Paycheck Protection Program Overview

The CARES Act focuses on providing economic relief with a newly-created tool: the Paycheck Protection Program (“PPP”). This program expands the existing Small Business Administration (“SBA”) loan program and allows the SBA to provide additional loans and loan forgiveness to businesses and certain individuals as a result of the COVID-19 pandemic. PPP loans may be obtained by contacting an SBA-approved Bank or other lender. The SBA will provide loans through the PPP during the covered period, from  February 15, 2020 to June 30, 2020.

Does My Business Qualify?

The PPP expands existing SBA coverage. The following types of entities and individuals can qualify for loans through the PPP:

Small Businesses & Certain Nonprofit Organizations

Business concerns, 501(c)(3) organizations, veteran’s organizations, and tribal business concerns that either employ 500 or fewer employees or employ not more than the size standard established by the SBA for their industry are eligible for the PPP.

Entrepreneurs & Independent Contractors

The PPP also extends coverage to eligible sole proprietors, independent contractors, and self-employed individuals. In order to receive a loan through the PPP, these individuals must furnish certain documentation, such as Form 1099-MISC and profit and loss statements to establish eligibility.

Food & Accommodation Sector

A business that has more than one physical location, but is designated under NAICS code 72, the Food and Accommodation Sector, is eligible for a PPP loan as long as each location does not employ more than 500 employees.

How Do the PPP Loans Work?

Key Limitations & Requirements

The following are examples of some generally-applicable limitations, expansions, and requirements. If you have specific questions about Paycheck Protection Program (PPP) Loans for your organization, please contact your Bank or other Lender.

The SBA will provide loans through your PPP SBA approved bank during the covered period:  February 15, 2020 to June 30, 2020.

  • Maximum interest rate of 4 percent and SBA application fees are waived.
  • During the covered period, no collateral or personal guarantee shall be required for the loan.
  • Loans are essentially limited to the lesser of 2.5 times the average monthly payroll costs during the 1-year period prior to the loan, or $10,000,000.
  • Payroll costs are capped at $100,000 per employee on an annualized basis.
  • Special calculation rules apply for seasonal workers and self-employed individuals.
  • Loans may be used for operational expenses such as payroll and fringe benefits, interest on mortgage and debt obligations, rent, and utility expenses in existence prior to the covered period.
  • Loans will be nonrecourse to the borrower as long as the loans are not used for unauthorized purposes, such as compensation for employees with a primary residence outside the U.S.
  • Canceled indebtedness shall be excluded from gross income for federal income tax purposes.
  • Complete payment deferment may be available for at least six months and up to 12 months.

General Borrower Requirements

If an entity or individual is eligible for the PPP above, then PPP loans will be extended as long as the borrower was in business on February 15, 2020, and it paid employees or independent contractors. In addition, any person applying for the loan must make a good faith certification that the uncertainty of current economic conditions justifies the loan request to support the ongoing operations of the borrower. The applicant must also acknowledge that funds will be used to retain workers and maintain payroll.

Loan Forgiveness Under the PPP


One of the main features of the PPP is that loan forgiveness will be available for certain operational expenses incurred by the borrower in the first eight weeks after the loan’s origination. These operational costs are generally the same as the operational costs that are allowable uses for the PPP loans, such as payroll costs, rent, utilities, interest on mortgage obligations, and payments of other debts incurred prior to February 15, 2020.

There may be a reduction in loan forgiveness if the number of full-time equivalents or salaries are reduced; however, the PPP provides for relief from this reduction if full-time equivalents or salaries are reinstated by June 30, 2020.

There may be a reduction in loan forgiveness if the number of full-time equivalents or salaries are reduced.

How to Apply for Loan Forgiveness

In order to apply for loan forgiveness, an eligible recipient can submit an application to the lender that originated its loan, including:

  • Documentation verifying the number of full-time equivalent employees and relevant pay rate, including state and federal payroll and unemployment filings;
  • Documentation verifying covered payroll, interest on debt obligations, leaves, and utility payments (such as, canceled checks, receipts, and account statements);
  • A certification from the recipient that all documentation presented is true and correct AND the amount for which the forgiveness is requested was used for permissible purposes; and,
  • Any other documentation as required by the SBA.

Lenders are required to issue a loan forgiveness decision within 60 days; they will be repaid 90 days after the date on which the amount of forgiveness is determined. Any amount that is not forgiven will be guaranteed by the Administration.

Subsidy for Certain Loan Payments

In its passage of the CARES Act, the Senate also included a provision creating subsidies for certain SBA loans. This legislation noted that all borrowers are adversely affected by the COVID-19 and, as a result, relief payments by the SBA are appropriate for all borrowers.

