BRAND NEW PPP GUIDANCE 4-14-2020

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SMALL BUSINESS ADMINISTRATION

Docket Number SBA-2020-[ ]

13 CFR Part 120

RIN [ ]

Business Loan Program Temporary Changes; Paycheck Protection Program – Additional

Eligibility Criteria and Requirements for Certain Pledges of Loans

AGENCY: U. S. Small Business Administration.

ACTION: Interim Final Rule.

SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA) posted an

interim final rule (the First PPP Interim Final Rule) announcing the implementation of sections

1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the

Act). Section 1102 of the Act temporarily adds a new program, titled the “Paycheck Protection

Program,” to the SBA’s 7(a) Loan Program. Section 1106 of the Act provides for forgiveness of

up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection

Program (PPP). The PPP is intended to provide economic relief to small businesses nationwide

adversely impacted by the Coronavirus Disease 2019 (COVID-19). This interim final rule

supplements the First PPP Interim Final Rule with guidance for individuals with self-

employment income who file a Form 1040, Schedule C. This rule also addresses eligibility

issues for certain business concerns and requirements for certain pledges of PPP loans. This

interim final rule supplements SBA’s implementation of sections 1102 and 1106 of the Act and

requests public comment.

DATES: Effective Date: This rule is effective [INSERT DATE OF PUBLICATION IN THE

FEDERAL REGISTER].

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Applicability Date: This interim final rule applies to applications submitted under the Paycheck

Protection Program through June 30, 2020, or until funds made available for this purpose are

exhausted.

Comment Date: Comments must be received on or before [INSERT DATE 30 DAYS AFTER

DATE OF PUBLICATION IN THE FEDERAL REGISTER].

ADDRESSES:

You may submit comments, identified by number SBA-2020-[ ] 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 are being taken to minimize the public’s

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exposure to the virus. These measures, some of which are government-mandated, are being

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-at-home 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 or the Act) (P.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 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

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 Act provides for forgiveness of up to

the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program.

II. Comments and Immediate Effective Date

The intent of the Act is that SBA provide relief to America’s small businesses expeditiously.

This intent, along with the dramatic decrease in economic activity nationwide, provides good

cause for SBA to dispense with the 30-day delayed effective date provided in the Administrative

Procedure Act. Specifically, small businesses need to be informed on whether they are eligible

to apply for a loan, how to apply for a loan, and the terms of the loan under section 1102 of the

Act as soon as possible because the last day to apply for and receive a loan is June 30, 2020. The

immediate effective date of this interim final rule will benefit small businesses so that they can

immediately determine their eligibility and apply for the loan with a full understanding of loan

terms and conditions. This interim final rule is effective without advance notice and public

comment because section 1114 of the Act authorizes SBA to issue regulations to implement Title

I of the Act without regard to notice requirements. This rule is being issued to allow for

immediate implementation of this program. Although this interim final rule is effective

immediately, comments are solicited from interested members of the public on all aspects of the

interim final rule, including section III below. These comments must be submitted on or before

[INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL

REGISTER]. SBA will consider these comments and the need for making any revisions as a

result of these comments.

III. Additional Paycheck Protection Program Eligibility Criteria and Requirements for

Certain Pledges of Loans

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 the Paycheck

Protection Program (PPP). Loans under the PPP will be 100 percent guaranteed by SBA, and the

full principal amount of the loans and any accrued interest may qualify for loan forgiveness.

Additional information about the PPP is available in the First PPP Interim Final Rule and a

second interim final rule posted April 3, 2020.

1. Individuals with Self-Employment Income who File a Form 1040, Schedule C

a. I have income from self-employment and file a Form 1040, Schedule C. Am I eligible for

a PPP Loan?

You are eligible for a PPP loan if: (i) you were in operation on February 15, 2020; (ii)

you are an individual with self-employment income (such as an independent contractor or

a sole proprietor); (iii) your principal place of residence is in the United States; and (iv)

you filed or will file a Form 1040 Schedule C for 2019. However, if you are a partner in

a partnership, you may not submit a separate PPP loan application for yourself as a self-

employed individual. Instead, the self-employment income of general active partners

may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application

filed by or on behalf of the partnership. Partnerships are eligible for PPP loans under the

Act, and the Administrator has determined, in consultation with the Secretary of the

Treasury (Secretary), that limiting a partnership and its partners (and an LLC filing taxes

as a partnership) to one PPP loan is necessary to help ensure that as many eligible

borrowers as possible obtain PPP loans before the statutory deadline of June 30, 2020.

