• Matt Crumpton, Esq.

7 Key Takeaways from the SBA’s Just Issued Paycheck Protection Loan Rules


Yesterday afternoon - one day before the payroll protection loan applications were supposed to be available - the SBA issued its interim rules for the Paycheck Protection Loans under the CARES Act. As I have been saying, there are some important provisions in the Act that defer to the SBA and banks. We now have clarity regarding some of those things. I have provided screenshots of the specific language from the new rule that I am discussing below each section below where applicable.

Here are the 7 things you need to know about the SBA Paycheck Protection Loan Interim Rules:

1. Separate Application for Self-Employed People Without W2 Payroll. If you are a self-employed person and you do not pay yourself through W2 payroll, there is another application that is coming out for you next week. This is per bankers that I know and not in the rule. This is apparently also the same application that 1099 contractors will apply for.


2. Low Standard for Self-Employed Documentation. This will be good news to my self-employed friends out there who are not really big on documentation. The SBA and banks are going to allow you to prove your pay through an income and expense statement supported by “bank records.” So, if you just pay yourself through bank transfers, you will be able to use that as proof of payroll amount for purposes of calculating average monthly payroll.


3. Big Change: It Appears That You CANNOT Count 1099 Contractors As Payroll For Loan Forgiveness. The SBA now says that you cannot count 1099 contractors as employees for the purpose of payroll forgiveness. However, it does not address whether you can count 1099 employees for the purpose of calculating the loan. Because the statute provides for it, you could argue that you can still count 1099 contractors in your payroll calculation. But, the language of the rule injects doubt into this area because it says independent contractors can apply for their own loans. If that is the case, then you wouldn’t think that you can count 1099 pay to determine the loan amount, but then not count that pay for the forgivable amount. The SBA has done a disservice by issuing a confusing rule. Bottom line, ask your banker on this one.

4. The SBA Made Up A New Rule About Spending The Proceeds. As if the Maintain Same Amount of FTEs Rule and the No Decrease of More Than 25% Specific Employee Pay Rule were not enough, the SBA has added a new rule about spending the loan proceeds. The loan must now be spent at least 75% on payroll. It is not clear if they are using this rule to replace the other two statutory rules noted above or if this rule is in addition to the statutory rules.

5. Lenders Don’t Have to Verify Applicant Documentation. In what was an area of contention between the SBA and the banks, the SBA rule says that Lenders are not required to verify documentation submitted by the applicants. This is going to mean that far more people have a chance to get funds and get them quickly.


6. The SBA Still Has Not Defined Seasonal. The term “seasonal employer” is not mentioned once in the SBA rule. However, on the SBA form application, it references the time period for seasonal employers to use. Because loan applications have already opened and the determination of whether the business is seasonal must be made at the time of applying, it looks like no additional guidance is coming in time. So, unless the banks make up their own rules, it will be up to the businesses to use the honor code for determining if they are “seasonal.” The significance of being seasonal is that it allows you to use a Feb 15, 2019-June 30, 2019 measurement period for payroll loan calculation instead of a full year average.

7. Additional Guidance Regarding Forgivability Is Forthcoming. There are many issues that need to be resolved, such as:

  • How does the new at least 75% on payroll rule work with the other two rules on how to spend the money?

  • What is the definition of an FTE? (Big difference between vague definition and Affordable Care Act definition, for example).

  • Any other surprise restrictions they will put in place on how to spend the money.

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