CARES ACT (Part 1): Paycheck Protection Program

Mar 2020
CARES ACT (Part 1): Paycheck Protection Program

On March 27, 2020, the ‘‘Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’ (link) become law.  

The bill is over 800 pages long and carries a price tag of $2 trillion.  This stimulus package contains provisions for a small business loan package, increased unemployment benefits, recovery rebates for individuals, a small business payroll tax credit, student loans, revisions to the recently passed Emergency Paid Sick Leave Act, changes to the tax law, loosening the laws governing retirement funds, assistance for airlines, direct cash injections for mid and large businesses, support for states, tribes and municipalities, support for healthcare (addressing medical products, medical devices, drug shortages, testing, health care providers, telehealth, rural health, Indian Health, Medicare, Medicaid, public health, over the counter drugs, and other areas), and increases in funding for nearly every Federal Agency.

In this first part, we will outline the relief to small business included in the “Keeping American Worker’s Paid and Employed Act” (§ 1101-1114 of the Act):

The Paycheck Protection Program

  • 100% guaranteed by SBA
  • Loans available 2/15/2020 through 6/30/2020
  • $349,000,000,000 available ($349 BILLION)

Eligible entities

  • Small business concerns, business concerns, nonprofit organizations, veterans organizations, or Tribal business concerns who employ not more than 500 employees or SBA standard for industry
    • Employees include full time, part-time and other basis
  • Individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals
  • Accommodation or food service businesses that employ not more than 500 employees per physical location
  • Affiliation rules are waived for accommodation or food service businesses and franchises
  • Companies receiving assistance from Small Business Investor Company

Broad Approval Requirements

  • In operation on 2/15/2020
  • Had employees for whom the borrower paid salaries and payroll taxes; or
  • Paid independent contractors, as reported on a Form 1099–MISC

Borrower Requirements

  • Good Faith Certification 
    • that uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient
    • acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments
    • does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan
    • has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan during the period beginning on 2/15/2020 and ending on 12/31/2020
  • the requirement that a small business concern is unable to obtain credit elsewhere does not apply 
  • can be combined with economic injury disaster loan under 7(b)(2)

Maximum loan amount

  • 2 ½ months of average total monthly payroll costs during prior one-year period
    • Special rules for seasonal employers
    • Special rules for a new business less than 1 year old
  • Outstanding amount of any (b)(2) loans made beginning on 1/31/2020
  • Maximum loan of $10 million

Payroll costs are 

  • salary, wage or commission 
    • does not include salary at rate of over $100K per year
    • does not include certain taxes
    • does not include employees with principal place of residence outside of the United States
    • does not include qualified sick leave with credit under the Families First Coronavirus Response Act
    • does not include qualified family leave with credit under the Families First Coronavirus Response Act
  • payment of cash tips, 
  • dismissal/separation analysis
  • group healthcare benefits
  • retirement benefits
  • state or local tax on compensation
  • also 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 1 year, as pro-rated for the covered period

Allowable uses

  • existing allowable uses for 7(a) loans
  • 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 mortgage, but not payment of principal)
  • rent
  • utilities
  • interest on other debt obligations incurred before the covered period


  • For 8 weeks beginning on date of origination of loan
    • Payroll costs
    • Payment of mortgage interest
    • Payment of rent
    • Utility payments (electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020)
  • Considered cancelled indebtedness
  • Reduced if employees or wages are reduced
    • Forgiveness amount is reduced by a formula based on the reduction in number of FTE employees during the 8 week covered period after origination
    • Employer chooses reference period (2/15/2019-6/30/2019 or 1/1/2020-2/29/2020)
    • Only reduced if greater than 25% loss of FTE
    • Special rules for seasonal employees
    • Average per pay period
    • No reduction if rehired or wages return by 6/30/2020
  • Wages paid to tipped employees included 
  • De minimis exception
  • Excluded from gross income for tax purposes

Application for Forgiveness

  • Documentation verifying FTE and pay rates 
    • Payroll tax filings to IRS
    • State income, payroll, and unemployment insurance filings
    • cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments
    • Certification for repetitive of borrower that information is correct and was used to retain employees, make mortgage interest payments, pay rent or pay utilities
  • Must have documentation
  • Decision made in 60 days

Maturity after forgiveness

  • remaining balance continues to be guaranteed
  • covered loan with maximum maturity of 10 years
  • interest rate than 4%
  • no prepayment penalty
  • Loan deferment 
    • Presumed to have been adversely impacted
    • Deferment relief for 6 months to 1 year
    • Applies to loans sold on secondary market



  • any individual shareholder, member, or partner of an eligible recipient of a covered loan for non-payment of any covered loan,
  • except to the extent that such shareholder, member, or partner uses the covered loan proceeds for a purpose not authorized
  • No personal guarantee
  • No collateral


  • delegates approval authority to lender
  • extended to additional lenders determined by the Administrator and the Secretary of the Treasury to have the necessary qualifications to process, close, disburse and service loans made with the guarantee of the Administration
  • loans can be sold in secondary market
  • has zero risk weight
  • an insured depository institution or an insured credit union that modifiesa covered loan in relation to COVID–19-related difficulties in a troubled debt restructuring on or after March 13, 2020, shall not be required to comply with Receivables-Troubled Restructurings by Creditors’
  • SBA will reimburse lender for processing within 5 days after disbursement:
    • 5% of loans below $350,000
    • 3% of loans of $350,000 to $2,000,000
    • 1% of loans over $2,000,000
  • Amounts forgiven are treated as loan guaranteed for SBA
  • SBA pays forgiveness not later than 90 days
  • SBA shall purchase from lender Expected Forgiveness Amount not later than 15 days
  • Expected Forgiveness Amount is amount expected to expend in 8 weeks after origination for
    • Payroll costs
    • Payment of mortgage interest
    • Payment of rent
    • Utility payments

Fee Waiver

  • SBA collects no fee under 23(a) and 18(a)


If you have an questionsthe CARES ACT or issues affecting your business in this crisis, contact Allen Stahl + Kilbourne

By James Kilbourne and Derek Allen


Updated: March 28, 2020