This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents.

Rules and Regulations Federal Register

52881 

Vol. 85, No. 167 

Thursday, August 27, 2020 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 120 

[Docket Number SBA–2020–0044] 

RIN 3245–AH56 

Business Loan Program Temporary 

Changes; Paycheck Protection 

Program—Treatment of Owners and 

Forgiveness of Certain Nonpayroll 

Costs 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Interim final rule. 

SUMMARY: On April 2, 2020, the U.S. 

Small Business Administration (SBA) 

posted on its website an interim final 

rule relating to the implementation of 

Sections 1102 and 1106 of the 

Coronavirus Aid, Relief, and Economic 

Security Act (CARES Act or the Act) 

(published in the Federal Register on 

April 15, 2020). Section 1102 of the Act 

temporarily adds a new product, titled 

the ‘‘Paycheck Protection Program,’’ to 

the U.S. Small Business 

Administration’s (SBA’s) 7(a) Loan 

Program. Subsequently, SBA issued a 

number of interim final rules 

implementing the Paycheck Protection 

Program. This interim final rule 

supplements the previously posted 

interim final rules by providing 

additional guidance on treatment of 

owners and forgiveness of certain 

nonpayroll costs. 

DATES: 

Effective date: The provisions in this 

interim final rule are effective August 

25, 2020. 

Comment date: Comments must be 

received on or before September 28, 

2020. 

ADDRESSES: You may submit comments, 

identified by number SBA–2020–0044 

through the Federal eRulemaking Portal: 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

SBA will post all comments on 

www.regulations.gov. If you wish to 

submit confidential business 

information (CBI) as defined in the User 

Notice at www.regulations.gov, please 

send an email to ppp-ifr@sba.gov. 

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 are experiencing economic 

hardship as a direct result of the 

Federal, State, tribal, and local public 

health measures that are being taken to 

minimize the public’s exposure to the 

virus. These measures, some of which 

are government-mandated, have been 

implemented nationwide and include 

the closures of restaurants, bars, and 

gyms. In addition, based on the advice 

of public health officials, other 

measures, such as keeping a safe 

distance from others or even stay-athome orders, have been implemented, 

resulting in a dramatic 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 

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 permits SBA to guarantee 

100 percent of 7(a) loans under a new 

program titled the ‘‘Paycheck Protection 

Program.’’ Section 1106 of the CARES 

Act provides 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 PPP. 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, the President 

signed into law S. 4116, which 

reauthorized lending under the PPP 

through August 8, 2020 (Pub. L. 116– 

147). 

This interim final rule addresses the 

ownership percentage that triggers the 

applicability of owner compensation 

rules for forgiveness purposes. This 

interim final rule also addresses 

limitations on the eligibility of certain 

nonpayroll costs for forgiveness. 

II. Comments and Immediate Effective 

Date 

This interim final rule is effective 

without advance notice and public 

comment because Section 1114 of the 

CARES Act authorizes SBA to issue 

regulations to implement Title I of the 

Act without regard to notice 

requirements. In addition, SBA has 

determined that there is good cause for 

dispensing with advance public notice 

and comment on the grounds that it 

would be contrary to the public interest. 

Specifically, advance public notice and 

comment would defeat the purpose of 

this interim final rule given that SBA’s 

authority to guarantee PPP loans 

expired on August 8, 2020 and SBA 

began accepting lender loan forgiveness 

submissions on August 10, 2020. These 

same reasons provide good cause for 

SBA to dispense with the 30-day 

delayed effective date provided in the 

Administrative Procedure Act (APA). 

See 5 U.S.C. 553(b)(B). Although this 

interim final rule is effective on or 

before date of filing, comments are 

solicited from interested members of the 

public on all aspects of the interim final 

rule, including Section III below. These 


khammond on DSKJM1Z7X2PROD with RULES
52882 Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Rules and Regulations 

1 In this context, the related party itself would not 

also be eligible to request forgiveness for this 

amount. 

comments must be submitted on or 

before September 28, 2020. The SBA 

will consider these comments and the 

need for making any revisions as a 

result of these comments. 

