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What to Know about the Paycheck Protection Program

iconCARES Act icon7 min read
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This post was originally published on April 6, 2020. To see the latest changes on the PPP, check out the Small Business Administration’s webpage here.


Topping out at 2.2 trillion dollars, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is the largest stimulus bill in American history. $350 billion is earmarked for the Paycheck Protection Program which will provide loans to small businesses who qualify. 

Businesses can apply for these loans at SBA approved banks, financial technology lenders, and credit unions. Business owners will have to complete an SBA application and attach the appropriate addendums. Before a loan is issued, lenders will see if your business was in operation on or before February 15, 2020, and if you paid payroll taxes and salaries for employees and/or independent contractors impacted by the coronavirus. The SBA has information about the loan process on their website.

Paycheck Protection Loan Eligibility Requirements

  • 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

Don’t forget: The 500-employee threshold includes all employees: full-time, part-time, and any other status. 

The U.S. Chamber of Commerce has a complete guide on eligibility and other frequently asked questions about the CARES Act and its Paycheck Protection Program.

When can I apply for a loan?

The emergency loan program will start April 3, 2020 according to U.S Treasury Secretary Steven Mnuchin

What will lenders be looking for?

According to the U.S. Chamber of Commerce, lenders will be asking for a good faith certification that: 

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

2. The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments 

3. Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here 

4. From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)

How much money can I borrow?

Relief loans can be 2.5x the borrower’s average monthly payroll costs, but cannot exceed $10 million. The loans will be available through December 31, 2020. The coverage period spans from February 15, 2020 until December 31, 2020.

What payroll costs are included in the Paycheck Protection Program?

The following is from the U.S Chamber of Commerce’s guide:

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 health care benefits, including insurance premiums payment of any retirement benefit

  • payment of state or local tax assessed on the compensation of the employee

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 Costs

Once again, the following excluded payroll costs are from the U.S. Chamber of Commerce’s guide.

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

2. Employer 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 section 7003 of the Families First Coronavirus Response Act. 

What is the interest rate for relief loans?

The Treasury Department has initially set the loan rate at 0.5%, but the CARES Act caps the rate at 4%. So it is possible that the initial loan rate will increase, according to the Washington Post.

How can I use the relief loan?

The Paycheck Protection Program loan can be used for:

  • Payroll

    • Including paid sick leave, medical leave, or family leave

  • Healthcare premiums

  • Insurance premiums

  • Mortgage payments

  • Rent

  • Utilities

  • Certain debt obligations

When are loan payments due?

The first loan payment will be due six months after the origination date and the full loan will need to be repaid in two years. 

But some of these payments can be forgiven. Per the U.S. Chamber of Commerce

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.

How could the forgiveness be reduced?

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.

What If I hire back employees?

Per the Chamber’s guide, “Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.”

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