Paycheck Protection Program Offers Forgivable Emergency Loans Under CARES Act

3/28/2020 - By Saltmarsh, Cleaveland & Gund

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program, the initiative provides 100% federally guaranteed loans to small businesses who maintain their payroll during this emergency. 

Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward. The administration soon will release more details including the list of lenders offering loans under the program. 

You are eligible if you are: 

  • A small business with fewer than 500 employees 
  • A small business that otherwise meets the SBA’s size standard 
  • A 501(c)(3) with fewer than 500 employees 
  • An individual who operates as a sole proprietor 
  • An individual who operates as an independent contractor 
  • An individual who is self-employed who regularly carries on any trade or business 
  • A Tribal business concern that meets the SBA size standard 
  • A 501(c)(19) Veterans Organization that meets the SBA size standard 

In addition, some special rules may make you eligible: 

  • If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis  
  • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company, the normal affiliation rules do not apply

Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.

Included Payroll Cost:

  1. For Employers: The sum of payments of any compensation with respect 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 
  • allowance for dismissal or separation 
  • payment required for the provisions of group healthcare benefits, including insurance premiums 
  • payment of any retirement benefit 
  • payment of state or local tax assessed on the compensation of the employee

  2. For Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.

Excluded Payroll Cost:

  1. Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15 - June 30, 2020 

  2. Payroll taxes, railroad retirement taxes, and income taxes 

  3. Any compensation of an employee whose principal place of residence is outside of the United States 

  4. Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under corresponding section 7003.

Loans Can Be Forgiven

Borrowers are eligible to have their loans forgiven.  A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan: 

  • Payroll costs (using the same definition of payroll costs used to determine loan eligibility) 
  • Interest on the mortgage obligation incurred in the ordinary course of business 
  • Rent on a leasing agreement 
  • Payments on utilities (electricity, gas, water, transportation, telephone, or internet) 
  • For borrowers with tipped employees, additional wages paid to those employees 

The loan forgiveness cannot exceed the principal. The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.

Download Printable PDF


We recognize this is a time of significant change. If you have any questions, please reach out to your engagement shareholder, manager or another member of our team. General questions and inquiries can be directed to Jayme Terrell.

Visit our COVID-19 RESOURCE HUB for ongoing updates and information. Due to the ever-changing nature of this event, you should always consult the appropriate professionals.

Related Posts