Paycheck Protection Program

Update (4/5/2020)

  • The U.S. Small Business Administration issued the following additional rules and guidance relating to the Paycheck Protection Program:
    • Loan applications for the Paycheck Protection Program are being accepted by banks, credit unions and any existing SBA 7(a) lender for small businesses and sole proprietorships starting April 3, 2020. Independent contractors and self-employed individuals can apply starting April 10, 2020.
    • The total amount of loans that can be made under this program is limited to $349 billion and will be provided on a first come first served basis.
    • No eligible borrower may receive more than one PPP loan, thus the SBA is encouraging applicants to apply for the maximum amount.
    • Provided a methodology to calculate the maximum loan amount:
      • Step 1: Aggregate employee payroll costs for the last 12 months (e.g., 4/1/2019 – 3/31/-2020).
      • Step 2: Subtract the amount of any compensation in excess of $100,000.
      • Step 3: Calculate the average monthly payroll costs (divide the amount from Step 2 by 12).
      • Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
      • Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (made between 1/31/2020 and 4/3/2020) less any EIDL Advance.
    • Independent contractors do not count as employees when calculating the PPP loan amount.
    • The amount of loan forgiveness will depend in part on the amount of payroll costs and interest on mortgage obligations, rental payments and utility payments that originated before 2/15/2020. However, not more than 25% of the loan forgiveness amount may be attributed to non-payroll costs. Additional guidance on the loan forgiveness is forthcoming.
    • Loan amounts not forgiven have a 2 year maturity with a 1.0% interest rate. Although no payments are required for the first six months of the loan, interest will continue to accrue on the loan during the deferral period.
    • If the PPP funds are used for unauthorized purposes, SBA will require the amount be repaid. However, if such funds are knowingly used for unauthorized purposes the borrower may be subject to additional liability such as fraud. If a shareholder, member, or partner uses the PPP funds for unauthorized purposes the SBA will have recourse against the shareholder, member or partner for the unauthorized use.
    • In determining whether a borrower is eligible for the PPP, it will be considered together with its affiliates in determining eligibility as a small business for the PPP.  For determining affiliation based on equity ownership, a concern is an affiliate of an individual, concern, or entity that owns or has the power to control more than 50% of the concerns voting equity.


Paycheck Protection Program Details

  • The CARES Act expanded the Small Business Administration’s 7(a) loan program to provide up to $10 million dollars in government guaranteed loans to eligible businesses and non-profits.
    • To be eligible businesses (including sole proprietorships and self-employed individuals) and nonprofits must (a) have been operational on February 15, 2020, (b) have fewer than 500 employees or meet the SBA size standards for the industry in which the business operates (NAICS code) and (c) must have experienced as a result of COVID-19 supply chain disruptions, staffing challenges, a decrease in gross receipts or customers, or a closure.
    • Eligible borrowers must make a good faith certification that (a) the loan is need to support operations due to the uncertain economic conditions, (b) the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments, and (c) there was no other loan received or loan application pending under this program.
  • The maximum loan amount is the lesser of:
    • $10,000,000, or
    • The 2.5 times the average total monthly payroll costs incurred during the 1 year period before the date on which the loan is made. The average payroll costs may be calculated differently for new companies or those with seasonal employees.
      • For purposes of this calculation, payroll costs include (a) salaries, wages and commissions, (b) cash tips, (c) vacation, parental, family, medical or sick leave, (d) dismissal or separation payments, (e) group health care benefits, (f) retirement benefits, or (g) State or local payroll taxes.
  • Loan forgiveness and terms of amount not forgiven
    • Under this program payroll costs, interest on covered mortgages, rent and utility payments incurred during the first 8 weeks after receiving the loan (“Covered Period”) could be forgiven. However, the amount of forgiveness is limited to the principal amount of the loan.
    • The forgiveness amount is reduced if the number of employees is reduced or the salary and wages are reduced.
      • Headcount reduction: The forgiveness will be reduced by the average number of full time employees per month during the Covered Period divided by either (a) the average number of full time employees per month from February 15, 2019 through June 30, 2019, or (b) the average number of full time employees per month during the period January 1, 2020 through February 29, 2020.
        • Any workforce reduction that occurred between February 15, 2020 and April 26, 2020 can be avoided if the employees are rehired by June 30, 2020.
      • Salary reduction: The loan forgiveness will be reduced by the amount of any reduction during the Covered Period greater than 25% of the total salary or wages to employees earning less than $100,000 annually
    • The amount of the loan that is forgiven will constitute forgiveness of indebtedness income, however, such income is excluded from the taxpayer’s taxable income.
    • Any amount not eligible to be forgiven will have a maximum maturity of 10 years from the application of forgiveness with an interest rate not to exceed 4%.
  • The loan funds can be used for the following purposes:
    • Payroll costs, costs related to the continuation of group health care benefits, payments of interest on any mortgage obligation, rent payments, utilities, and interest on any debt incurred before the covered period.


SBA Contact Information


Phone:  (800) 827-5722