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PIA Comments on Interim Final Rule on SBA PPP 11.18.2020

Filed by PIA
November 18, 2020

Submitted via www.regulations.gov


Hon. Jovita Carranza                       Hon. Steven T. Mnuchin, Secretary of the Treasury
Administrator                                  c/o Michael Faulkender, Ass’t Sec’y for Economic Policy
Small Business Administration         Comments: RIN: 1505-AC71
Docket Number SBA-2020-0052       Department of the Treasury
409 3rd Street, SW                            1500 Pennsylvania Avenue, NW
Washington, D.C. 20416                   Washington, D.C. 20220

RE:  SBA and Treasury Department Notice entitled, “Business Loan Program Temporary Changes; Paycheck Protection Program—Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules,” Treasury RIN 1505-AC71; SBA Docket SBA-2020-0052, 85 Fed. Reg. 66214

Dear Administrator Carranza and Secretary Mnuchin:

On behalf of the National Association of Professional Insurance Agents (PIA National)[1], I hereby submit the following comments in response to the October 19, 2020 Interim Final Rules (IFR)[2] published by the U.S. Small Business Administration (SBA) and the Treasury Department. These IFR revise the process for some businesses to seek loan forgiveness and lender evaluation of such loan forgiveness applications submitted pursuant to the new process and in accordance with the Paycheck Protection Program (PPP).

Overview

The PPP is a federal loan program created by H.R. 748, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Pub. L. 116-136), which was signed into law in late March. The full principal amount of a PPP loan may qualify for loan forgiveness, depending on how the borrower spent the loan proceeds.

Beginning in early April, the SBA began to issue interim final rules implementing and clarifying various aspects of the PPP. The IFR to which we now respond follow the SBA and Treasury’s May 22 Interim Final Rule on Loan Review Procedures and Related Borrower and Lender Responsibilities by offering additional guidance that further simplifies the forgiveness and loan review processes for PPP loans of $50,000 or less, and, for all PPP loans, simplifies lender responsibilities in reviewing borrower documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount.[3]

In connection with the issuance of these IFR, the SBA also issued an alternative loan forgiveness application, SBA Form 3508S, which can be used by borrowers applying for loan forgiveness on PPP loans totaling $50,000 or less. (Borrowers with affiliates that also have PPP loans are not eligible under these IFR, if their total loans, including those of affiliates, was $2 million or greater.) Borrowers with loans of $50,000 or less may use the SBA Form 3508S or a lender-created equivalent of the new form.

Like many of the other IFR issued by the SBA in accordance with the CARES Act, these are permitted to take effect without advance notice and comment because of the provision of the CARES Act that authorizes the SBA to regulate without adherence to the advance notice requirements provided in the Administrative Procedures Act (APA) because of the exigent circumstances surrounding the need to quickly implement the provisions of the CARES Act, including the loan forgiveness process.

De Minimis Exemptions are Warranted and Appropriate

These IFR set forth certain exemptions available to borrowers whose PPP loans were $50,000 or smaller. Borrowers who use SBA Form 3508S or a lender-equivalent form are exempt from any reduction in loan forgiveness that would have been based on reductions in full-time equivalent (FTE) employees, or reductions in employee salary or wages that would otherwise have applied. These exemptions, which have been classified as de minimis, support the goals of the CARES Act, two of which were to provide financial help to a broad range of small businesses and to provide borrowers with needed flexibility.

The SBA has concluded that, based on available data, the outstanding PPP loans of potentially affected borrowers amount to approximately $49 billion, or nine percent of the overall PPP loan amount. Within that nine percent, most borrowers would not be subject to the loan forgiveness reduction requirements regardless, because either they did not reduce FTE employees or employee salaries or wages, or because they would qualify for an existing exemption from loan forgiveness amount reduction.[4] Excluding those borrowers, then, the relative impact of these new exemptions on the total amount of PPP loan funds is de minimis.

PIA National supports the creation of these additional exemptions; we expect the implementation of these IFR will speed up the loan forgiveness process for borrowers who use the new form. The SBA will be relieved of the obligation to apply the complex FTE and salary/wage rules that typically accompany the evaluation of a loan forgiveness application. Small businesses need policies and procedures that make their long-term survival easier to achieve, not harder. These IFR serve that purpose.

New Lender Requirements Are Necessary and Sufficient

The new lender obligations include confirming receipt of borrower certifications contained in SBA Form 3508S or lender equivalent and confirming receipt of the documentation required to support borrower statements regarding payroll and nonpayroll costs, as set forth in the aforementioned form. These requirements are appropriately tailored to the needs presented by the new form and exemptions and will hold borrowers accountable without placing unnecessary burdens on borrowers or lenders.

These IFR are Necessary but Insufficient

PIA National has been advocating for additional assistance for small businesses throughout the COVID-19 crisis and resulting economic downturn. Among other actions, we haveencouraged Congress, as part of any new pandemic relief legislative package, to simplify the PPP loan forgiveness process for businesses that borrowed up to $150,000.

Similarly, these IFR would be improved if the pool of borrowers to which they applied was broader than only those with loans of $50,000 or less. While PPP loans of $150,000 or less account for 86 percent of total PPP recipients, such loans account for fewer than 27 percent of PPP loan dollars. The process set forth in these IFR could be substantially expanded without sacrificing a commensurate percentage of PPP loan dollars.

Conclusion

PIA National recognizes and appreciates the SBA and Treasury’s actions to simplify the loan forgiveness process for many small-business borrowers, who were a primary target of the CARES Act and the establishment of the PPP.

However, we are concerned that this more streamlined process is too narrow and should be broadened to apply to a larger number of small businesses. PIA National looks forward to continuing to work with policymakers, the Treasury Department, and the SBA going forward to continue to improve the PPP loan forgiveness process so that it provides the type and level of support needed for the nation’s small businesses to survive and thrive in this challenging environment.

As always, PIA National is grateful for the opportunity to provide the independent agent perspective. Please contact me at laurenpa@pianet.org or (202) 202-1414 with any questions or concerns. Thank you for your time and consideration.

Sincerely,

Lauren G. Pachman

Counsel and Director of Regulatory Affairs

National Association of Professional Insurance Agents

[1] By way of background, PIA is a national trade association founded in 1931. It represents member insurance agents in all 50 states, Puerto Rico, Guam, and the District of Columbia. PIA members are small business owners and insurance professionals who can be found across America.

[2]https://home.treasury.gov/system/files/136/PPP--IFR--Additional-Revisions-Loan-Forgiveness-Loan-Review-Procedures-Interim-Final-Rules.pdf.

[3] In short, a borrower cannot receive loan forgiveness for any more than the amount of the principal of their PPP loan, even if said borrower submits documentation showing they made qualifying expenditures more than the principal loan amount.

[4] Existing exemptions are available for borrowers who are able to document in good faith an inability to rehire former employees and an inability to hire similarly qualified people for unfilled positions by the end of 2020, or an inability to return to the same level of business activity as it was operating at before Feb. 15, 2020 because of compliance with requirements or guidance related to safety around COVID-19.

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