub-tenant of the PPP borrower or, in the context of home-based 
businesses, household expenses, eligible for forgiveness? 46
---------------------------------------------------------------------------

    \46\ This subsection was originally published at 85 FR 52881, 
subsection III.2.a. (Aug. 27, 2020).
---------------------------------------------------------------------------

    No, the amount of loan forgiveness requested for nonpayroll costs 
may not include any amount attributable to the business operation of a 
tenant or sub-tenant of the PPP borrower or, for home-based businesses, 
household expenses. The examples below illustrate this rule.
    Example 1: A borrower rents an office building for $10,000 per 
month and sub-leases out a portion of the space to other businesses for 
$2,500 per month. Only $7,500 per month is eligible for loan 
forgiveness.
    Example 2: A borrower has a mortgage on an office building it 
operates out of, and it leases out a portion of the space to other 
businesses. The portion of mortgage interest that is eligible for loan 
forgiveness is limited to the percent share of the fair market value of 
the space that is not leased out to other businesses. As an 
illustration, if the leased space represents 25% of the fair market 
value of the office building, then the borrower may only claim 
forgiveness on 75% of the mortgage interest.
    Example 3: A borrower shares a rented space with another business. 
When determining the amount that is eligible for loan forgiveness, the 
borrower must prorate rent and utility payments in the same manner as 
on the borrower's 2019 tax filings, or if a new business, the 
borrower's expected 2020 tax filings.
    Example 4: A borrower works out of his or her home. When 
determining the amount of nonpayroll costs that are eligible for loan 
forgiveness, the borrower may include only the share of covered 
expenses that were deductible on the borrower's 2019 tax filings, or if 
a new business, the borrower's expected 2020 tax filings.
d. Are rent payments to a related party eligible for loan forgiveness? 
47
---------------------------------------------------------------------------

    \47\ This subsection was originally published at 85 FR 52881, 
subsection III.2.b. (Aug. 27, 2020) and has been modified for 
readability.
---------------------------------------------------------------------------

    Yes, as long as (1) the amount of loan forgiveness requested for 
rent or lease payments to a related party is no more than the amount of 
mortgage interest owed on the property during the covered period that 
is attributable to the space being rented by the business, and (2) the 
lease and the mortgage were entered into prior to February 15, 
2020.\48\ Any ownership in common between the business and the property 
owner is a related party for these purposes. The borrower must provide 
its lender with mortgage interest documentation to substantiate these 
payments. While rent or lease payments to a related party may be 
eligible for forgiveness, mortgage interest payments to a related party 
are not eligible for forgiveness.
---------------------------------------------------------------------------

    \48\ In this context, the related party itself would not also be 
eligible to request forgiveness for this amount.
---------------------------------------------------------------------------

5. Reductions to Loan Forgiveness Amount

    Section 7A of the Small Business Act specifically requires certain 
reductions in a borrower's loan forgiveness amount based on reductions 
in full-time equivalent employees or in employee salary and wages. It 
includes an important statutory exemption for borrowers that have 
eliminated the reduction on or before December 31, 2020 (or, for a PPP 
loan made on or after December 27, 2020, not later than the last day of 
the loan's covered period).\49\ Section 7A(d)(7) of the Small Business 
Act also allows exemptions from reductions in loan forgiveness amounts 
based on employee availability and business activity. In addition, SBA 
and Treasury have adopted regulatory exemptions to the reduction rules 
for borrowers that (1) have offered to restore employee hours at the 
same salary or wages, even if the employees have not accepted, (2) 
fired an employee for cause or have an employee that voluntarily 
resigns or voluntarily requests a schedule reduction, (3) eliminate 
reductions by December 31, 2020 or, for a PPP loan made after December 
27, 2020, the last day of the loan's covered period, or (4) have a PPP 
loan of $50,000 or less. The instructions to the loan forgiveness 
applications and the guidance below explain how the statutory 
forgiveness reduction formulas work.
---------------------------------------------------------------------------

    \49\ This subsection was originally published at 85 FR 33004, 
subsection III.5. (June 1, 2020) and amended by 85 FR 38304, 
subsection III.1.f. (June 26, 2020), and has been modified to 
conform to subsequent rules or guidance and section 311 of the 
Economic Aid Act.
---------------------------------------------------------------------------

a. Will a borrower's loan forgiveness amount be reduced if the borrower 
reduced the hours of an employee, then offered to restore the reduction 
in hours, but the employee declined the offer? 50
---------------------------------------------------------------------------

    \50\ This subsection was originally published at 85 FR 33004, 
subsection III.5.a. (June 1, 2020) and amended by 85 FR 38304, 
section III.5. (June 26, 2020) and has been modified for 
readability.
---------------------------------------------------------------------------

    No. In calculating the loan forgiveness amount, a borrower may 
exclude any reduction in full-time equivalent employee headcount that 
is attributable to an individual employee if:
    i. The borrower made a good faith, written offer to restore the 
reduced hours of such employee;
    ii. the offer was for the same salary or wages and same number of 
hours as earned by such employee in the last pay period prior to the 
reduction in hours;
    iii. the offer was rejected by such employee; and
    iv. the borrower has maintained records documenting the offer and 
its rejection.
b. What effect does a reduction in a borrower's number of full-time 
equivalent (FTE) employees have on the loan forgiveness amount? 
51
---------------------------------------------------------------------------

    \51\ This subsection was originally published at 85 FR 33004, 
subsection III.5.b. (June 1, 2020) and amended by 85 FR 38304, 
section III.1.f. (June 26, 2020) and has been modified to conform to 
sections 306, 311 and 336 of the Economic Aid Act and for 
readability.
---------------------------------------------------------------------------

    In general, a reduction in FTE employees during the covered period 
reduces the loan forgiveness amount by the same percentage as the 
percentage reduction in FTE employees. For both First Draw PPP Loans 
and Second Draw PPP Loans, the borrower must first select a reference 
period: (i) February 15, 2019 through June 30, 2019; (ii) January 1, 
2020 through February 29, 2020; or (iii) in the case of a seasonal 
employer,\52\ either of the two preceding methods or a consecutive 12-
week period between February 15, 2019 and February 15, 2020.\53\ If the 
average number of FTE employees during the covered period is less than 
during the

[[Page 8291]]

reference period, the total eligible expenses available for forgiveness 
is reduced proportionally by the percentage reduction in FTE employees. 
For example, if a borrower had 10.0 FTE employees during the reference 
period and this declined to 8.0 FTE employees during the covered 
period, the percentage of FTE employees declined by 20 percent and thus 
only 80 percent of otherwise eligible expenses are available for 
forgiveness.
---------------------------------------------------------------------------

    \52\ The term ``seasonal employer'' is defined in section 
7(a)(36)(A)(xiii) of the Small Business Act.
    \53\ This decision to permit seasonal employers to use, as a 
reference period, any consecutive 12-week period between February 
15, 2019 and February 15, 2020 is an exercise of the Secretary's 
rulemaking authority under section 1109 of the CARES Act. This 
reference period is consistent with section 336 of the Economic Aid 
Act, which amends the calculation of the maximum loan amount for 
seasonal employers.
---------------------------------------------------------------------------