This limitation will allow lenders to more quickly process applications and lower the

burdens of applying for partnerships/partners. The Administrator has further determined

that permitting partners to apply as self-employed individuals would create unnecessary

confusion regarding which entity, the partner or the partnership, applies for partner and

LLC member income, and would generate loan proceeds use coordination and

allocation issues. Rent, mortgage interest, utilities, and other debt service are generally

incurred at the partnership level, not partner level, so it is most natural to provide the

funds for these expenses to the partnership, not individual partners. In addition, you

should be aware that participation in the PPP may affect your eligibility for state-

administered unemployment compensation or unemployment assistance programs,

including the programs authorized by Title II, Subtitle A of the CARES Act, or CARES

Act Employee Retention Credits. SBA will issue additional guidance for those

individuals with self-employment income who: (i) were not in operation in 2019 but who

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were in operation on February 15, 2020, and (ii) will file a Form 1040 Schedule C for

2020.

b. How do I calculate the maximum amount I can borrow and what documentation is

required?

How you calculate your maximum loan amount depends upon whether or not you employ

other individuals. If you have no employees, the following methodology should be used

to calculate your maximum loan amount:

i. Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if

you have not yet filed a 2019 return, fill it out and compute the value). If this

amount is over $100,000, reduce it to $100,000. If this amount is zero or less,

you are not eligible for a PPP loan.

ii. Step 2: Calculate the average monthly net profit amount (divide the amount from

Step 1 by 12).

iii. Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.

iv. Step 4: Add the outstanding amount of any Economic Injury Disaster Loan

(EIDL) made between January 31, 2020 and April 3, 2020 that you seek to

refinance, less the amount of any advance under an EIDL COVID-19 loan

(because it does not have to be repaid).

Regardless of whether you have filed a 2019 tax return with the IRS, you must provide

the 2019 Form 1040 Schedule C with your PPP loan application to substantiate the

applied-for PPP loan amount and a 2019 IRS Form 1099-MISC detailing nonemployee

compensation received (box 7), invoice, bank statement, or book of record that

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establishes you are self-employed. You must provide a 2020 invoice, bank statement, or

book of record to establish you were in operation on or around February 15, 2020.

If you have employees, the following methodology should be used to calculate your

maximum loan amount:

i. Step 1: Compute 2019 payroll by adding the following:

a. Your 2019 Form 1040 Schedule C line 31 net profit amount (if you have not

yet filed a 2019 return, fill it out and compute the value), up to $100,000

annualized, if this amount is over $100,000, reduce it to $100,000, if this

amount is less than zero, set this amount at zero;

b. 2019 gross wages and tips paid to your employees whose principal place of

residence is in the United States computed using 2019 IRS Form 941 Taxable

Medicare wages & tips (line 5c- column 1) from each quarter plus any pre-tax

employee contributions for health insurance or other fringe benefits excluded

from Taxable Medicare wages & tips; subtract any amounts paid to any

individual employee in excess of $100,000 annualized and any amounts paid

to any employee whose principal place of residence is outside the United

States; and

c. 2019 employer health insurance contributions (health insurance component of

Form 1040 Schedule C line 14), retirement contributions (Form 1040

Schedule C line 19), and state and local taxes assessed on employee

compensation (primarily under state laws commonly referred to as the State

Unemployment Tax Act or SUTA from state quarterly wage reporting forms).

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ii. Step 2: Calculate the average monthly amount (divide the amount from Step 1 by

12).

iii. Step 3: Multiply the average monthly amount from Step 2 by 2.5.

iv. Step 4: Add the outstanding amount of any EIDL made between January 31, 2020

and April 3, 2020 that you seek to refinance, less the amount of any advance

under an EIDL COVID-19 loan (because it does not have to be repaid).

