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Interim Final Rule Issued for Paycheck Protection Program

By Procopio Partner Eli W. Mansour

The Small Business Administration issued an Interim Final Rule April 3, 2020 (“Interim Final Rule”) to implement and clarify the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  The full text of the Interim Final Rule can be found here.

The Interim Final Rule, in addition to restating key elements of the PPP under the CARES Act, provides guidance to potential small businesses and other eligible borrowers – some examples are below:

Online Application

The online application found here is used to submit an application for a PPP Loan and will need to be accompanied by payroll records such as payroll processor records and payroll tax filings or bank records to demonstrate payroll amounts.

Criminals Need Not Apply 

The Interim Final Rule provides that a small business that would otherwise meet the general eligibility requirements would nonetheless be ineligible if any owner of 20 percent or more of its equity is incarcerated, on probation, on parole, indicted, arraigned, or otherwise charged with a crime, or has been convicted of a felony within the last five years. 

Interest Rate and Term

The Interim Final Rule explains that the interest rate for PPP loans will be one percent (1%) and the loans will have a term of two (2) years. 

Deferral of Payments

The Interim Final Rule provides that payments under the PPP are deferred for six months following the date of disbursement of the loan but interest will accrue during the deferral period.

Independent Contractors Do Not Count

While the CARES Act includes in the calculation of “wage costs” payments of any compensation to a sole proprietor or independent contractor that is a “wage, commission, income, net earnings from self-employment, or similar compensation,” the Interim Final Rule provides contradictory guidance on how to treat independent contractors.  The Interim Final Rule states in several instances that “independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation,” and further only includes employees in the examples of how to calculate PPP loan amounts. 

Limitations on Use of Funds

As the PPP was intended to keep workers paid and employed, the Interim Final Rule requires that at least 75 percent (75%) of PPP loan proceeds be used for payroll costs.  Similarly, not more than 25% of the PPP loan amount which is eligible to be forgiven may be used for non-payroll costs in the 8 week period following the date of the loan.

Misuse of Funds

The Interim Final Rule provides that if the borrower uses PPP loan proceeds for unauthorized purposes, the borrower, will be subject to additional liability such as charges for fraud.  In addition, if the owners or principals of a borrower misuse PPP funds, SBA will have recourse against them for the unauthorized use.

Certification Requirements

The Interim Final Rule details the certification required from borrowers, which includes, inter alia, acknowledging that economic uncertainty make a PPP loan necessary to support the ongoing operations of the applicant, that PPP loan proceeds will be used to retain workers and maintain payroll, and that not more than 25 percent of loan proceeds may be used for non-payroll costs.  Additionally, the penalties for making a false statement to obtain a PPP loan are stated and include imprisonment up to thirty years and/or a fine of up to $1,000,000.


Eli W. Mansour is the co-leader of Procopio's Licensing and Technology Transactions practice group and the leader of its Aviation and Marine practice group. He counsels clients on a variety of business matters including intellectual property, aviation law and equipment finance. Eli’s practice focuses on the development, protection and licensing of technology and related intellectual property, including drafting and negotiating technology development, manufacturing, distribution and licensing agreements. He has extensive experience in device discovery agreements, joint venture agreements and technology assignment, and transfer transactions, as well as advising corporate flight departments and individuals seeking to acquire, lease or share the use of turboprop and turbojet aircraft.