Small Business Administration Clarifies PPP Rules Under CARES Act

Note that all Sheehey guidance regarding COVID-19 is subject to change, as the legal landscape is evolving rapidly. Please note the date of publication for this bulletin, and be aware that things may have changed since then. Please check our COVID-19 landing page for the most up-to-date posts and contact us with any questions.

The CARES Act Paycheck Protection Program (“PPP”) provides loans to certain covered businesses. PPP borrowers are eligible for partial loan forgiveness. The CARES Act provided the general framework for the program and deferred to the SBA to create specific rules for the program to operate. The SBA released an interim final rule for borrowers and lenders under the PPP adding extra loan and forgiveness limits. The most notable limits are as follows.

  • Only 25% of the forgiven amount can be associated with non-payroll costs. The CARES Act allowed for 8-weeks of payroll and overhead to be forgiven. The SBA rule limits this amount to be more payroll heavy.
  • The PPP loan interest rates are fixed at 1% and maturity at 2 years. The CARES Act set higher ceilings of 4% and 10 years, respectively.
  • Borrowers get a 6-month deferment on loan payments, but interest accrues during this deferment. The CARES Acts allows deferment for up to one-year. The SBA cited low interest rates for shortening the deferment period.

Businesses that receive PPP loans are reminded to keep good records and to follow prudent record retention practices to track all costs and uses of loan proceeds. Loan forgiveness will only be granted for documented costs.

Have more questions about the PPP, the CARES Act, or how your small business can navigate the COVID-19 crisis?  Our attorneys are here to help.  Contact us at [email protected]