For any loan guaranteed under section 7(a) of the Small Business Act, excluding those made under the Paycheck Protection Program, the SBA shall pay principal, interest, and associated fees in a regular servicing status for various loans for six months. The borrower is relieved of any payment of such amounts.

Payroll Costs Definition

“Payroll Costs” are defined as the following:


The sum of any payments of compensation to employees that is a:

  • salary, wage, commission or similar compensation;
  • payment of cash tip or equivalent;
  • payment for vacation, parental, family, medical or sick leave;
  • severance payment;
  • group health benefit payment;
  • retirement benefit; and
  • payment of state or local tax assessed on compensation.


  • compensation to an individual employee in excess of an annual salary of $100,000, as prorated for the “Covered Period” (defined to be February 15 - June 30, 2020);
  • FICA, FUTA and Wage Taxes (IRC Sections 21, 22 & 24);
  • Compensation to employees outside of the US; and
  • Leave payments under FFCRAA.


During the Covered Period, the recipient may use the proceeds of the loan for the following expenses:

  • Payroll Costs
  • costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
  • employee salaries, commissions, or similar compensations
  • payments of interest on any mortgage obligation (no principal or prepayments)
  • rent
  • utilities
  • interest on any other debt obligation incurred before the covered period


Available Credit Requirement

Unlike traditional SBA loans, loans under this program are not subject to the requirement that the applicant is unable to obtain credit elsewhere.


No recourse against any individual shareholder, member, or partner of an eligible recipient for non-payment of any loan except to the extent the proceeds are used for an ineligible purpose.


No collateral is required.


Personal guaranty requirements are waived.


All loans are to have complete payment deferment (not to be confused with interest accrual deferment) for at least 6 and not more than 12 months. The Treasury is required to provide further guidance on deferment within 30 days. 


Determined by the lender, but no greater than 4%

Prepayment (but see below re: Forgiveness)

Permitted without penalty or premium. 


Maturity for Loans with Balances After Forgiveness

Maximum of 10 years.


In most cases, a large portion, if not all of the loans provided under the Act can be forgiven.  The amount of forgiveness is equal to the sum of the following costs incurred and payments made by the borrower during the Covered Period (note: for this section, “Covered Period” is the first 8 weeks following loan origination): 

  • Payroll Costs; 
  • payments of interest on any mortgage obligation (no principal or prepayments);
  • rent; and
  • utilities

Forgiveness Reduction - Employees

The amount of forgiveness provided above is subject to reduction in the event that the borrower has recently reduced its employee headcount and does not rehire them (See Curing Reductions Below). More specifically, the forgiveness amount described above will be reduced by multiplying it by a fraction that is calculated in the following manner:

Forgiveness Reduction Numerator

The numerator is the average number of full-time equivalent employees per month employed by the recipient during the Covered Period.

Forgiveness Reduction Denominator

The denominator is one of two possibilities which the borrower is able to choose:

  • Average number of full time equivalent employees per month employed by the eligible recipient during the period beginning on January 1, 2020 and ending on February 29, 2020 OR
  • Average number of full time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019.

Forgiveness Reduction - Salary Reduction

The amount of loan forgiveness is also reduced by the amount of any reduction in total salary or wages of any employee (but for this purpose, only those employees who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000) employed during the covered period that is in excess of 25% of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.

Curing Reductions

The Act provides a method by which borrowers can restore any of the reductions to their forgiveness by rehiring employees and/or increasing the wages of their employees during the Covered Period. Under the Act, these rehired employees and restored wages become exempt from the forgiveness reduction calculation.

Forgiveness Applications and Requirements

In order to qualify for the loan forgiveness available under this program, borrowers will be required to submit an application to their lender. This application will include: 

  • Documentation verifying the number of full-time equivalent employees on payroll and their rates of pay for both current and certain historical periods, including (i) payroll tax filings; and (ii) state income, payroll and unemployment insurance filings;
  • Documentation including canceled checks, payment receipts, transcripts of accounts or other documents verifying payments on mortgages, rent and utilities;
  • Certification from the borrower that (i) the documentation provided is true and correct; and (ii) the amount for which forgiveness is requested was used to fund eligible payroll expenses, rent, mortgage payments and utility payments; and
  • Additional documents that may be requested by the SBA.

Help Is Available

The COVID-19 pandemic has created a constantly-changing situation for businesses of every size and industry, but meaningful help is available through programs such as PPP.

Please contact your bank to discuss your organization’s PPP questions, concerns, and priorities

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