    Borrowers are exempted from the loan forgiveness reduction arising 
from a proportional reduction in FTE employees during the covered 
period if the borrower is able to document in good faith the following: 
(1) An inability to rehire individuals who were employees of the 
borrower on February 15, 2020; and (2) an inability to hire similarly 
qualified individuals for unfilled positions on or before December 31, 
2020 (or, for a PPP loan made on or after December 27, 2020, not later 
than the last day of the loan's covered period).\54\ Borrowers are 
required to inform the applicable state unemployment insurance office 
of any employee's rejected rehire offer within 30 days of the 
employee's rejection of the offer. The documents that borrowers should 
maintain to show compliance with this exemption include, but are not 
limited to, the written offer to rehire an individual, a written record 
of the offer's rejection, and a written record of efforts to hire a 
similarly qualified individual.
---------------------------------------------------------------------------

    \54\ This text was originally published at 85 FR 38304, 
subsection III.1.f. (June 26, 2020) and has been modified to conform 
to section 311 of the Economic Aid Act.
---------------------------------------------------------------------------

    Borrowers are also exempted from the loan forgiveness reduction 
arising from a reduction in the number of FTE employees during the 
covered period if the borrower is able to document in good faith an 
inability to return to the same level of business activity as the 
borrower was operating at before February 15, 2020, due to compliance 
with requirements established or guidance issued between March 1, 2020 
and December 31, 2020 (or, for a PPP loan made on or after December 27, 
2020, not later than the last day of the loan's covered period) \55\ by 
the Secretary of Health and Human Services, the Director of the Centers 
for Disease Control and Prevention (CDC), or the Occupational Safety 
and Health Administration related to the maintenance of standards for 
sanitation, social distancing, or any other worker or customer safety 
requirement related to COVID-19 (COVID Requirements or Guidance). 
Specifically, borrowers that can certify that they have documented in 
good faith that their reduction in business activity during the covered 
period stems directly or indirectly from compliance with such COVID 
Requirements or Guidance are exempt from any reduction in their 
forgiveness amount stemming from a reduction in FTE employees during 
the covered period. Such documentation must include copies of 
applicable COVID Requirements or Guidance for each business location 
and relevant borrower financial records.
---------------------------------------------------------------------------

    \55\ This text was originally published at 85 FR 38304, 
subsection III.1.f. (June 26, 2020) and has been modified to conform 
to section 311 the Economic Aid Act.
---------------------------------------------------------------------------

    Example: A PPP borrower is in the business of selling beauty 
products both online and at its physical store. During the covered 
period, the local government where the borrower's store is located 
orders all non-essential businesses, including the borrower's business, 
to shut down their stores, based in part on COVID-19 guidance issued by 
the CDC in March 2020. Because the borrower's business activity during 
the covered period was reduced compared to its activity before February 
15, 2020 due to compliance with COVID Requirements or Guidance, the 
borrower satisfies the exemption and will not have its forgiveness 
amount reduced because of a reduction in FTEs during the covered 
period, if the borrower in good faith maintains records regarding the 
reduction in business activity and the local government's shutdown 
orders that reference a COVID Requirement or Guidance as described 
above.
c. What does ``full-time equivalent employee'' mean? 56
---------------------------------------------------------------------------

    \56\ This subsection was originally published at 85 FR 33004, 
subsection III.5.c. (June 1, 2020) and has been modified for 
readability.
---------------------------------------------------------------------------

    Full-time equivalent employee means an employee who works 40 hours 
or more, on average, each week. The hours of employees who work less 
than 40 hours are calculated as proportions of a single full-time 
equivalent employee and aggregated, as explained further below in 
subsection IV.5.d.
d. How should a borrower calculate its number of FTE employees? 
57
---------------------------------------------------------------------------

    \57\ This subsection was originally published at 85 FR 33004, 
subsection III.5.d. (June 1, 2020) and has been modified to conform 
to section 311 of the Economic Aid Act and for readability.
---------------------------------------------------------------------------

    Borrowers seeking forgiveness must document their average number of 
FTE employees during the covered period and their selected reference 
period. If applicable, a borrower must perform this calculation for 
both its First Draw PPP Loan and Second Draw PPP Loan. For purposes of 
this calculation, borrowers must divide the average number of hours 
paid for each employee per week by 40, capping this quotient at 1.0. 
For example, an employee who was paid 48 hours per week during the 
covered period would be considered to be an FTE employee of 1.0.
    For employees who were paid for less than 40 hours per week, 
borrowers may choose to calculate the full-time equivalency in one of 
two ways. First, the borrower may calculate the average number of hours 
a part-time employee was paid per week during the covered period. For 
example, if an employee was paid for 30 hours per week on average 
during the covered period, the employee could be considered to be an 
FTE employee of 0.75. Similarly, if an employee was paid for ten hours 
per week on average during the covered period, the employee could be 
considered to be an FTE employee of 0.25. Second, for administrative 
convenience, borrowers may elect to use a full-time equivalency of 0.5 
for each part-time employee. The Administrator recognizes that not all 
borrowers maintain hours-worked data, and has decided to afford such 
borrowers this flexibility in calculating the full-time equivalency of 
their part-time employees.
    Borrowers may select only one of these two methods, and must apply 
that method consistently to all of their part-time employees for the 
covered period and the selected reference period. In either case, the 
borrower shall provide the aggregate total of FTE employees for both 
the selected reference period and the covered period by adding together 
all of the employee-level FTE employee calculations. The borrower must 
then divide the average FTE employees during the covered period by the 
average FTE employees during the selected reference period, resulting 
in the reduction quotient.
e. What effect does a borrower's reduction in employees' salary or 
wages have on the loan forgiveness amount? 58
---------------------------------------------------------------------------

    \58\ This subsection was originally published at 85 FR 33004, 
subsection III.5.e. (June 1, 2020) and has been modified to conform 
to section 306 of the Economic Aid Act and for readability.
---------------------------------------------------------------------------

    Under section 7A(d)(3) of the Small Business Act, a reduction in an 
employee's salary or wages in excess of 25 percent will generally 
result in a reduction in the loan forgiveness amount, unless an 
exception applies. Specifically, for each new employee in 2020 and 
2021, as well as each existing employee who was not paid more than the 
annualized equivalent of $100,000

[[Page 8292]]

in any pay period in 2019, the borrower must reduce the total 
forgiveness amount by the total dollar amount of the salary or wage 
reductions that are in excess of 25 percent of base salary or wages of 
the employee during the most recent full quarter during which the 
employee was employed before the covered period (the reference period), 
subject to exceptions for borrowers who restore reduced wages or 
salaries (see g. below). This reduction calculation is performed on a 
per employee basis, not in the aggregate. Additionally, this reduction 
is performed based on the covered period and reference period 
applicable to the First Draw Loan or Second Draw Loan.
    Example: A borrower is using a 24-week covered period. This 
borrower reduced a full-time employee's weekly salary from $1,000 per 
week during the reference period to $700 per week during the covered 
period. The employee continued to work on a full-time basis during the 
covered period, with an FTE of 1.0. In this case, the first $250 (25 
percent of $1,000) is exempted from the loan forgiveness reduction. The 
borrower seeking forgiveness would list $1,200 as the salary/hourly 
wage reduction for that employee (the extra $50 weekly reduction 
multiplied by 24 weeks).\59\
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    \59\ This subsection previously provided that a borrower must 
account for the salary reduction for the full 24-week covered period 
if the borrower applies for forgiveness before the end of the 
covered period. 85 FR 38304, 38308 (June 26, 2020). This text has 
been removed because section 306 of the Economic Aid Act allows the 
borrower to select a covered period between 8 and 24 weeks and there 
is no need to apply for forgiveness before the end of the covered 
period.
---------------------------------------------------------------------------

