COVID-19: Paycheck Protection Program


On Friday, March 27th, the government passed and signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act provides small businesses with economic relief in the form of the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (“SBA”). The PPP offers emergency loans to small businesses to assist those small businesses’ efforts to support and maintain their workforces.

Who is eligible for the PPP?

Any business with less than 500 employees is eligible for the PPP if: (a) that business was in operation as of February 15, 2020; (b) that business had employees for whom the business paid salaries and payroll taxes. PPP loans are also available to the self-employed and sole proprietors, but the details for those types of businesses vary slightly from the terms described below.

How big of a PPP loan can my business receive?

The maximum loan amount under the PPP is $10 million. A business’ PPP loan amount will be determined according to a formula that factors the business’ average total monthly payments for Payroll Costs (defined below) incurred during the 1-year period before the date on which the PPP loan is made.

The interest rate on a PPP loan will not exceed 4%.

No collateral or personal guarantee is required for a PPP loan, and the PPP loans will be nonrecourse.

“Payroll Costs” means the sum of payments of any compensation with respect to employees that is a: (1) salary, wage, commission, or similar compensation; (2) payment of cash tip or equivalent; (3) payment for vacation, parental, family, medical, or sick leave; (4) allowance for dismissal or separation; (5) payment required for the provisions of group health care benefits, including insurance premiums; (6) payment of any retirement benefit; or (7) payment of State or local tax assessed on the compensation of employees.

How can PPP loan funds be used?

PPP loan funds can be used for: (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 compensations; (4) payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation); (5) rent (including rent under a lease agreement); (6) utilities; and (7) interest on any other debt obligations that were incurred before the covered period.

To what extent are the PPP loans forgivable?

PPP loans shall be eligible for forgiveness in an amount equal to the sum of the following costs incurred and paid from February 15, 2020 and June 30, 2020: (1) Payroll Costs; (2) any payment of interest on a mortgage obligation; (3) any payment on a rent obligation; and (4) any utility payment.

The forgiveness amount will be reduced by a percentage equal to the percentage decrease in average full-time equivalent employees, by month, employed by the company from February 15, 2020 to June 30, 2020, in relation to the average number of full-time equivalent employees, by month, employed by the company in the year prior to February 15, 2020. The amount of loan forgiveness will be further reduced by the amount of any reduction in total salary or wages of any employee from February 15, 2020 to June 30, 2020 that exceeds 25% of that employee’s total salary or wages during the most recent full quarter during which the employee was employed prior to February 15, 2020.

However, any forgiveness reductions described in the paragraph above will not be subtracted from the total forgiveness amount if any reduction in employees or wages/salary is rectified or otherwise restored within 30 days of enactment of the bill. This is another welcome change from prior versions of the bill, considering several small businesses have been forced to reduce employee wages, salaries, or lay off employees well before this bill was enacted.

What’s next?

As with any new law, there are still several matters to be resolved in connection with the CARES Act and the PPP. The SBA is expected to release further guidance regarding the operation of the PPP in the next 15 days. As these issues continue to develop and evolve, we will continue to monitor the changes and keep our clients informed. Be on the lookout for further communications from the Bradley & Riley, PC team.