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The CARES Act's Paycheck Protection Program: New SBA Loan Program for Small Businesses

President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27, 2020. The CARES Act creates a number of programs aimed at assisting small businesses meet their immediate needs due to the economic uncertainty caused by the Coronavirus. Perhaps the most significant program for small businesses created by the CARES Act is the Paycheck Protection Program (PPP), which is a loan program intended to provide small businesses negatively affected by the Coronavirus with the capital needed to cover the cost of retaining their employees. The PPP is administered by the Small Business Administration (SBA) and will offer fully federally guaranteed, nonrecourse loans to small businesses that maintain their payroll during the Coronavirus emergency. Small businesses that were harmed by the Coronavirus between February 15, 2020 and June 30, 2020 may apply for a loan under the program until June 30, 2020. The following is an overview of the PPP:


In general, the following businesses and entities are eligible for a PPP loan:

  1. Businesses and entities (including nonprofits) with less than 500 employees;

  2. Sole proprietors, independent contractors, and eligible self-employed individuals;

  3. Accommodation and Food Service businesses (those with an NAICS code beginning with 72) with 500 or less employees per physical location. Note: the SBA’s affiliation rules are waived for such businesses.

Amount of Loan

The maximum amount of a PPP loan is generally capped at the lesser of: (1) $10 million; or (2) an amount equal to 2.5 times the business’ average monthly payroll costs incurred during the one-year period before the date of the loan. An alternative calculation is applicable for seasonal employers.

The following are eligible as “payroll costs”:

  1. Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent);

  2. Payment for vacation, parental, family, medical, or sick leave;

  3. Allowance for dismissal or separation;

  4. Payment required for the provisions of group health care benefits, including insurance premiums;

  5. Payment of any retirement benefit;

  6. Payment of state or local tax assessed on the compensation of employees.

The following are not eligible as “payroll costs”:

  1. Employee/owner compensation in excess of $100,000;

  2. Taxes imposed under Chapters 21, 22, and 24 of the Internal Revenue Code;

  3. Compensation of employees whose principal place of residence is outside of the United States;

  4. Qualified sick and family leave for which a credit is allowed under Section 7001 and 7003 of the Families First Coronavirus Response Act.

Permitted Uses of Proceeds

The following are permitted uses of PPP loan proceeds:

  1. Payroll costs;

  2. Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;

  3. Employee salaries, commissions, or similar compensation;

  4. Payment of interest on any mortgage obligation. Note: Loan proceeds may not be used for prepayment of, or payment of principal, on mortgage obligations;

  5. Rent;

  6. Utilities;

  7. Interest on any other debt obligations that were incurred before February 15, 2020.

Application for PPP Loan

Businesses interested in applying for a PPP loan may apply to an existing SBA 7 (a) approved lender. The SBA and the Secretary of the Treasury may also authorize additional lenders to make PPP loans as long as those lenders have the capability to process, close, disburse and service loans guaranteed by the SBA. In order to receive a PPP loan, recipients are required to make a good faith certification that:

  1. The uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;

  2. Acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;

  3. That the eligible recipient does not have an application pending for a PPP loan for the same purpose and duplicative of amounts applied for or received under a covered loan; and

  4. During the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under the PPP for the same purpose and duplicative of amounts

Loan Repayment and Forgiveness

PPP loan principal (but not interest) is forgivable in an amount equal to the sum of the following costs that a business incurs between February 15, 2020 and June 30, 2020:

  1. Payroll Costs (not including employee compensation over $100,000)

  2. Payment of interest on any covered mortgage obligation

  3. Payment on any covered rent obligation

  4. Covered utility payments

Any portion of the loan that is forgiven is excluded from taxable income. Loan forgiveness will be reduced proportionally to the extent a business: (1) reduces its workforce between February 15, 2020 and June 30, 2020 compared to the average number of employees for the same period in 2019; or (2) reduces wages/salaries of its workforce by more than 25%. However, if an employer either reduces its workforce below such a level or reduces its wages/salaries by more than 25% between February 15, 2020 and April 26, 2020, those changes are not counted if the employer restores its workforce or returns the adjusted wages/salaries by no later than June 30, 2020.

Any amount not forgiven will be turned into an ongoing loan. The maximum term is 10 years with an interest rate of 4% for any amount that is not forgiven. Principal and interest will continue to be deferred between 6 to 12 months after the disbursement of the loan.

Application for Loan Forgiveness

In order to receive loan forgiveness, an eligible loan recipient must submit to their lender servicing the covered loan an application that includes:

  1. Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and state income, payroll, and unemployment insurance filings.

  2. Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.

  3. Certification from a representative of the business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.

  4. Any other documentation the Administrator determines necessary.

DeMark, Kolbe & Brodek is committed to helping your business during these uncertain times. Please contact one of our attorneys if you have any questions or require any assistance as your business navigates the economic uncertainty created by the Coronavirus.


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