    Example: A borrower has elected to use an eight-week covered 
period. This borrower reduced a full-time employee's weekly salary from 
$1,000 per week during the reference period to $700 per week during the 
covered period. The employee continued to work on a full-time basis 
during the covered period, with an FTE of 1.0. In this case, the first 
$250 (25 percent of $1,000) is exempted from the loan forgiveness 
reduction. The borrower seeking forgiveness would list $400 as the 
salary/hourly wage reduction for that employee (the extra $50 weekly 
reduction multiplied by eight weeks).
f. How should borrowers seeking loan forgiveness account for the 
reduction based on a reduction in the number of employees (section 
7A(d)(2)) relative to the reduction relating to salary and wages 
(section 7A(d)(3))? 60
---------------------------------------------------------------------------

    \60\ This subsection was originally published at 85 FR 33004, 
subsection III.5.e. (June 1, 2020) and has been modified for 
readability.
---------------------------------------------------------------------------

    To ensure that borrowers are not doubly penalized, the salary/wage 
reduction applies only to the portion of the decline in employee salary 
and wages that is not attributable to the FTE reduction.
    Example: An hourly wage employee had been working 40 hours per week 
during the borrower selected reference period (FTE employee of 1.0) and 
the borrower reduced the employee's hours to 20 hours per week during 
the covered period (FTE employee of 0.5). There was no change to the 
employee's hourly wage during the covered period. Because the hourly 
wage did not change, the reduction in the employee's total wages is 
entirely attributable to the FTE employee reduction and the borrower is 
not required to conduct a salary/wage reduction calculation for that 
employee.
g. If a borrower restores reductions made to employee salaries and 
wages or FTE employees, can the borrower avoid a reduction in its loan 
forgiveness amount? \61\
---------------------------------------------------------------------------

    \61\ This subsection was originally published at 85 FR 33004, 
subsection III.5.g. (June 1, 2020) and has been modified to conform 
to section 311 of the Economic Aid Act.
---------------------------------------------------------------------------

    Yes. Section 7A(d)(5) of the Small Business Act provides that if 
certain employee salaries and wages were reduced between February 15, 
2020 and April 26, 2020 (the safe harbor period) but the borrower 
eliminates those reductions by December 31, 2020 (or, for a PPP loan 
made on or after December 27, 2020, by the last day of the loan's 
covered period), the borrower is exempt from any reduction in loan 
forgiveness amount that would otherwise be required due to reductions 
in salaries and wages under section 7A(d)(3) of the Small Business Act. 
Similarly, if a borrower eliminates any reductions in FTE employees 
occurring during the safe harbor period by December 31, 2020 (or, for a 
PPP loan made on or after December 27, 2020, by last day of the loan's 
covered period), the borrower is exempt from any reduction in loan 
forgiveness amount that would otherwise be required due to reductions 
in FTE employees.\62\
---------------------------------------------------------------------------

    \62\ In light of the flexibility the Small Business Act provides 
to borrowers with respect to their selection of the reference time 
period for any potential reduction in loan forgiveness, and the 
statutory authority for SBA and the Treasury to grant de minimis 
exemptions from this requirement, if the borrower meets the 
requirements for the FTE reduction safe harbor, it will not be 
subject to any loan forgiveness reduction based on a reduction in 
FTE employees.
---------------------------------------------------------------------------

    This provision implements section 7A(d)(5) of the Small Business 
Act, which gives borrowers an opportunity to cure reductions in FTEs, 
salary/wage reductions in excess of 25 percent, or both, using the 
applicable methodology set forth in section 7A(d)(5). The Small 
Business Act provides that the reduction in FTEs or the reduction in 
salary/hourly wages must be eliminated not later than December 31, 2020 
(or, for a PPP loan made on or after December 27, 2020, not later than 
the last day of the loan's covered period). This does not change or 
affect the requirement that at least 60 percent of the loan forgiveness 
amount must be attributable to payroll costs.
h. Will a borrower's loan forgiveness amount be reduced if an employee 
is fired for cause, voluntarily resigns, or voluntarily requests a 
schedule reduction? \63\
---------------------------------------------------------------------------

    \63\ This subsection was originally published at 85 FR 33004, 
subsection III.5.h. (June 1, 2020) and has been modified to conform 
to section 304 of the Economic Aid Act and for readability.
---------------------------------------------------------------------------

    No. When an employee of the borrower is fired for cause, 
voluntarily resigns, or voluntarily requests a reduced schedule during 
the covered period (FTE reduction event), the borrower may count such 
employee at the same full-time equivalency level before the FTE 
reduction event when calculating the section 7A(d)(2) FTE employee 
reduction penalty. Borrowers that avail themselves of this de minimis 
exemption shall maintain records demonstrating that each such employee 
was fired for cause, voluntarily resigned, or voluntarily requested a 
schedule reduction. The borrower shall provide such documentation upon 
request.
i. Is a borrower with a loan of $50,000 or less exempt from any 
reductions to the loan forgiveness amount? \64\
---------------------------------------------------------------------------

    \64\ This subsection was originally published at 85 FR 66214, 
subsection III.1.b. (Oct. 19, 2020) and has been modified to conform 
to sections 304 and 307 the Economic Aid Act and for readability. As 
described further below in subsection 6.a and 6.b, borrowers with 
loans up to $150,000 may use SBA Form 3508S. However, only borrowers 
with loans of $50,000 or less, other than any borrower that together 
with its affiliates received First Draw Loans totaling $2 million or 
more or Second Draw Loans totaling $2 million or more, are exempt 
from any reductions to the loan forgiveness amount. Accordingly, the 
exemptions in this subsection are limited to qualifying borrowers 
with loans of $50,000 or less. A borrower with a loan greater than 
$50,000 and up to $150,000 must comply with the requirements under 
the Paycheck Protection Program, including calculating any reduction 
in forgiveness amounts based on reductions in FTEs or employee 
salary or wages.
---------------------------------------------------------------------------

    Yes. A borrower with a loan of $50,000 or less, other than any 
borrower

[[Page 8293]]

that together with its affiliates received First Draw PPP Loans 
totaling $2 million or more or Second Draw PPP Loans totaling $2 
million or more, is exempt from any reductions in the borrower's loan 
forgiveness amount based on reductions in FTE employees (section 
7A(d)(2) of the Small Business Act) or reductions in employee salary or 
wages (section 7A(d)(3) of the Small Business Act) that would otherwise 
apply. As such, subsections IV.5.a. through IV.5.h. above do not apply 
to qualifying borrowers with loans of $50,000 or less.

6. Documentation Requirements

a. What must borrowers submit for forgiveness of their PPP loans? \65\
---------------------------------------------------------------------------

    \65\ This subsection was originally published at 85 FR 33004, 
section III.6. (June 1, 2020) and amended at 85 FR 38304, subsection 
III.1.g. (June 26, 2020) and has been modified to conform to 
sections 304 and 307 of the Economic Aid Act and for readability.
---------------------------------------------------------------------------

    The loan forgiveness application form details the documentation 
requirements; specifically, documentation each borrower must submit 
with its Loan Forgiveness Application (SBA Form 3508, 3508EZ, 3508S as 
applicable, or lender equivalent), documentation each borrower is 
required to maintain and make available upon request, and documentation 
each borrower may voluntarily submit with its loan forgiveness 
application. An eligible borrower that received a loan of $150,000 or 
less should use the SBA Form 3508S and shall not, at the time of its 
application for loan forgiveness, be required to submit any application 
or documentation in addition to the certification and information 
required by section 7A(l)(1)(A) of the Small Business Act. However, an 
eligible borrower that received a Second Draw loan of $150,000 or less 
and is using the SBA Form 3508S must, before or at the time of its 
application for loan forgiveness, submit documentation sufficient to 
establish that the borrower experienced a reduction in revenue as 
provided in subsection (g)(2)(v) of the interim final rule on Second 
Draw PPP Loans, unless the borrower already provided such documentation 
at the time of its application for the Second Draw PPP Loan.\66\ 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.
---------------------------------------------------------------------------

