On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or “Act”) was signed into law. One of the most impactful provisions of the CARES Act is the creation of the Paycheck Protection Program (the “Program”), a new, 100% federally-guaranteed loan program that will be administered through the Small Business Association (“SBA”) under Section 7(a) of the Small Business Act. The Act allocates up to $349 billion to the Program for loans to eligible entities for a variety of uses and with such loans being subject to forgiveness under certain circumstances. The Program will provide a lifeline to innumerable small businesses and provide a paycheck to employees who may otherwise not receive one due to the economic effects of COVID-19.

Eligibility: The Program loans are available to entities with fewer than 500 employees (counting all full time, part time, and other basis employees), including:

  • Businesses;
  • 501(c)(3) nonprofit organizations;
  • Certain tribal business concerns;
  • Eligible self-employed individuals;
  • Independent contractors;
  • Sole proprietorships; and
  • Business in the accommodation and food services industry (NAICS 72) that have less than 500 employees per physical location.

Loan Amount: Amount of loan will be based on average monthly payroll costs times 2.5, however, loan may not exceed $10 million. An entity’s average monthly payroll costs are calculated based on the one-year period prior to the loan disbursal date, except for seasonal employers and employers not in business between February 15, 2019 and July 30, 2019.

  • Seasonal employer – may calculate average monthly payroll costs based on one of two periods: (1) February 15, 2019 to May 10, 2019; or (2) March 1, 2019 to June 30, 2019.
  • New Employers, not in business between February 15, 2019 and July 30, 2019 – calculate average monthly costs based on period beginning January 1, 2020 through February 29, 2020.

Uses: Loans made under the Program may be used for a variety of purposes, including payroll costs, rent, utilities, mortgage interest (not principal) and interest on debt existing prior to February 15, 2020.

  • Payroll costs include: employee salary, wages and commissions; payment of cash tips; payment of vacation; parental, family, medical, or sick-leave; all allowance for dismissal or separation; payment of retirement benefits; or payment of state or local tax assessed on employee compensation; and sole proprietor income or independent contractor compensation not in excess of $100,000.
  • Payroll costs exclude: compensation of an individual person in excess of $100,000 (as prorated for the period); federal employment taxes imposed or withheld taxes; compensation to an employee whose principal residence is outside of the U.S.; qualified sick leave for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act; and qualified family leave wages for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act.

Loan Terms: Up to 10 year term (amortized). Max interest rate of 4%. Six months (and up to one year) deferral of principal and interest payments. Notably, certain SBA requirements are waived. Loans are available with:

  • No personal guaranties of shareholders, members or partners;
  • No collateral;
  • No proving recipient cannot obtain funds elsewhere;
  • No SBA fees (may still have to pay lender processing fee); and
  • No repayment fee.

Loan Forgiveness: Section 1106 of the CARES Act details forgiveness of Program loans. The forgiven amount will be equal to the amount actually paid for payroll costs, salaries, benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan. Additional wages paid to tipped employees under Section 3(m)(2)(A) of the Fair Labor standard Act may also be forgiven. The forgiveness amount is subject to reduction if there is a workforce reduction or reduction in the salary or wages of an employee. Up to 100% of the Program loan is forgivable.

  • Reductions in workforce, salaries and wages that occur from February 15, 2020 to April 26, 2020, will be disregarded for purposes of reducing the forgiveness amount as long as the reductions are eliminated by June 30, 2020.
  • Any portion of the loan that is forgiven will be excluded from gross income.

Application: Applications should be made directly to an SBA-approved lender. Lenders have been delegated authority to make loans without SBA review. Eligible employees will have been in operation on February 15, 2020, and will have paid employees and payroll taxes on independent contractors. Applications will need to certify that the loan is necessary and will be used to retain workers and pay eligible expenses. Applicants will further need to certify that no other application for a loan for the same purpose is pending, and that the entity has not received any other loan for the same purposes through December 31, 2020. After receiving an application, Lenders have 60 days to review and make a determination.

Concluding Remarks

We invite you to contact us today to discuss obtaining a Paycheck Protection Loan for your business.


Alexis Clinebell
[email protected]