III. Paycheck Protection Program— 

Treatment of Owners and Forgiveness 

of Certain Nonpayroll Costs 

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 a new 7(a) loan program titled the 

‘‘Paycheck Protection Program.’’ Loans 

guaranteed under the Paycheck 

Protection Program (PPP) will be 100 

percent guaranteed by SBA, and the full 

principal amount of the loans may 

qualify for loan forgiveness. The 

purpose of this interim final rule is to 

provide additional guidance concerning 

the ownership percentage that triggers 

the applicability of the owner 

compensation rule for forgiveness 

purposes and limitations on the 

eligibility of certain nonpayroll costs for 

forgiveness. 

1. Owners 

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? 

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. 

The First Loan Forgiveness Rule, as 

revised by the Revisions to Loan 

Forgiveness and Loan Review 

Procedures Interim Final Rules, 85 FR 

38304, 38307 (June 26, 2020), caps the 

amount of loan forgiveness for payroll 

compensation attributable to an owneremployee. There is no exception in the 

rule based on the owner-employee’s 

percentage of ownership. The 

Administrator, in consultation with the 

Secretary, has now determined that an 

owner-employee in a C- or SCorporation who has less than a 5 

percent ownership stake will not be 

subject to the owner-employee 

compensation rule. This exemption is 

intended to cover owner-employees 

who have no meaningful ability to 

influence decisions over how loan 

proceeds are allocated. 

2. Eligibility of Certain Nonpayroll Costs 

for Loan Forgiveness 

a. Are amounts attributable to the 

business operation of a tenant or subtenant of the PPP borrower or, in the 

context of home-based businesses, 

household expenses, eligible for 

forgiveness? 

No, the amount of loan forgiveness 

requested for nonpayroll costs may not 

include any amount attributable to the 

business operation of a tenant or subtenant of the PPP borrower or, for homebased businesses, household expenses. 

The examples below illustrate this rule. 

Example 1: A borrower rents an office 

building for $10,000 per month and subleases 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. 

b. Are rent payments to a related party 

eligible for loan forgiveness? 

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, 2020.1

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. PPP loans 

are intended to help businesses cover 

certain non-payroll obligations that are 

owed to third parties, not payments to 

a business’s owner that occur because of 

how the business is structured. This 

will maintain equitable treatment 

between a business owner that holds 

property in a separate entity and one 

that holds the property in the same 

entity as its business operations. 

3. 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 Paperwork Reduction Act (44 

U.S.C. Ch. 35), and the Regulatory 

Flexibility Act (5 U.S.C. 601–612). 

Executive Orders 12866, 13563, and 

13771 

This interim final rule is 

economically significant for the 

purposes of Executive Orders 12866 and 

13563, and is considered a major rule 

under the Congressional Review Act. 

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. 

Executive Order 12988 

SBA has drafted this rule, to the 

extent practicable, in accordance with 

the standards set forth in Section 3(a) 

and 3(b)(2) of Executive Order 12988, to 

minimize litigation, eliminate 

ambiguity, and reduce burden. The rule 

has no preemptive or retroactive effect. 

Executive Order 13132 

SBA has determined that this rule 

will not have substantial direct effects 

on the States, on the relationship 

between the National Government and 


khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Rules and Regulations 52883 

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 not impose new or modify existing 

recordkeeping or reporting requirements 

under the Paperwork Reduction Act. 

Regulatory Flexibility Act (RFA) 

The Regulatory Flexibility Act (RFA) 

generally requires that when an agency 

issues a proposed rule, or a final rule 

pursuant to Section 553(b) of the APA 

or another law, the agency must prepare 

a regulatory flexibility analysis that 

meets the requirements of the RFA and 

publish such analysis in the Federal 

Register. 5 U.S.C. 603, 604. Specifically, 

the RFA normally requires agencies to 

describe the impact of a rulemaking on 

small entities by providing a regulatory 

impact analysis. Such analysis must 

address the consideration of regulatory 

options that would lessen the economic 

effect of the rule on small entities. The 

RFA defines a ‘‘small entity’’ as (1) a 

proprietary firm meeting the size 

standards of the Small Business 

Administration (SBA); (2) a nonprofit 

organization that is not dominant in its 

field; or (3) a small government 

jurisdiction with a population of less 

than 50,000. 5 U.S.C. 601(3)–(6). Except 

for such small government jurisdictions, 

neither State nor local governments are 

‘‘small entities.’’ Similarly, for purposes 

of the RFA, individual persons are not 

small entities. 