    \66\ See interim final rule on Second Draw PPP Loans. 86 FR 
3712, 3721 (Jan. 14, 2021). Subsection (g)(2)(v) of the interim 
final rule on Second Draw PPP Loans implements section 
7(a)(37)(J)(v) of the Small Business Act.
---------------------------------------------------------------------------

    For Second Draw PPP Loans, all borrowers must certify on their loan 
forgiveness application that the borrower used all First Draw PPP Loan 
amounts on eligible expense prior to disbursement of the Second Draw 
PPP Loan. For Second Draw PPP Loans in excess of $150,000, the borrower 
must submit its loan forgiveness application for the First Draw PPP 
Loan before or simultaneously with the loan forgiveness application for 
the Second Draw PPP Loan, even if the calculated forgiveness amount for 
the First Draw PPP Loan is zero.
b. What documentation are borrowers who are individuals with self-
employment income who file a Form 1040, Schedule C or F required to 
submit to their lender with their request for loan forgiveness? \67\
---------------------------------------------------------------------------

    \67\ This subsection was originally published at 85 FR 21747, 
subsection III.1.g. (Apr. 20, 2020) and has been modified to conform 
to sections 304, 307, 308, and 313 of the Economic Aid Act and for 
readability.
---------------------------------------------------------------------------

    For borrowers that received loans of $150,000 or less that use the 
SBA Form 3508S, the borrower must submit the certification and 
information required by section 7A(l)(1)(A) of the Small Business Act 
and, for a Second Draw PPP Loan, revenue reduction documentation if 
such documentation was not provided at the time of application.\68\ All 
other borrowers must submit the certification required by section 
7A(e)(3) of the Small Business Act, and (if the borrower has employees) 
Form 941 and state quarterly business and individual employee wage 
reporting and unemployment insurance tax forms or equivalent payroll 
processor records that best correspond to the covered period (with 
evidence of any retirement and group health, life, disability, vision, 
and dental insurance contributions). Whether or not the borrower has 
employees, the borrower must submit evidence of business rent, business 
mortgage interest payments on real or personal property, business 
utility payments, or payments for a covered operations expenditure, 
covered property damage cost, covered supplier cost, or covered worker 
protection expenditure during the covered period if the borrower used 
loan proceeds for those purposes. This documentation may include 
cancelled checks, payment receipts, transcripts of accounts, purchase 
orders, orders, invoices, or other documents verifying payments on 
nonpayroll costs.
---------------------------------------------------------------------------

    \68\ See subsection (g)(2)(v) of the interim final rule on 
Second Draw PPP Loans. 86 FR 3712, 3721 (Jan. 14, 2021).
---------------------------------------------------------------------------

    For all loans, the 2019 or 2020 Form 1040 Schedule C or F that the 
borrower provided at the time of the PPP loan application must be used 
to determine the amount of net profit allocated to the owner for the 
covered period.\69\
---------------------------------------------------------------------------

    \69\ For self-employed borrowers that file Form 1040, Schedule F 
and have no employees, gross income may be used instead of net 
profit. For self-employed borrowers that file Schedule F and have 
employees, the difference between gross income and employee payroll 
costs may be used instead of net profit.
---------------------------------------------------------------------------

c. What additional documentation must a borrower submit when the 
President of the United States, Vice President of the United States, 
the head of an Executive department, or a Member of Congress, or the 
spouse of any of the preceding, directly or indirectly holds a 
controlling interest in the borrower? \70\
---------------------------------------------------------------------------

    \70\ This subsection has been added to conform to section 322 of 
the Economic Aid Act.
---------------------------------------------------------------------------

    For any First Draw PPP loan made before December 27, 2020, if the 
President of the United States, Vice President of the United States, 
the head of an Executive department, or a Member of Congress, or the 
spouse of any such person as determined under applicable common law, 
directly or indirectly held a controlling interest in the borrower on 
the date of the loan application, the borrower is required to make 
certain disclosures following submission of the borrower's application 
for loan forgiveness.
    For purposes of this section, the term ``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 
a borrower. For purposes of making this determination, the securities 
owned, controlled or held by the individual and spouse shall be 
aggregated. The term ``equity interest'' means (1) a share in a 
borrower, without regard to whether the share is transferable or 
classified as stock or anything similar, (2) a capital or profit 
interest in a limited liability company or partnership, or (3) a 
warrant or right, other than a right to convert, to purchase, sell, or 
subscribe to a share of interest described in (1) or (2), respectively. 
The term ``Executive department'' has the meaning given the term in 
section 101 of title 5, United States Code. The term ``Member of 
Congress'' means a Member of the Senate or House of Representatives, a 
Delegate to the House of

[[Page 8294]]

Representatives, and the Resident Commissioner from Puerto Rico.
    If the borrower submitted a loan forgiveness application to its PPP 
lender before December 27, 2020, then the principal executive officer, 
or individual performing a similar function, of the borrower shall 
submit to its PPP lender an SBA Form 3508D disclosing the controlling 
interest(s) not later than January 26, 2021. If the PPP lender has 
already submitted a forgiveness decision to SBA, the lender shall 
promptly transmit the SBA Form 3508D to SBA. Otherwise, the PPP lender 
shall transmit the SBA Form 3508D to SBA at the time the lender issues 
its forgiveness decision to SBA. If the borrower submits a loan 
forgiveness application to its PPP lender on or after December 27, 
2020, then the principal executive officer, or individual performing a 
similar function, of the borrower shall submit to its PPP lender an SBA 
Form 3508D disclosing the controlling interest(s) not later than 30 
days after submitting the application. The PPP lender shall transmit 
the SBA Form 3508D to SBA with the PPP lender's forgiveness decision. 
Alternatively, the PPP lender may transmit the completed Form 3508D to 
SBA when received.
    An entity is prohibited from receiving a PPP loan after December 
27, 2020 if a controlling interest is held directly or indirectly by 
the President of the United States, Vice President of the United 
States, the head of an Executive department, or a Member of Congress, 
or the spouse of any of the preceding.\71\
---------------------------------------------------------------------------

    \71\ See subsection III.B.2.a. of the consolidated interim final 
rule implementing updates to the Paycheck Protection Program, 86 FR 
3692, 3698 (Jan. 14, 2021); subsection III.e.6. of the interim final 
rule for Second Draw PPP loans, 86 FR 3712, 3719 (Jan. 14, 2021).
---------------------------------------------------------------------------

7. Lender Hold Harmless \72\
---------------------------------------------------------------------------

    \72\ This section has been added to conform to section 305 of 
the Economic Aid Act.
---------------------------------------------------------------------------

Under what circumstances may a lender rely on a certification or 
documentation submitted by an eligible PPP borrower that received a PPP 
loan?
    A lender may rely on any certification or documentation submitted 
by a PPP applicant or an eligible PPP borrower that received a PPP loan 
that--(a) is submitted pursuant to all applicable statutory 
requirements, regulations, and guidance related to a PPP loan, 
including sections 7(a)(36), 7(a)(37), and 7A of the Small Business 
Act; and (b) attests that the PPP applicant or eligible PPP borrower, 
as applicable, has accurately provided the certification or 
documentation to the lender in accordance with the statutory 
requirements, regulations, and guidance described in (a). With respect 
to a lender that relies on a borrower certification or documentation 
meeting the requirements of this subsection, an enforcement action may 
not be taken against the lender related to the PPP loan, and the lender 
shall not be subject to any penalties relating to loan origination or 
forgiveness of the PPP loan, if:
    (i) The lender acts in good faith relating to loan origination or 
forgiveness of the PPP loan based on that reliance; and
    (ii) all other relevant Federal, State, local, and other statutory 
and regulatory requirements applicable to the lender are satisfied with 
respect to the PPP loan.\73\
---------------------------------------------------------------------------

