SBA guidelines clarify eligibility for PPP pardon and conviction. Reopens Economic Disaster Lending Program | Holland & Hart LLP

On June 11 and 12, the Treasury Department and the Small Business Administration (SBA) unveiled consecutive days of revisions to the Paycheck Protection Program (PPP) Interim Final Rule 1 as well as revised claim forms for borrowers and lenders.

The June 11 revisions implement the Paycheck Protection Program Flexibility Act (Flexibility Act) promulgated by President Trump on June 5, 2020, a summary of which can be found here. It is important to note that these revisions included guidance addressing a problem created by the law on flexibility in qualifying a borrower for a PPP loan forgiveness. While the wording of the Flexibility Act imposed a “cliff” requirement that at least 60% of loan proceeds be spent on payroll costs in order for the borrower to be eligible for a rebate, this new directive clarifies the requirement to so that the borrower failure to meet the 60% threshold simply results in a proportional decrease in loan forgiveness, rather than denying the borrower any loan forgiveness. According to the Administrator and the Secretary of the Treasury, this clarified interpretation of the 60% utilization requirement under the Flexibility Act is consistent with Congress’ goal of increasing the flexibility available to borrowers with respect to concerns the cancellation of PPP loans.

The June 12 guidelines relaxed eligibility restrictions for PPP loans for people with a criminal history. The first interim final rule provided, among other things, that a PPP loan would not be approved if an owner of 20% or more of the plaintiff’s equity had been convicted of a felony within the past five years. However, upon closer examination, the Administrator and Secretary of the Treasury found this restriction inconsistent with Congress’ intention to provide relief to small business and determined that a shorter time limit for certain crimes should be implemented. The look-back period has been reduced from five years to one year to determine the eligibility of applicants or owners of applicants convicted of non-financial crimes. The ineligibility period remains five years for felony convictions involving fraud, bribery, embezzlement, or misrepresentation in a loan application or federal financial aid application.

The SBA has issued revised PPP application forms that incorporate these changes. The new borrower application forms can be found here, and the new lender application forms can be found here.

Finally, on June 15, the SBA announced the reopening of its Economic Disaster Lending and Grants (EIDL) program. The SBA ceased to receive applications for the EIDL program on April 16 after initial funding was exhausted. As of June 15, the SBA is once again accepting applications for EIDL grants and loans from all applicants if they have 500 or fewer employees and have been affected by the coronavirus pandemic. EIDL loans can be used for debts, payroll, and other bills that cannot be paid due to impacts resulting from the pandemic (importantly, borrowers can apply for an EIDL loan in addition to a loan under the PPP, provided that the proceeds of the loan are not used for the same purpose). These loans are offered at an interest rate of 3.75% for businesses and 2.75% for nonprofits, although it is not clear whether the total loan amount available to an applicant. has been increased to $ 2,000,000 or continues to be limited to $ 150,000. EIDL grants allow applicants to request an advance of up to $ 10,000. These advances do not have to be repaid and small businesses are eligible for an advance even if they are not approved for an EIDL loan.

As has been the case since the introduction of the CARES Act and the implementation of the SBA loan programs, subsequent rules, requirements and guidelines continue to be fluid. Businesses should heed these new guidelines when determining if and when to apply for the various SBA loan programs.

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