You must supply your 2019 Form 1040 Schedule C, Form 941 (or other tax forms or

equivalent payroll processor records containing similar information) and state quarterly

wage unemployment insurance tax reporting forms from each quarter in 2019 or

equivalent payroll processor records, along with evidence of any retirement and health

insurance contributions, if applicable. A payroll statement or similar documentation from

the pay period that covered February 15, 2020 must be provided to establish you were in

operation on February 15, 2020.

d. How can PPP loans be used by individuals with income from self-employment who file a

2019 Form 1040, Schedule C?

The proceeds of a PPP loan are to be used for the following.

i. Owner compensation replacement, calculated based on 2019 net profit as

described in Paragraph 1.b. above.

ii. Employee payroll costs (as defined in the First PPP Interim Final Rule) for

employees whose principal place of residence is in the United States, if you have

employees.

iii. Mortgage interest payments (but not mortgage prepayments or principal

payments) on any business mortgage obligation on real or personal property (e.g.,

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the interest on your mortgage for the warehouse you purchased to store business

equipment or the interest on an auto loan for a vehicle you use to perform your

business), business rent payments (e.g., the warehouse where you store business

equipment or the vehicle you use to perform your business), and business utility

payments (e.g., the cost of electricity in the warehouse you rent or gas you use

driving your business vehicle). You must have claimed or be entitled to claim a

deduction for such expenses on your 2019 Form 1040 Schedule C for them to be a

permissible use during the eight-week period following the first disbursement of

the loan (the “covered period”). For example, if you did not claim or are not

entitled to claim utilities expenses on your 2019 Form 1040 Schedule C, you

cannot use the proceeds for utilities during the covered period.

iv. Interest payments on any other debt obligations that were incurred before

February 15, 2020 (such amounts are not eligible for PPP loan forgiveness).

v. Refinancing an SBA EIDL loan made between January 31, 2020 and April 3,

2020 (maturity will be reset to PPP’s maturity of two years). If you received an

SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a

PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your

eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP

loan must be used to refinance your EIDL loan. Proceeds from any advance up to

$10,000 on the EIDL loan will be deducted from the loan forgiveness amount on

the PPP loan.

The Administrator, in consultation with the Secretary, determined that it is appropriate to

limit self-employed individuals’ (who file a Form 1040 Schedule C) use of loan proceeds

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to those types of allowable uses for which the borrower made expenditures in 2019. The

Administrator has determined that this limitation on self-employed individuals who file a

Form 1040 Schedule C is consistent with the borrower certification required by the Act;

specifically, that the PPP loan is necessary “to support the ongoing operations” of the

borrower. The Administrator and the Secretary thus believe that this limitation is

consistent with the structure of the Act to maintain existing operations and payroll and

not for business expansion. This limitation on the use of PPP loan proceeds will also

help to ensure that the finite appropriations available for these loans are directed toward

maintaining existing operations and payroll, as each loan that is made depletes the

appropriation. Finally, although the Act makes businesses in operation on February 15,

2020 eligible for PPP loans, the Administrator, in consultation with the Secretary, has

determined that self-employed individuals will need to rely on their 2019 Form 1040

Schedule C, which provides verifiable documentation on expenses between January 1,

2019 and December 31, 2019. For individuals with income from self-employment from

2019 for which they have filed or will file a 2019 Form 1040 Schedule C, expenses

incurred between January 1, 2020 and February 14, 2020 may not be considered because

of the lack of verifiable documentation on expenses in this period. SBA will issue

additional guidance for those individuals with self-employment income who: (i) were not

in operation in 2019 but who were in operation on February 15, 2020, and (ii) will file a

Form 1040 Schedule C for 2020.

e. Are there any other restrictions on how I can use PPP loan proceeds?

Yes. At least 75 percent of the PPP loan proceeds shall be used for payroll costs. For

purposes of determining the percentage of use of proceeds for payroll costs (but not for

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forgiveness purposes), the amount of any refinanced EIDL will be included. The

rationale for this 75 percent floor is contained in the First PPP Interim Final Rule.

f. What amounts shall be eligible for forgiveness?