    \73\ This provision is effective as if included in the CARES Act 
and shall apply to any loan made pursuant to section 7(a)(36) or 
7(a)(37) of the Small Business Act before, on, or after the date of 
enactment of the Economic Aid Act, including forgiveness of such a 
loan.
---------------------------------------------------------------------------

V. Paycheck Protection Program SBA Loan Review Procedures and Related 
Borrower and Lender Responsibilities

1. SBA Reviews of Individual PPP Loans

a. Will SBA review individual PPP loans? \74\
---------------------------------------------------------------------------

    \74\ This subsection was originally published at 85 FR 33010, 
subsection III.1.a. (June 1, 2020).
---------------------------------------------------------------------------

    Yes. SBA may review any PPP loan, as the Administrator deems 
appropriate, as described below.
b. What borrower representations and statements will SBA review? \75\
---------------------------------------------------------------------------

    \75\ This subsection was originally published at 85 FR 33010, 
subsection III.1.b. (June 1, 2020) and amended by 85 FR 38304, 
subsection III.2.a. (June 26, 2020) and 85 FR 66214, subsection 
III.2.a. (Oct. 19, 2020) and has been modified to conform to section 
311 of the Economic Aid Act.
---------------------------------------------------------------------------

    The Administrator is authorized to review the following:
    Borrower Eligibility: The Administrator may review whether a 
borrower is eligible for the PPP loan based on the provisions of the 
CARES Act, the Economic Aid Act, the rules and guidance available at 
the time of the borrower's PPP loan application, and the terms of the 
borrower's loan application. See FAQ 17 (posted April 6, 2020).\76\ 
These include, but are not limited to, SBA's regulations under 13 CFR 
120.110 (as modified and clarified by the PPP Interim Final Rules) and 
13 CFR 121.301(f) and the information, certifications, and 
representations on the Borrower Application Form (SBA Form 2483, 2483-
SD, or lender's equivalent form) and the Loan Forgiveness Application 
Form (SBA Form 3508, 3508EZ, 3508S, or lender's equivalent form). With 
respect to a Second Draw PPP Loan, this may include a review of whether 
the borrower experienced the 25 percent revenue reduction required 
under the Economic Aid Act.
---------------------------------------------------------------------------

    \76\ https://www.sba.gov/document/support--faq-lenders-
borrowers.
---------------------------------------------------------------------------

    Loan Amounts and Use of Proceeds: The Administrator may review 
whether a borrower calculated the loan amount correctly and used loan 
proceeds for the allowable uses specified in the CARES Act and the 
Economic Aid Act.
    Loan Forgiveness Amounts: The Administrator may review whether a 
borrower is entitled to loan forgiveness in the amount claimed on the 
borrower's Loan Forgiveness Application (SBA Form 3508, 3508EZ, 3508S, 
or lender's equivalent form).
c. When will SBA undertake a loan review? \77\
---------------------------------------------------------------------------

    \77\ This subsection was originally published at 85 FR 33010, 
subsection III.1.c. (June 1, 2020) and has been modified to conform 
to sections 307 and 311 of the Economic Aid Act.
---------------------------------------------------------------------------

    For a PPP loan of any size, SBA may undertake a review at any time 
in SBA's discretion. For example, SBA may review a loan if the loan 
documentation submitted to SBA by the lender or any other information 
indicates that the borrower may be ineligible for a PPP loan, or may be 
ineligible to receive the loan amount or loan forgiveness amount 
claimed by the borrower.\78\ Additionally, section 7A(l)(1)(E) of the 
Small Business Act expressly provides that SBA may review and audit PPP 
loans of $150,000 or less and access any records the borrower is 
required to retain. SBA may, in its discretion, review a borrower's 
First Draw PPP Loan and Second Draw PPP Loan at the same time or at 
different times. For loans of more than $150,000, as noted on the loan 
forgiveness application forms, the borrower must retain PPP 
documentation in its files for six years after the date the loan is 
forgiven or repaid in full. For loans of $150,000 and under, the 
borrower must retain records relevant to the form that prove compliance 
with the requirements of section 7(a)(36) or 7(a)(37), as applicable, 
of the Small Business Act--for employment records, for the 4-year 
period following submission of the loan forgiveness application, and 
for other records, for the 3-year period following submission of the 
loan forgiveness application. All borrowers must permit authorized 
representatives of SBA, including representatives of its Office of 
Inspector General, to access such files upon request. Additionally, all 
borrowers must provide documentation

[[Page 8295]]

independently to a lender to satisfy relevant Federal, State, local or 
other statutory or regulatory requirements or in connection with an SBA 
loan review.
---------------------------------------------------------------------------

    \78\ 13 CFR 120.524(c).
---------------------------------------------------------------------------

    Lenders must comply with applicable SBA requirements for records 
retention, which for Federally regulated lenders means compliance with 
the requirements of their federal financial institution regulator and 
for SBA supervised lenders (as defined in 13 CFR 120.10 and including 
PPP lenders with authority under SBA Form 3507) means compliance with 
13 CFR 120.461.
d. Will I have the opportunity to respond to SBA's questions in a 
review? \79\
---------------------------------------------------------------------------

    \79\ This subsection was originally published at 85 FR 33010, 
subsection III.1.d. (June 1, 2020).
---------------------------------------------------------------------------

    Yes. If loan documentation submitted to SBA by the lender or any 
other information indicates that the borrower may be ineligible for a 
PPP loan or may be ineligible to receive the loan amount or loan 
forgiveness amount claimed by the borrower, SBA will require the lender 
to contact the borrower in writing to request additional information. 
SBA may also request information directly from the borrower. The lender 
will provide any additional information provided to it by the borrower 
to SBA. SBA will consider all information provided by the borrower in 
response to such an inquiry.
    Failure to respond to SBA's inquiry may result in a determination 
that the borrower was ineligible for a PPP loan or ineligible to 
receive the loan amount or loan forgiveness amount claimed by the 
borrower.
e. If SBA determines that a borrower is ineligible for a PPP loan, can 
the loan be forgiven? \80\
---------------------------------------------------------------------------

    \80\ This subsection was originally published at 85 FR 33010, 
subsection III.1.e. (June 1, 2020) and has been modified for 
readability.
---------------------------------------------------------------------------

