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CARES Act - Paycheck Protection Program 

March 30, 2020

CARES Act Includes $350 Billion for “No Repayment” Loans to Small Businesses to Cover Payroll and Other Costs.

The CARES Act includes fully-forgivable loan money for your small business to cover two-plus months of payroll while you wait for the COVID-19 lockdown to lift. This new loan program is modeled after the existing SBA 7(a) loan program and sets aside $349 billion in federally-backed loans for businesses with fewer than 500 employees, sole proprietors, and independent contractors, among other eligible entities. 

Purpose of the Paycheck Protection Program 

Every small (or even mid-sized) business struggling with COVID-19 disruptions should be aware of the Paycheck Protection Program of the CARES Act, which Congress passed and President Trump signed on March 27. The purpose of the program is to provide immediate cash-flow assistance to small businesses and to incentivize them to not lay off workers during the COVID-19 pandemic as well as to rehire laid-off employees who lost their jobs due to COVID-19 disruptions. As explained below, the program creates an entirely new type of SBA-backed emergency loan that can be forgiven as long as your business maintains its payroll for the subsequent eight weeks.

Businesses Eligible for Paycheck Protection Loans 

You are generally eligible for a Paycheck Protection Loan if you are: 

  • A business with fewer than 500 employees
  • A 501(c)(3) non-profit with fewer than 500 employees
  • A sole proprietor, independent contractor, or freelance / gig economy worker

Other eligible entities include select types of businesses with fewer than 1,500 employees and some 501(c)(19) veteran organizations. 

Your business must have been operational as of February 15, 2020.

Paycheck Protection Loans Can Be Forgiven 

The loan program is intended to allow you to take the loan proceeds to cover your payroll for two months and then revisit difficult layoff decisions after two months. Even if you end laying off employees or significantly reducing payroll after that period, the loan will be fully forgiven, provided that conditions are met. In other words, the federal government is saying, “You just keep your people employed, and we’ll treat the loan as grant money if you do.”

Specifically, your loan will be eligible for forgiveness if you meet the following two conditions during the eight (8) weeks following the origination of the loan: 

  1. You maintain the same average number of employees for the 8-week period following the origination date of the loan as you did February 15, 2019 - June 30, 2019 or January 1, 2020 - February 15, 2020 and
  2. You continue paying employees who make less than $100,000 annually at least 75% of the amounts you paid them in the most recent quarter. 

If so, then the following amounts expended during the first eight (8) weeks of the loan generally are all eligible for forgiveness

  • Payroll costs (excluding a pro rata portion of any compensation over $100,000 annually) 
  • Utility payments (electricity, gas, water, and telephone/internet access expenses for services in place before February 15, 2020)
  • Rent payments (if your lease was in place before February 20, 2020)
  • Mortgage interest (for your mortgage was in place before February 20, 2020) 

You will need to attest to your use of the loan proceeds following the deferment period (which is explained below). 

Another exception: As noted, the amount you are forgiven will be reduced if you either (a) reduce your average number of employees and/or (b) reduce by more than 25% your payroll for employees making less than $100,000/year. But there’s an exception to this reduction. If your business restores any decreases in payroll by June 30, 2020, or rehires employees previously laid off, there is no reduction in the forgiveness amount for a reduction in employment or wages during the period of February 15 to April 26, 2020, 

Payment Protection Loan Terms 

No personal guarantee or collateral is required. 

No loans fees or prepayment fees, although the SBA is currently setting the maximum application fee. 

No payments (including interest or principal) for 6 to 12 months after disbursement of the loan. 

For any portion of the loan that you are not forgiven, the loan term is up to 10 years and maximum interest is 4%. 

Loan Amounts

The maximum size of loan will generally be 250% of your average monthly payroll costs during the preceding 12 months. There is a different look-back period if you have a seasonal businesses or have not been in business for a full year.

In any event, the maximum loan amount is $10 million. 

Allowable uses of loan proceeds

You may use loan proceeds for: 

  • Payroll costs 
  • Employee salaries, commissions, or similar compensation (subject to the above exclusions)
  • Expenses related to the continuation of group healthcare benefits during periods of paid sick, medical, or family leave, and insurance premiums
  • Utilities
  • Rent
  • Mortgage interest 
  • Interest on any other debt obligations that were incurred before February 15, 2020


The SBA has 15 days from passage of the CARES Act to approve procedures for the PPP loans, but it has indicated that guidance will be forthcoming within days.

The loans may be obtained through SBA-approved lenders, and the program significantly increases the network of such lenders.