The amount of loan forgiveness can be up to the full principal amount of the loan plus

accrued interest. The actual amount of loan forgiveness will depend, in part, on the total

amount spent over the covered period on:

i. payroll costs including salary, wages, and tips, up to $100,000 of annualized pay

per employee (for eight weeks, a maximum of $15,385 per individual), as well as

covered benefits for employees (but not owners), including health care expenses,

retirement contributions, and state taxes imposed on employee payroll paid by the

employer (such as unemployment insurance premiums);

ii. owner compensation replacement, calculated based on 2019 net profit as

described in Paragraph 1.b. above, with forgiveness of such amounts limited to

eight weeks’ worth (8/52) of 2019 net profit, but excluding any qualified sick

leave equivalent amount for which a credit is claimed under section 7002 of the

Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or

qualified family leave equivalent amount for which a credit is claimed under

section 7004 of FFCRA;

iii. payments of interest on mortgage obligations on real or personal property

incurred before February 15, 2020, to the extent they are deductible on Form 1040

Schedule C (business mortgage payments);

iv. rent payments on lease agreements in force before February 15, 2020, to the extent

they are deductible on Form 1040 Schedule C (business rent payments); and

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v. utility payments under service agreements dated before February 15, 2020 to the

extent they are deductible on Form 1040 Schedule C (business utility payments).

The Administrator, in consultation with the Secretary, has determined that it is

appropriate to limit the forgiveness of owner compensation replacement for

individuals with self-employment income who file a Schedule C to eight weeks’

worth (8/52) of 2019 net profit. This is most consistent with the structure of the Act

and its overarching focus on keeping workers paid, and will prevent windfalls that

Congress did not intend.

Congress determined that the maximum loan amount is based on 2.5 months of the

borrower’s payroll during the one-year period preceding the loan. Congress also

determined that the maximum amount of loan forgiveness is based on the borrower’s

eligible payments—i.e., the sum of payroll costs and certain overhead expenses—

over the eight-week period following the date of loan disbursement. For individuals

with self-employment income who file a Schedule C, the Administrator, in

consultation with the Secretary, has determined that it is appropriate to limit loan

forgiveness to a proportionate eight-week share of 2019 net profit, as reflected in the

individual’s 2019 Form 1040 Schedule C. This is because many self-employed

individuals have few of the overhead expenses that qualify for forgiveness under the

Act. For example, many such individuals operate out of either their homes, vehicles,

or sheds and thus do not incur qualifying mortgage interest, rent, or utility payments.

As a result, most of their receipts will constitute net income. Allowing such a self-

employed individual to treat the full amount of a PPP loan as net income would result

in a windfall. The entire amount of the PPP loan (a maximum of 2.5 times monthly

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payroll costs) would be forgiven even though Congress designed this program to limit

forgiveness to certain eligible expenses incurred in an eight-week covered period.

Limiting forgiveness to eight weeks of net profit from the owner’s 2019 Form 1040

Schedule C is consistent with the structure of the Act, which provides for loan

forgiveness based on eight weeks of expenditures. This limitation will also help to

ensure that the finite appropriations are directed toward payroll protection, consistent

with the Act’s central objective. Finally, 75 percent of the amount forgiven must be

attributable to payroll costs for the reasons specified in the First PPP Interim Final

Rule.

g. What documentation will I be required to submit to my lender with my request for loan

forgiveness?

In addition to the borrower certification required by Section 1106(e)(3) of the Act, to

substantiate your request for loan forgiveness, if you have employees, you should submit

Form 941 and state quarterly wage unemployment insurance tax reporting forms or

equivalent payroll processor records that best correspond to the covered period (with

evidence of any retirement and health insurance contributions). Whether or not you have

employees, you must submit evidence of business rent, business mortgage interest

payments on real or personal property, or business utility payments during the covered

period if you used loan proceeds for those purposes.

The 2019 Form 1040 Schedule C that was provided at the time of the PPP loan

application must be used to determine the amount of net profit allocated to the owner for

the eight-week covered period. The Administrator, in consultation with the Secretary,

determined that for purposes of loan forgiveness it is appropriate to require self-employed

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individuals to rely on the 2019 Form 1040 Schedule C to determine the amount of net

profit allocated to the owner during the covered period for the reasons described in

Paragraph 1.d. above.

2. Clarification regarding Eligible Businesses

a. Are eligible businesses owned by directors or shareholders of a PPP Lender permitted to

apply for a PPP Loan through the Lender with which they are associated?

The Administrator recognizes that, unlike other SBA loan programs, the financial terms

for PPP Loans are uniform for all borrowers, and the standard underwriting process does

not apply because no creditworthiness assessment is required for PPP Loans.