    No. If SBA determines that a borrower is ineligible for the PPP 
loan, SBA will direct the lender to deny the loan forgiveness 
application. An SBA determination that a borrower is ineligible for a 
First Draw PPP Loan may also result in an SBA determination that the 
borrower is ineligible for any Second Draw PPP Loan, and SBA may direct 
the lender to deny any loan forgiveness application submitted for the 
Second Draw PPP Loan. Further, if SBA determines that the borrower is 
ineligible for the loan amount or loan forgiveness amount claimed by 
the borrower, SBA will direct the lender to deny the loan forgiveness 
application in whole or in part, as appropriate. SBA may also seek 
repayment of the outstanding PPP loan balance or pursue other available 
remedies.
    Section 7A(b) of the Small Business Act provides for forgiveness of 
a PPP loan only if the borrower is an ``eligible recipient.'' The 
Administrator has determined that to be an eligible recipient that is 
entitled to forgiveness under section 7A(b), the borrower must be an 
``eligible recipient'' under section 7(a)(36) and section 7(a)(37) of 
the Small Business Act and rules and guidance available at the time of 
the borrower's loan application. This requirement promotes the public 
interest, aligns SBA's functions with other governmental policies, and 
appropriately carries out the PPP provisions of the CARES Act and the 
Economic Aid Act, including by preventing evasion of the requirements 
for PPP loan eligibility and ensuring program integrity with respect to 
this emergency financial assistance program. It is also consistent with 
the CARES Act's nonrecourse provision, 15 U.S.C. 636(a)(36)(F)(v), 
which limits SBA's recourse against individual shareholders, members, 
or partners of a PPP borrower for nonpayment of a PPP loan only if the 
borrower is an eligible recipient of the loan.
f. May a borrower appeal SBA's determination that the borrower is 
ineligible for a PPP loan or ineligible for the loan amount or the loan 
forgiveness amount claimed by the borrower? \81\
---------------------------------------------------------------------------

    \81\ This subsection was originally published at 85 FR 33010, 
subsection III.1.f. (June 1, 2020) and has been modified to reflect 
the issuance of the interim final rule on appeals of SBA loan review 
decisions under the Paycheck Protection Program. 85 FR 52883 (Aug. 
27, 2020).
---------------------------------------------------------------------------

    Yes. SBA has issued a separate interim final rule addressing this 
process.\82\
---------------------------------------------------------------------------

    \82\ See 85 FR 52883 (Aug. 27, 2020).
---------------------------------------------------------------------------

2. The Loan Forgiveness Process for Lenders

a. What should a lender review? \83\
---------------------------------------------------------------------------

    \83\ This subsection was originally published at 85 FR 33010, 
subsection III.2.a. (June 1, 2020) and amended by 85 FR 38304, 
subsection III.2.b. (June 26, 2020) and 85 FR 66214, subsection 
III.2.b. (Oct. 19, 2020) and has been modified to conform to 
sections 307 and 311 of the Economic Aid Act.
---------------------------------------------------------------------------

    When a borrower submits SBA Form 3508 or lender's equivalent form, 
the lender shall:
    i. Confirm receipt of the borrower certifications contained in the 
SBA Form 3508 or lender's equivalent form.
    ii. Confirm receipt of the documentation the borrower must submit 
to aid in verifying payroll and nonpayroll costs, as specified in the 
instructions to the SBA Form 3508 or lender's equivalent form.
    iii. Confirm the borrower's calculations on the borrower's SBA Form 
3508 or lender's equivalent form, including the dollar amount of the 
(A) Cash Compensation, Non-Cash Compensation, and Compensation to 
Owners claimed on Lines 1, 4, 6, 7, 8, and 9 on PPP Schedule A and (B) 
Business Mortgage Interest Payments, Business Rent or Lease Payments, 
Business Utility Payments, Covered Operations Expenditures, Covered 
Property Damage Costs, Covered Supplier Costs, and Covered Worker 
Protection Expenditures claimed on Lines 2 through 8 on the PPP Loan 
Forgiveness Calculation Form, by reviewing the documentation submitted 
with the SBA Form 3508 or lender's equivalent form.
    iv. Confirm that the borrower made the calculation on Line 14 of 
the SBA Form 3508 or lender's equivalent form correctly, by dividing 
the borrower's Eligible Payroll Costs claimed on Line 1 by 0.60.
    When the borrower submits SBA Form 3508EZ or lender's equivalent 
form, the lender shall:
    i. Confirm receipt of the borrower certifications contained in the 
SBA Form 3508EZ or lender's equivalent form.
    ii. Confirm receipt of the documentation the borrower must submit 
to aid in verifying payroll and nonpayroll costs, as specified in the 
instructions to the SBA Form 3508EZ or lender's equivalent form.
    iii. Confirm the borrower's calculations on the borrower's SBA Form 
3508EZ or lender's equivalent form, including the dollar amount of the 
Payroll Costs, Business Mortgage Interest Payments, Business Rent or 
Lease Payments, Business Utility Payments, Covered Operations 
Expenditures, Covered Property Damage Costs, Covered Supplier Costs, 
and Covered Worker Protection Expenditures claimed on Lines 1 through 8 
of the SBA Form 3508EZ or lender's equivalent form, by reviewing the 
documentation submitted with the SBA Form 3508EZ or lender's equivalent 
form.
    iv. Confirm that the borrower made the calculation on Line 11 of 
the SBA Form 3508EZ or lender's equivalent form correctly, by dividing 
the borrower's Eligible Payroll Costs claimed on Line 1 by 0.60.
    Providing an accurate calculation of the loan forgiveness amount is 
the responsibility of the borrower, and the borrower attests to the 
accuracy of its reported information and calculations on the Loan 
Forgiveness Application Form. Lenders are expected to perform

[[Page 8296]]

a good-faith review, in a reasonable time, of the borrower's 
calculations and supporting documents concerning amounts eligible for 
loan forgiveness. For example, minimal review of calculations based on 
a payroll report by a recognized third-party payroll processor would be 
reasonable. By contrast, if payroll costs are not documented with such 
recognized sources, more extensive review of calculations and data 
would be appropriate. The borrower shall not receive forgiveness 
without submitting all required documentation to the lender.
    As the First Interim Final Rule \84\ and section IV.7 above 
indicate, lenders may rely on borrower representations. 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. As stated in 
paragraph III.3.c of the First Interim Final Rule, the lender does not 
need to independently verify the borrower's reported information if the 
borrower submits documentation supporting its request for loan 
forgiveness and attests that it accurately verified the payments for 
eligible costs.
---------------------------------------------------------------------------

    \84\ 85 FR 20811, 20815-20816 (Apr. 15, 2020).
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    When a borrower submits SBA Form 3508S or lender's equivalent form, 
the lender shall:
    i. Confirm receipt of the borrower certifications contained in the 
SBA Form 3508S or lender's equivalent form.
    ii. In the case of a Second Draw PPP Loan for which the borrower 
did not provide documentation of revenue reduction with its application 
and the lender did not conduct a review of the documentation at the 
time of application, 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.\85\
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    \85\ See subsection (h)(2)(i)(D) of the interim final rule on 
Second Draw PPP Loans. 86 FR 3712, 3721 (Jan. 14, 2021).
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    If the lender identifies errors in the borrower's calculation or 
material lack of substantiation in the borrower's supporting documents 
regarding revenue reduction, the lender should work with the borrower 
to remedy the issue. Providing an accurate calculation of the loan 
forgiveness amount is the responsibility of the borrower, and the 
borrower attests to the accuracy of its reported information and 
calculations on the Loan Forgiveness Application. The borrower shall 
not receive forgiveness without submitting all required documentation 
to the lender.
    As the First Interim Final Rule \86\ and section IV.7 above 
indicate, lenders may rely on borrower representations. As stated in 
paragraph III.3.c of the First Interim Final Rule, the lender does not 
need to independently verify the borrower's reported information if the 
borrower submits documentation supporting its request for loan 
forgiveness (if required) and attests that it accurately verified the 
payments for eligible costs.
---------------------------------------------------------------------------

    \86\ 85 FR 20811, 20815-20816 (Apr. 15, 2020).
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b. What is the timeline for the lender's decision on a loan forgiveness 
application? \87\
---------------------------------------------------------------------------

