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Paycheck Protection Program and Other Financing Options

POSTED 03/30/2020

The CARES Act provides many benefits, including the Paycheck Protection Program. As promised, here is our detailed analysis of what the program entails.


The CARES Act establishes the Paycheck Protection Program (PPP) to be administered by the U.S. Small Business Administration (SBA).  The purpose of the program is to provide funding to qualified small businesses as well as certain non-profit organizations.  Under this program, many traditional SBA requirements are waived, including personal guarantees, collateral requirements, “credit elsewhere” and most fees commonly associated with SBA financing.  The most beneficial part of this program includes the ability to have loans forgiven if the borrower meets certain requirements.

The CARES Act also provides a subsidy for certain SBA loan payments.  This is applicable to businesses with certain existing SBA loans.  If your loan is covered by this provision, the subsidy covers payments of interest, principal, and fees for 6 months.

Who Is Eligible for the Paycheck Protection Program?

The PPP is administered by the SBA and is available to small businesses.  This is defined as a business with not more than 500 employees or the applicable size standard for the industry as provided by SBA, if higher.  The program eligibility includes sole-proprietors, independent contractors, and other self-employed individuals.

How Much Funding Is Eligible And What Can It Be Used For?

The covered period for purposes of this program is February 15, 2020, through June 30, 2020.

The maximum amount of the loan is the lesser the average total monthly payments for payroll costs incurred during the 1-year period before the loan origination date multiplied by 2.5 or $10 million.

Payroll costs include payment for:

  • Salary, wages, 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 for health care benefits and retirement benefits
  • Payment of related payroll tax expense.

Payroll costs do not include:

  • Compensation in excess of an annual salary of $100,000 as prorated for the covered the period;
  • Compensation for employees not residing in the US
  • Qualified family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.

Funds from the program can be used to meet payroll costs (as described above), operating costs such as rent; mortgage interest payments and utilities and interest on debts incurred before the covered period.

What Are the Payment Terms?

Loan Forgiveness Eligibility

The program includes loan forgiveness provisions which are limited to the principal amount borrowed and which may not to exceed the amount spent by the borrower during the 8-week period after the loan origination date on:

  • Payroll costs
  • Interest payment on any mortgage incurred prior to the coverage period
  • Rent on any lease in force prior to the coverage period
  • Utility costs incurred during the coverage period

The amount eligible for forgiveness will be reduced proportionally by any reduction in employees retained compared to:

  • The average number of full-time equivalent employees per month in the period February 15, 2019, through June 30, 2019; or
  • During the period January 1, 2020, through February 29, 2020.

For example, assume the following fact pattern:

Average FTE for 8-week period = 40
Average FTE for period February 15, 2019 thru June 30, 2019 = 50
Average FTE for the period January 1, 2020, thru February 29, 2020 = 50
Loan Principal = $300,000
Loan Principal forgiveness = $240,000, calculated as follows:
$240,000 = $300,000 (loan principal) x (40/50)

Amounts eligible for forgiveness will also be reduced by the reduction in pay of any employee beyond 25% of their prior-year compensation. It should be noted that documentation with regard to verifying the number of full-time equivalent employees will be required in order to be eligible for forgiveness.

To encourage employers to rehire any employees who have been laid off or reinstate compensation reductions due to COVID-19, borrowers that re-hire employees and re-instate compensation to at least 75% of an employee’s prior year compensation by June 30, 2020, will not be penalized.

Amounts forgiven under this program will not be subject to taxation.

Payment Terms for Amounts Not Eligible for Forgiveness

Amounts borrowed that are not eligible for forgiveness are payable up for a period of up to 10 years with an interest rate of 4% or less.  There are no adjustments to the loan agreement required and the loan will continue to be 100% backed by the SBA.

Subsidized SBA Loan Payments

With some exceptions, businesses with an SBA 7(a) loan, excluding loans under the PPPF, may be eligible for relief under the CARES Act.

In general, the SBA will provide payment of principal, interest and fees for a 6-month period beginning with the next payment due on an eligible loan.  Loans that are currently in deferment may be eligible for this subsidy with the payment being applied to the balance of the loan.  This is a subsidy program and not merely a deferment of payments.  Loans sold on the secondary market are also eligible for subsidy payments.

Other Programs Available

The Act expands eligibility for access to Economic Injury Disaster Loans (EIDL) and increases the maximum amount available to $2,000,000.  During the covered period, the SBA is allowed to approve and offer EIDL loans based solely on an applicant’s credit score.  The SBA will waive personal guarantees on advances and loans below $200,000.

Emergency grants are available to allow an eligible entity that has applied for an EIDL loan due to COVID-19 to request an advance of up to $10,000, which must be distributed within 3 days.  Such advances are not required to be repaid.


The SBA will be working quickly to provide implementation guidelines related to the above programs.  Current SBA lenders will be in the best position to administer these programs quickly, however financial institutions who don’t traditionally provide SBA financing will also be able to participate in this program.  If interested in these programs, we recommend you reach out to your lender to determine how quickly you may be able to access funds from this program and determine what information you should start gathering to ensure you are ready once applications for funding become available.