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CARES Act Paycheck Protection Loans

By Mitzi Hollenbeck .

In the late hours of March 25, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Around 1:30 p.m. today, March 27, 2020, the House approved the same without changes. While not yet signed into law by the President, this outline of the provisions may be helpful for those businesses who are contemplating workforce reductions or changes as the Government is working hard to try to stabilize employment.

Utilizing the powers of the Small Business Administration (SBA), the Senate has put forth appropriations for the deployment of $349 billion in covered loans to eligible businesses for payments of certain covered expenses under the paycheck protection program. The loans under this program are designed to be borrowings in addition to the SBA’s Economic Injury Disaster Loan (EIDL) program, but include certain loan forgiveness provisions related to the use of such loans. This wide reaching assistance program, if passed, will be administered, underwritten, and serviced by the SBA through eligible lending institutions.

The guidelines are still in infancy form and many provisions will need to be worked out by the SBA and lending institutions in order to implement the Act should it be signed into law. The law briefly touches upon the intersection of the CARES act with the SBA’s Economic Injury Disaster Loan program, but does not provide explicit guidance regarding the potential intersection of the two programs. The following presents a summary of the provisions of the Act and readers should be cautioned that the implementation or the interpretation of various provisions is subject to change.


Designed to assist companies in meeting their payroll obligations, loans are available for small business concerns as defined within the SBA guidelines as well as non-profits, veteran’s organizations, and tribal businesses who employ not more than 500 employees or the size standard established by the SBA within the industry. The affiliation rules related to the calculation of the number of employees have been waived for those employers operating in the Accommodation and Food Services industries (NAICS code 72), franchisors with a SBA franchise identifier code, and any business that receives financial assistance from a licensed Small Business Investment Act Companies or a certified development company. Businesses under NAICS code 72 who have more than one physical location, are able to take advantages of these loans provided that they do not have any single physical location with more than 500 employees.

Sole proprietorships, independent contractors, and self-employed individuals can also take advantage of these covered loans if they meet the SBA criteria.

Covered costs:

The use of the loan proceeds can be used for payroll costs including salaries, commissions, cash tips, vacation, parental, family, medical, or sick leave, allowances for dismissal or separation, payment for group health care costs and insurance, retirement benefits, or state or local taxes assessed. Additional covered costs include payments of interest on mortgage obligations, rent, utilities, and interest on any other debt obligations that were incurred before the covered period. The portion of compensation costs in excess of an annualized salary of $100,000 are also excluded from the definition of covered compensation. In addition, any payments for qualified sick leave or family medical leave under the Coronavirus relief act for which a payroll credit is available is also not covered under the Act. 

Maximum Loan/Interest Rate/Guarantees:

The maximum loan under the program is to be the lesser of $10,000,000 or 2.5 multiplied by the average total monthly payments by the applicant for certain covered expenses plus certain other SBA loans which may be refinanced through this program. There are provisions to adjust this for newly formed companies or those with seasonal employees.

Provided the funds are used and certified to be used for covered payroll, mortgage interest, lease, and utility payments, personal guarantees appear to be waived. Interest is to be charged at a maximum of 4% and repayment is due no later than 10 years after any loan forgiveness.

Loan Forgiveness:

In accordance with the Act, if signed into law, forgiveness of covered costs during the covered period (8 weeks after the loan is approved) will be granted through an application process by the recipient to the lending institution. After filing the appropriate forgiveness application including submission of documentation of the payment of covered expenses, the SBA will submit a forgiveness payment to the lending institution. In the event that the company has reduced the number of employees within its organization from the period of February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020, to the number of employees during the covered period, loan forgiveness will be reduced by a percentage of the reduction of the employees. Additionally, forgiveness will be reduced by employers who reduce payroll on employees by 25% or more during the covered period. Employers who hire back previous workers, may be eligible for a waiver of the reduction of forgiveness.

Businesses must pay attention to the documentation provisions included in the forgiveness program, as those who are unable to properly document the use of funds for the payment of covered costs are not eligible for forgiveness.

The Act waives the requirement to include any loan forgiveness under this program as a component of taxable income.


While the CARES Act has not yet been signed into law, many of the provisions included in the Act are designed to help business owners in this time of turmoil and uncertainty. We will continue to monitor the passage of this act and to report on the provisions of this act as more information becomes available.



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