    \87\ This subsection was originally published at 85 FR 33010, 
subsection III.2.b. (June 1, 2020) and amended by 85 FR 38304, 
subsection III.2.b. (June 26, 2020) and 85 FR 66214, subsection 
III.2.b. (Oct. 19, 2020) and has been modified to conform to 
sections 311, 322, and 333 of the Economic Aid Act and for 
readability.
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    The lender must issue a decision to SBA on a loan forgiveness 
application not later than 60 days after receipt of a complete loan 
forgiveness application from the borrower. That decision may take the 
form of an approval (in whole or in part); denial; or (if directed by 
SBA) a denial without prejudice due to a pending SBA review of the loan 
for which forgiveness is sought. In the case of a denial without 
prejudice, the borrower may subsequently request that the lender 
reconsider its application for loan forgiveness, unless SBA has 
determined that the borrower is ineligible for a PPP loan. The 
Administrator has determined that this process appropriately balances 
the need for efficient processing of loan forgiveness applications with 
considerations of program integrity, including affording SBA the 
opportunity to ensure that borrower representations and certifications 
(including concerning eligibility for a PPP loan) were accurate.
    When the lender issues its decision to SBA approving the 
application (in whole or in part), it must include the following:
    i. For applications submitted using the SBA Form 3508 or lender's 
equivalent form:
    (1) The PPP Loan Forgiveness Calculation Form;
    (2) PPP Schedule A;
    (3) the (optional) PPP Borrower Demographic Information Form (if 
submitted to the lender); and
    (4) the SBA Form 3508D, if applicable.
    ii. For applications submitted using the SBA Form 3508EZ, 3508S, or 
lender's equivalent form:
    (1) The SBA Form 3508EZ, 3508S, or lender's equivalent form;
    (2) the (optional) Borrower Demographic Information Form (if 
submitted to the lender); and
    (3) the SBA Form 3508D, if applicable.
    The lender must confirm that the information provided by the lender 
to SBA accurately reflects lender's records for the loan, that the 
lender has made its decision in accordance with the requirements set 
forth in subsection V.2.a., and for a Second Draw PPP Loan of $150,000 
or less, if applicable, the lender has reviewed the revenue reduction 
documentation provided by the borrower and confirmed the dollar amount 
and percentage of the borrower's revenue reduction. If the lender 
determines that the borrower is entitled to forgiveness of some or all 
of the amount applied for under the statute and applicable regulations, 
the lender must request payment from SBA at the time the lender issues 
its decision to SBA. SBA will, subject to any SBA review of the 
borrower's loan(s) or loan application(s), remit the appropriate 
forgiveness amount to the lender, plus any interest accrued through the 
date of payment, not later than 90 days after the lender issues its 
decision to SBA. The EIDL Advance Amount received by the borrower will 
not reduce the amount of forgiveness to which the borrower is entitled 
and will not be deducted from the forgiveness payment amount that SBA 
remits to the Lender.\88\ The lender is responsible for notifying the 
borrower of remittance by SBA of the loan forgiveness amount (or that 
SBA determined that no amount of the loan is eligible for forgiveness) 
and the date on which the borrower's first payment is due, if 
applicable.
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    \88\ Section 333 of the Economic Aid Act repealed the CARES Act 
provision requiring SBA to deduct EIDL Advance Amounts received by 
borrowers from the forgiveness payment amounts remitted by SBA to 
the lender. Any EIDL Advance Amounts previously deducted from a 
borrower's forgiveness amount will be remitted to the lender, 
together with interest to the remittance date.
---------------------------------------------------------------------------

    When the lender issues its decision to SBA determining that the 
borrower is not entitled to forgiveness in any amount, the lender must 
provide SBA with the reason for its denial, together with the 
following:
    i. For applications submitted using the SBA Form 3508 or lender's 
equivalent form:
    (1) The PPP Loan Forgiveness Calculation Form;
    (2) PPP Schedule A;

[[Page 8297]]

    (3) the (optional) PPP Borrower Demographic Information Form (if 
submitted to the lender); and
    (4) the SBA Form 3508D, if applicable.
    ii. For applications submitted using the SBA Form 3508EZ, 3508S, or 
lender's equivalent form:
    (1) The SBA Form 3508EZ, 3508S, or lender's equivalent form;
    (2) the (optional) Borrower Demographic Information Form (if 
submitted to the lender); and
    (3) the SBA Form 3508D, if applicable.
    The lender must confirm that the information provided by the lender 
to SBA accurately reflects lender's records for the loan, and that the 
lender has made its decision in accordance with the requirements set 
forth in subsection V.2.a., and for a Second Draw PPP Loan of $150,000 
or less, if applicable, the lender has reviewed the revenue reduction 
documentation provided by the borrower and confirmed the dollar amount 
and percentage of the borrower's revenue reduction. The lender must 
also notify the borrower in writing that the lender has issued a 
decision to SBA denying the loan forgiveness application and provide 
SBA with a copy of the notice.\89\ The notice to the borrower must 
include the reasons that the lender concluded that the borrower is not 
entitled to loan forgiveness in any amount and inform the borrower that 
the borrower has 30 calendar days from receipt of the notification to 
seek, through the lender, SBA review of the lender's decision.\90\ SBA 
reserves the right to review the lender's decision in its sole 
discretion. Within 30 days of notice from the lender, a borrower may 
notify the lender that it is requesting that SBA review the lender's 
decision in accordance with subsection V.2.c. below. Within 5 days of 
receipt, the lender must notify SBA of the borrower's request for 
review. SBA will notify the lender if SBA decides to review the 
lender's decision or if SBA declines a request for review. If the 
borrower does not timely request SBA review or SBA declines the request 
for review, the lender is responsible for notifying the borrower of the 
date on which the borrower's first payment is due. If SBA accepts a 
borrower's request for review, SBA will notify the borrower and the 
lender of the results of the review. If SBA denies forgiveness in whole 
or in part, the lender is responsible for notifying the borrower of the 
date on which the borrower's first payment is due.
---------------------------------------------------------------------------

    \89\ This change has been made so that SBA can determine whether 
the borrower requested review within the appropriate time frame.
    \90\ This text has been added to clarify the information that 
will be provided to borrowers regarding the lender's forgiveness 
decision.
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c. What should a lender do if it receives notice that SBA is reviewing 
a loan? \91\
---------------------------------------------------------------------------

    \91\ This subsection was originally published at 85 FR 33010, 
subsection III.2.c. (June 1, 2020) and amended by 85 FR 38304, 
subsection III.2.b. (June 26, 2020) and 85 FR 66214, subsection 
III.2.b. (Oct. 19, 2020) and has been modified to conform to section 
311 of the Economic Aid Act and updates to SBA loan review 
procedures.
---------------------------------------------------------------------------

