Paycheck Protection Program

Author: Ashley M. Securda, Esq., Partner

Paycheck Protection Program

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security Act (also known as the CARES Act) which created a program which incentives small businesses for retaining their employees during the current pandemic. Under the program, small businesses can apply for a loan to cover their payroll costs and expenses for a certain period of time. After the expiration of the defined period of time, the business owner can apply to have the entire principal amount of the loan forgiven, provided that certain conditions were met, including the following:

  • At least 75% of the loan must pay for payroll costs and expenses (which includes insurance premiums, taxes assessed on employees and retirement benefits)
  • The other 25% can only be used towards utilities, rent, or interest on any mortgage obligation.

Loan Forgiveness

Up to 100% of the principal amount of the loan can be forgiven. In order to calculate the amount that will be forgiven, small businesses are asked to apply for the loan forgiveness after the covered period (standard is 8 weeks). Each business will be asked to provide documentation of what the loan was used to pay. As long as 75% of the loan paid for payroll costs, 100% of the loan can be forgiven.

It is important to note that this is not considered taxable income like other cancelled debts – meaning, businesses will not have to pay taxes on any amount forgiven.

Reduction in Amount Forgiven

First, the amount of forgiveness may be reduced if there is a difference between the following:

  • Average number of full-time employees per month employed during the covered period (8 weeks after acquisition of the loan)

Divided by one of the following:

  1. Average number of full-time employees from 2/15/2019 – 6/30/2019 OR
  2. Average number of full-time employees from 1/1/2020 – 2/29/2020.

However, there is an exemption which encourages small businesses to re-hire employees that may have already been laid off or furloughed. If a business reduces the amount of full-time employees as compared to how many full-time employees the business had on 2/15/2020, as long as the business re-hires the same amount of full-time employees that the business had on 2/15/2020 AND as long as the business eliminated any reduction in salaries as compared to what salaries the business had on 2/15/2020, that amount will still be forgiven.

It is important to take time to calculate precisely the amount your business requests as a loan under this program. You will need to compare the amount of employees your business had during both periods above and compare it to the amount of employees you currently have on your payroll, or how many you will have the 8 weeks following the acquisition of the loan. You will also need to compare the salaries being paid to employees during those times. Businesses are entitled to request up to 2.5 times their average monthly payroll costs. Any amount that is not forgiven will be assessed monthly interest charges which most banks are currently offering as low as 0.05%.  Loan payments may also be deferred for 6 months, however, interest does accumulate during the deferral period.

Deadline to apply

It is expected that the amount allowable for loans, $349,000,000,000, will run out quickly. Therefore, businesses are encouraged to file sooner than later. Approved lenders were able to being receiving applications on Friday, April 3, 2020. Some banks have already exhausted their allowable limit of loans they can individually disperse. Wells Fargo announced today they are no longer accepting or processing applications as they have enough loans to reach their 10 billion dollar maximum amount they intended to loan. If you haven’t filed an application yet, we strongly encourage you to do so as soon as possible.


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