The requirement to conduct a 

regulatory impact analysis does not 

apply if the head of the agency ‘‘certifies 

that the rule will not, if promulgated, 

have a significant economic impact on 

a substantial number of small entities.’’ 

5 U.S.C. 605(b). The agency must, 

however, publish the certification in the 

Federal Register at the time of 

publication of the rule, ‘‘along with a 

statement providing the factual basis for 

such certification.’’ If the agency head 

has not waived the requirements for a 

regulatory flexibility analysis in 

accordance with the RFA’s waiver 

provision, and no other RFA exception 

applies, the agency must prepare the 

regulatory flexibility analysis and 

publish it in the Federal Register at the 

time of promulgation or, if the rule is 

promulgated in response to an 

emergency that makes timely 

compliance impracticable, within 180 

days of publication of the final rule. 5 

U.S.C. 604(a), 608(b). 

Rules that are exempt from notice and 

comment are also exempt from the RFA 

requirements, including conducting a 

regulatory flexibility analysis, when 

among other things the agency for good 

cause finds that notice and public 

procedure are impracticable, 

unnecessary, or contrary to the public 

interest. SBA Office of Advocacy guide: 

How to Comply with the Regulatory 

Flexibility Act, Ch.1. p.9. Accordingly, 

SBA is not required to conduct a 

regulatory flexibility analysis. 

Jovita Carranza, 

Administrator. 

[FR Doc. 2020–18940 Filed 8–25–20; 1:00 pm] 

BILLING CODE P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 134 

[Docket Number SBA–2020–0042] 

RIN 3245–AH55 

Appeals of SBA Loan Review 

Decisions Under the Paycheck 

Protection Program 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Interim final rule. 

SUMMARY: On April 2, 2020, the U.S. 

Small Business Administration (SBA) 

posted on its website an interim final 

rule relating to the implementation of 

sections 1102 and 1106 of the 

Coronavirus Aid, Relief, and Economic 

Security Act (CARES Act or the Act) 

(published in the Federal Register on 

April 15, 2020). Section 1102 of the Act 

temporarily adds a new product, titled 

the ‘‘Paycheck Protection Program,’’ to 

the U.S. Small Business 

Administration’s (SBA’s) 7(a) Loan 

Program. Subsequently, SBA issued a 

number of interim final rules 

implementing the Paycheck Protection 

Program (PPP). This interim final rule 

supplements the interim final rule on 

Loan Review Procedures and Related 

Borrower and Lender Responsibilities 

posted on SBA’s website on May 22, 

2020 (published on June 1, 2020, in the 

Federal Register), as revised by the 

interim final rule posted on SBA’s 

website on June 22, 2020, in order to 

inform PPP borrowers and lenders of the 

process for a PPP borrower to appeal 

certain SBA loan review decisions 

under the PPP to the SBA Office of 

Hearings and Appeals, and requests 

public comment. 

DATES: 

Effective date: This rule is effective 

August 25, 2020. 

Applicability date: This interim final 

rule applies to certain loan review 

decisions made by SBA under the 

Paycheck Protection Program. 

Comment date: Comments must be 

received on or before September 28, 

2020. 

ADDRESSES: You may submit comments, 

identified by number SBA–2020–0042 

through the Federal eRulemaking Portal: 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

SBA will post all comments on 

www.regulations.gov. If you wish to 

submit confidential business 

information (CBI) as defined in the User 

Notice at www.regulations.gov, please 

send an email to ppp-ifr@sba.gov. 

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/localassistance/ 

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 are experiencing economic 

hardship as a direct result of the 

Federal, State, tribal, and local public 

health measures that have been taken to 

minimize the public’s exposure to the 

virus. These measures, some of which 

are government-mandated, have been 

implemented nationwide and include 

the closures of restaurants, bars, and 

gyms. In addition, based on the advice 

of public health officials, other 

measures, such as keeping a safe 

distance from others or even stay-athome orders, are being implemented, 

resulting in a dramatic 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 

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 


khammond on DSKJM1Z7X2PROD with RULES