    SBA may begin a review of any PPP loan of any size at any time in 
SBA's discretion. SBA may, in its discretion, review the borrower's 
First Draw PPP Loan and Second Draw PPP Loan at the same time or at 
different times. If SBA undertakes such a review, SBA will notify the 
lender in writing and the lender must notify the borrower in writing 
within five business days of receipt.
    Within five business days of receipt of such notice, the lender 
shall transmit to SBA electronic copies of the following:
    i. The Borrower Application Form (SBA Form 2483, 2483-SD, or 
lender's equivalent form) and all supporting documentation provided by 
the borrower, including revenue reduction documentation provided by the 
borrower on a Second Draw PPP Loan.
    ii. The Loan Forgiveness Application (SBA Form 3508, 3508EZ, 3508S, 
or lender's equivalent form), and all supporting documentation provided 
by the borrower (if the lender has received such application), 
including revenue reduction documentation provided by the borrower on a 
Second Draw PPP Loan of $150,000 or less if not provided at the time of 
loan application. If the lender receives the borrower's loan 
forgiveness application after it receives notice that SBA has commenced 
a loan review, the lender shall transmit electronic copies of the 
application and all supporting documentation provided by the borrower 
to SBA within five business days of receipt.
    The lender must also request that the borrower provide the lender 
with the applicable documentation that the instructions to the Loan 
Forgiveness Application Form (SBA Form 3508, 3508EZ, 3508S, or lender's 
equivalent) instruct the borrower to maintain but not submit 
(documentation listed under ``Documents that Each Borrower Must 
Maintain but is Not Required to Submit'').
    For Second Draw PPP Loans of $150,000 or less where a loan 
forgiveness application has not been submitted by the borrower, the 
lender must also request that the borrower provide the lender with 
revenue reduction documentation, if not previously provided to the 
lender.
    The lender must submit documents received from the borrower to SBA 
within five business days of receipt from the borrower.
    iii. A signed and certified transcript of account.
    iv. A copy of the executed note evidencing the PPP loan.
    v. Any memorandum or other analysis that the lender prepared in 
making its decision on the borrower's loan forgiveness application, if 
applicable.
    vi. Any other documents related to the loan requested by SBA.
    If SBA has notified the lender that SBA has commenced a loan 
review, the lender should issue a forgiveness decision to SBA not later 
than 60 days after receipt of the complete loan forgiveness application 
from the borrower, unless otherwise directed by SBA.
d. What should a lender do if a borrower submits documentation of 
eligible costs that exceed a borrower's PPP Loan Amount? \92\
---------------------------------------------------------------------------

    \92\ This subsection was originally published at 85 FR 66214, 
subsection III.2.c. (Oct. 19, 2020) and has been modified to conform 
to section 307 of the Economic Aid Act.
---------------------------------------------------------------------------

    The amount of loan forgiveness that a borrower may receive cannot 
exceed the principal amount of the PPP loan. Whether a borrower submits 
SBA Form 3508, 3508EZ, 3508S, or lender's equivalent form, a lender 
should confirm receipt of the documentation the borrower is required to 
submit to aid in verifying payroll and nonpayroll costs, and, if 
applicable (for SBA Form 3508, 3508EZ, or lender's equivalent form), 
confirm the borrower's calculations on the borrower's Loan Forgiveness 
Application, up to the amount required to reach the requested 
Forgiveness Amount. Supporting documentation regarding a borrower's 
payroll and nonpayroll costs is not required to be submitted to the 
lender with the SBA Form 3508S.

3. Lender Fees \93\
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    \93\ This section was originally published at 85 FR 33010, 
subsection III.3. (June 1, 2020) and has been modified to conform to 
section 340 of the Economic Aid Act. Section 340 of the Economic Aid 
Act provides that a lender may not be required to repay a processing 
fee unless the lender is found guilty of an act of fraud in 
connection with the PPP loan.
---------------------------------------------------------------------------

Are lender processing fees subject to clawback if a lender has not 
fulfilled its obligations under PPP regulations?
    A lender is required to repay the processing fee to SBA if a lender 
is found guilty of an act of fraud in connection with the PPP loan. In 
such

[[Page 8298]]

case, the loan is not eligible for a guaranty.\94\
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    \94\ See 13 CFR 120.524.
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VI. Additional Information

    SBA may provide further guidance, if needed, through SBA notices 
that will be posted on SBA's website at www.sba.gov. Questions on the 
Paycheck Protection Program 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 Congressional Review Act, the Administrative Procedure Act, 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. 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 the Office of Management and Budget's Office 
of Information and Regulatory Affairs (OIRA) has determined that this 
is a major rule for purposes of Subtitle E of the Small Business 
Regulatory Enforcement and Fairness Act of 1996 (also known as the 
Congressional Review Act or CRA) (5 U.S.C. 804(2) et seq.). Under the 
CRA, a major rule takes effect 60 days after the rule is published in 
the Federal Register. 5 U.S.C. 801(a)(3).
    Notwithstanding this requirement, 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. 5 U.S.C. 808(2). 
Pursuant to Sec.  808(2), SBA for good cause finds that a 60-day delay 
to provide public notice is impracticable and contrary to the public 
interest. Likewise, for the same reasons, SBA for good cause finds that 
there are grounds to waive the 30-day effective date delay under the 
Administrative Procedure Act. 5 U.S.C. 553(d)(3).
    As discussed elsewhere in this interim final rule, the Economic Aid 
Act provided that several of the changes relating to loan forgiveness 
are effective as if included in the CARES Act and apply to any loan 
made pursuant to section 7(a)(36) of the Small Business Act before, on, 
or after December 27, 2020, including forgiveness of such a loan. 
Accordingly, loans that were made in 2020 but that have not yet 
received forgiveness will be forgiven based on changes made in the 
Economic Aid Act, as implemented in this interim final rule. Given the 
urgent need to provide borrowers that are eligible for loan forgiveness 
with timely relief, 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 allow SBA to continue remitting forgiveness payments to 
lenders without disruption and in accordance with the amendments made 
by the Economic Aid Act.
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 effect but does have some 
retroactive effect consistent with specific applicability provisions of 
the Economic Aid Act.
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 require revisions to 
existing recordkeeping or reporting requirements of the Paycheck 
Protection Program (PPP) information collection (OMB Control Number 
3245-0407) as a result of amendments made to the PPP by the Economic 
Aid Act and implemented in this interim final rule. The revisions will 
affect the PPP Loan Forgiveness Application Form 3508, PPP Loan 
Forgiveness Application Form 3508EZ, and PPP Loan Forgiveness 
Application Form 3508S.
    Further, to address the conflict of interest provisions in section 
322 of the Economic Aid Act, SBA has developed a new form, Paycheck 
Protection Program--Borrower's Disclosure of Certain Controlling 
Interests Form 3508D, which is required for certain borrowers who have 
disclosure requirements under the Economic Aid Act.
    SBA Form 3508S was amended to conform to section 307 of the 
Economic Aid Act, which requires a simplified forgiveness application 
for loans of not more than $150,000. SBA Forms 3508, 3508EZ and 3508S 
were also amended to address the new Second Draw PPP Loan program under 
section 311 of the Economic Aid Act, include the additional expenses 
that are eligible for forgiveness under section 304 of the Economic Aid 
Act, address the changes to the covered period definition in section 
306 of the Economic Aid Act, and implement the EIDL advance deduction 
repeal in section 333 of the Economic Aid Act. SBA Form 3508D will be 
used by borrowers where a covered individual, as defined in section 322 
of the Economic Aid Act, holds a controlling interest in the borrower.
    SBA has requested Office of Management and Budget (OMB) emergency 
approval of the revisions to the information collection to enable 
borrowers to begin submitting loan forgiveness applications with the 
Economic Aid Act changes as quickly as possible and to enable borrowers 
with disclosure requirements to meet the statutory deadline for 
disclosure.
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 Administrative Procedure Act 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.
    Rules that are exempt from notice and comment are also exempt from 
the RFA requirements, including conducting a

[[Page 8299]]

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. SBA Office of Advocacy 
guide: How to Comply with the Regulatory Flexibility Act, 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.

Tami Perriello,
Acting Administrator, Small Business Administration.
Andy P. Baukol,
Principal Deputy Assistant Secretary for International Monetary Policy 
(performing the delegable duties of the Deputy Secretary), Department 
of the Treasury.
[FR Doc. 2021-02314 Filed 2-3-21; 11:15 am]
BILLING CODE P