Consequently, there is no meaningful risk of underwriting bias or below-market rates and

terms. The Administrator also recognizes that many directors and equity holders of PPP

Lenders are owners of unrelated businesses. For those reasons, the Administrator, in

consultation with the Secretary, has determined that SBA regulations (including 13 CFR

120.110 and 120.140) shall not apply to prohibit an otherwise eligible business owned (in

whole or part) by an outside director or holder of a less than 30 percent equity interest in

a PPP Lender from obtaining a PPP loan from the PPP Lender on whose board the

director serves or in which the equity owner holds an interest, provided that the eligible

business owned by the director or equity holder follows the same process as any similarly

situated customer or account holder of the Lender. Favoritism by the Lender in

processing time or prioritization of the director’s or equity holder’s PPP application is

prohibited. The Administrator cautions, however, that Lenders should comply with all

other applicable state and federal regulations concerning loans to associates of the

Lender. Lenders should also consult their own internal policies concerning lending to

individuals or entities associated with the Lender.

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The foregoing paragraph does not apply to a director or owner who is also an officer or

key employee of the PPP Lender. Officers and key employees of a PPP Lender may

obtain a PPP Loan from a different lender, but not from the PPP Lender with which they

are associated. SBA also reminds Lenders that the “Authorized Lender Official” for each

PPP Loan is subject to the limitations described in the Lender Application Form, which

states in relevant part: “Neither the undersigned Authorized Lender Official, nor such

individual’s spouse or children, has a financial interest in the Applicant [Borrower].”

b. Are businesses that receive revenue from legal gaming eligible for a PPP Loan?

A business that is otherwise eligible for a PPP Loan is not rendered ineligible due to its

receipt of legal gaming revenues if the existing standard in 13 CFR 120.110(g) is met or

the following two conditions are satisfied: (a) the business’s legal gaming revenue (net of

payouts but not other expenses) did not exceed $1 million in 2019; and (b) legal gaming

revenue (net of payouts but not other expenses) comprised less than 50 percent of the

business’s total revenue in 2019. Businesses that received illegal gaming revenue are

categorically ineligible. The Administrator, in consultation with the Secretary, believes

this test appropriately balances the longstanding policy reasons for limiting lending to

businesses primarily and substantially engaged in gaming activity with the policy aim of

making the PPP Loan available to a broad segment of U.S. businesses and their

employees.

3. Requirements for Certain Pledges of PPP Loans

Do the requirements for loan pledges under 13 CFR 120.434 apply to PPP loans pledged

for borrowings from a Federal Reserve Bank (FRB) or advances by a Federal Home

Loan Bank (FHLB)?

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No. Pursuant to SBA regulations at 13 CFR 120.435(d) and (e), a pledge of 7(a) loans to

a FRB or FHLB does not require SBA’s prior written consent or notice to SBA. SBA, in

consultation with Treasury, has determined that for purposes of loans made under the

PPP, the additional requirements set forth in 120.434 shall also not apply. This would

mean, for example, that SBA would not have to approve loan documents or require a

multi-party agreement among SBA, the lender, and others.

4. 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, 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.

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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 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

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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.

List of subjects in 13 CFR part 120

Community development, Environmental protection, Equal employment opportunity, Exports,

Loan programs-business, Reporting and recordkeeping requirements, Small businesses.

For the reasons stated above, the Small Business Administration revises 13 CFR Part 120 as set

forth below.

1. The authority citation for part 120 is revised to read as follows:

Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note, 636(a), (h) and (m), and note, 650,

657t, and note, 657u, and note, 687(f), 693(3) and (7), and note, 697(a) and (e), and note.

2. Revise § 120.435 to read as follows:

§ 120.435 Which loan pledges do not require notice to or consent by SBA?

(a) Notwithstanding the provisions of § 120.434(e), 7(a) loans may be pledged for the following

purposes without notice to or consent by SBA:

(1) Treasury tax and loan accounts;

(2) The deposit of public funds;

(3) Uninvested trust funds;

(4) Borrowings from a Federal Reserve Bank; or

(5) Advances by a Federal Home Loan Bank.

(b) For purposes of the Paycheck Protection Program (PPP), the other provisions of § 120.434

shall also not apply to PPP loans pledged under subsection (a)(4) or (5) of this section.

Dated:

Jovita Carranza,

Administrator

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