Alerts and Updates

Small Business Administration Releases Revised Eligibility Rules for Paycheck Protection Program

June 29, 2020

The June 24 interim final rule makes two amendments to certain eligibility criteria set forth in the first interim final rule released on April 2, 2020.

On June 24, 2020, the Treasury Department and Small Business Administration released an interim final rule updating eligibility criteria for Paycheck Protection Program (PPP) loans made under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and the Paycheck Protection Program Flexibility Act.

The June 24 interim final rule loosens the eligibility criteria that applied to owners of 20 percent or more of a PPP loan borrower’s equity, specifically concerning the criminal histories of such owners. In addition, the June 24 interim final rule confirms certain other eligibility criteria that will remain in place.

Loosening of Eligibility Criteria for PPP Loans

The June 24 interim final rule makes two amendments to certain eligibility criteria set forth in the first interim final rule released on April 2, 2020.

Eligibility for Owners Presently Indicted

The first interim final rule provided that a PPP loan applicant is ineligible if a 20 percent or more equity owner is presently subject to an indictment, criminal information, arraignment or other means by which formal criminal charges are brought in any jurisdiction. Under the June 24 interim final rule, that restriction is limited to pending criminal charges for felony offenses. This revision significantly expands the eligibility criteria and would permit businesses with owners presently indicted for an offense that is not a felony (for example, a misdemeanor) to apply for PPP loans.

Eligibility for Owners on Parole

The first interim final rule provided that a PPP loan applicant was ineligible if a 20 percent or more equity owner is on probation or parole. Under the June 24 interim final rule, this restriction will apply only for individuals whose parole commenced (i) within the past five years for a felony involving fraud, bribery, embezzlement or a false statement, and (ii) within the last year for any other felony. Accordingly, if such owner’s parole for a felony involving embezzlement commenced six years ago, the business would be eligible to apply for a PPP loan. In addition, if such owner’s parole for any felony not specifically listed in the June 24 interim final rule commenced two years ago, the business would also be eligible to apply for a PPP loan.

Confirmation of Prior Restrictions

Despite the loosening of some PPP loan eligibility criteria, the June 24 interim final rule confirmed that certain other criteria would not be amended or loosened in any way.

Eligibility for Owners Presently Incarcerated

The SBA specifically confirmed that the rule rendering ineligible any business with an owner of 20 percent or more equity who is presently incarcerated remains in effect. The SBA explained that this rule addresses the risk of a business with such an owner not being able to repay the PPP loan if the owner is incarcerated.

Eligibility for Owners Facing Criminal Felony Charges

The SBA also confirmed that a PPP loan applicant is ineligible if an owner of 20 percent or more equity is subject to an indictment, criminal information, arraignment or other criminal charges in connection with a felony. The SBA explained that such charges present a risk of incarceration and therefore potentially impact the ongoing business operations of such a business.

Eligibility for Owners Facing Felony Convictions

The SBA also confirmed that a PPP loan applicant is ineligible if an owner of 20 percent or more equity has been convicted of, pleaded guilty or nolo contendere to or commenced any form of parole or probation for (i) a felony involving fraud, bribery, embezzlement or a false statement in a loan application or federal financial assistance program within the past five years, and (ii) any other felony within the last year.

About Duane Morris

Duane Morris has created a COVID-19 Strategy Team to help organizations plan, respond to and address this fast-moving situation. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage. 

For More Information

If you have any questions about this Alert, please contact Nanette C. Heide, Sandra G. Stoneman, Stephen Morrissey, Mark Zhuang, any member of the COVID-19 Strategy Team or the attorney in the firm with whom you are regularly in contact

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.