Answers to CARES Act Paycheck Protection Program FAQ

William P. Norrell

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” or the “Act”) became law on March 27, 2020 and will provide significant help for businesses. Of particular note, CARES Act provides funding that helps businesses keep their workforce employed during the Coronavirus Disease (“COVID019”) pandemic.

Why was this funding provided? Who is eligible to apply? What are the terms of the loan? When and where can a business apply? Let’s walk through this new funding program with this CARES Act Paycheck Protection Program FAQ.

Why is the SBA Implementing the Paycheck Protection Program (“PPP”)?

On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude to warrant an emergency declaration for all states, territories, and the District of Columbia. With the COVID-19 emergency, many small businesses nationwide are experiencing economic hardship as a direct result of the Federal, State, and local public health measures that are being taken to minimize the public’s exposure to the virus. These measures, some of which are government-mandated, are being implemented nationwide and include the closures of restaurants, bars, and gyms. In addition, based on the advice of public health officials, other measures, such as keeping a safe distance from others or even stay-at-home orders, are being implemented, resulting in a dramatic decrease in economic activity as the public avoids malls, retail stores, and other businesses.

On March 27, 2020, the President signed the CARES Act to provide emergency assistance and health care response for individuals, families, and businesses affected by the COVID-19 pandemic.

The U.S. Small Business Administration (“SBA”) received funding and authority through the Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency. Section 1102 of the Act temporarily permits SBA to guarantee 100 percent of 7(a) loans under a new program titled the “Paycheck Protection Program.” Section 1106 of the Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program.

Who is Eligible to Apply?

The PPP offers loans for the following types of businesses experiencing revenue disruption as a result of COVID-19:

  • Small businesses with fewer than 500 employees.
  • Select types of businesses with fewer than 1,500 employees.
  • 501(c)(3) non-profits with fewer than 500 workers.
  • Some 501(c)(19) veteran organizations.
  • Self-employed workers, independent contractors, sole proprietors, and freelance or gig economy workers.

What are the Terms of the Loan?

Loans under the PPP can be 2.5 times the borrower’s average monthly payroll costs, and they cannot exceed $10 million.

The interest rate will be one percent and the term is two years. You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment.

The loan may be forgiven if certain requirements are met. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgiveable purposes described below and employee and compensation levels are maintained.

The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However, not more than 25 percent of the loan forgiveness amount may be attributable to nonpayroll costs.

Payroll costs include:

Compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

Non-payroll costs include:

Mortgage interest payments (but not mortgage prepayments or principal payments); rent payments; utility payments; interest payments on any other debt obligations that were incurred before February 15, 2020; and/or refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.

When Can I Apply for a Payroll Protection Loan?

The Paycheck Protection Program application process will roll out in two phases, one week apart.

On April 3, 2020, small businesses and sole proprietorships can begin applying for these loans.

On April 10, 2020, independent contractors and self-employed individuals can begin applying.

The SBA advises that all businesses should “apply as quickly as you can because there is a funding cap.”


Where can I apply?

You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit the SBA’s website for a list of participating SBA lenders.

There are so many issues impacting the business community due to the COVID-19 pandemic. For example, there is a new federal law mandating leave beyond what the Family and Medical Leave Act normally requires. We have broken down that change and other federally mandated provisions related to COVID-19 for you here

Additional Questions

The team of Hornthal, Riley, Ellis & Maland L.L.P. is ready to assist you in protecting your family, business, and workforce during this unique and challenging time. Legal issues and guidance are continuing to evolve, and we encourage you to contact a member of our team for any additional guidance or assistance. Our offices are continuing to remain open on our usual schedule, Monday through Friday from 8:30 a.m. – 5:00 p.m.