What is the Paycheck Protection Program? A Brief Overview.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump on March 27th, 2020. The CARES Act was designed to be an economic relief bill to help keep qualifying small businesses afloat during enforced COVID-19-related closures, boost vital industries and aid American adults and families. The CARES Act builds on the two former pieces of legislation by providing more robust support to both individuals and businesses, including changes to tax policy. One of those is the Paycheck Protection Program (PPP) which authorizes federally guaranteed loans to qualifying small businesses.

What is the PPP, and what is it designed for?

Within the CARES Act, $350 billion allocated for the Paycheck Protection Program, which is meant to help small businesses (fewer than 500 employees) impacted by the pandemic and economic downturn to make payroll and cover other expenses from February 15 to June 30. SBA PPP Loans are potentially all or partially forgivable. Any forgiveness does not create taxable income[1].

Here are specific details of the loan program. Contact your Lurie advisor for guidance specific to your situation.

The Loan (Section 1102[2] of CARES)

Eligible borrowers:

  1. Small businesses, 501(c)(3) nonprofit organizations, veterans’ organizations, or Tribal business concerns:
    • With not more than 500 employees; or does not exceed the industry size standard[3] established by the SBA
  2. Sole proprietors, independent contractors, and eligible self-employed individuals[4]
  3. Business concerns with more than 1 physical location
    • With less than 500 employees per location, and
    • Assigned a NAICS[5] code beginning with 72 (Accommodation and Food Services)

SBA 7(a) loan affiliation rules are waived for business concerns with:

  1. with not more than 500 employees and a NAICS code beginning with 72; or
  2. operating as a franchise that is assigned an identified[6] franchise identifier code; or
  3. that received financial assistance from a SBIC[7]

Max loan amount during 2/15/20 through 6/30/20 (“covered period”) is the lesser of:

  1. [Avg monthly payments for payroll costs for trailing 12 months as of the date the loan is made x 2.5] + other SBA loan[8]
  2. $10,000,000.

“Payroll costs” includes the sum of:

  1. Employee compensation:
    • salary, wages, commission,
    • cash tips, or equivalents.
    • vacation/PTO/R&R/Medical LOA,
    • severance
    • Group health care benefits, including insurance premiums
    • Payment of any retirement benefit (assumes this includes profit-sharing contribution)
    • State or local tax assessed on the compensation of employees
    • Independent Contractor 1099 expenses do not count as payroll costs for purposes of an employer’s PPP loan calculations. 
  2. Payments to a sole proprietor or independent contractor
    • Wage, commission, income, net earnings from self-employment, or similar comp.
    • Not more than $100,000 in 1 year, prorated for the covered period.

“Payroll” does NOT include:

  1. Portion of wages >$100,000 for an individual.
  2. Taxes imposed or withheld under I.R.C. §§ 21[9], 22[10], or 24[11] for the covered period (2/15/2020-6/30/2020).
  3. Compensation of any employee whose principal residence is outside the United States
  4. Qualified Sick Wages if a credit is allowed under FFCRA
  5. Qualified Family Leave wages if a credit is allowed under FFCRA

Allowable Uses of Covered Loan Proceeds:

  1. Payroll costs
  2. Group Health Care benefits
  3. Employee salaries, commissions, or similar compensation
  4. Interest on Mortgage obligations (does not include principal payments or prepayments)
  5. Rent
  6. Utilities
  7. Interest on any other debt obligation that was incurred prior to2/15/2020.

There’s no recourse against owners unless the loan proceeds are used for purposes not authorized in the list above.

The “credit elsewhere” test for a 7(a) loan does not apply.

All fees for obtaining the loan are waived.

Borrower makes a “good faith certification”

The Business and each 20% or greater owner must certify in good faith to all of the below by initialing next to each one. The authorized representative of the Applicant must certify in good faith to all of the below by initialing next to each one section. As of 4/3/2020 the certification statement is presented in this format:

_____ The Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.

_____ Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.

_____ The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.

_____ The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan.

_____ I understand that loan forgiveness will be provided for the sum of  documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.

_____ During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the  Paycheck Protection Program.

_____ I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years  and/or a fine of not more than $1,000,000.

_____ I acknowledge that the lender will confirm the eligible loan amount using required documents submitted. I understand, acknowledge and agree that the Lender can share any tax information that I have provided with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Maturity for the portion the loan not forgiven: Term of 2 years, 1.0% interest.

75% of the PPP loan funds should be used for payroll costs. Up to 25% can be used for approved non-payroll costs (see below).

Forgiveness of the Loan (Section 1106[12] of CARES)

Loan is forgiven in an amount equal to the sum of the following costs incurred and payments made during the 8-week period beginning on the date of origination of the loan:

  1. Payroll costs[13]
  2. Interest on Mortgage[14]
  3. Rent[15]
  4. Utilities[16]

Limits on Amount of Forgiveness:

Loan forgiveness is up to 100% of the principal, reduced by:

  1. Reduction in # of Employees
    • [Avg # FTE per month[17] during the 8 weeks following origination] divided by:
      • Option 1: Average number of FTEs per month from February 15, 2019 to June 30, 2019
      • Option 2: Average number of FTEs per month from January 1, 2020 to February 29, 2020
      • For Seasonal Employers: Average number of FTEs per month from February 15, 2019 to June 30, 2019. 
    • There is a provision to offset this in the event of a rehiring within specified time frames.[18]
  2. Reduction relating to Salary & Wages
    • Any reduction in salary/wages >25% for an employee whose annual comp is <$100K in salary or wages from the most recent full quarter during which the employee was employed before the covered period.


[1] “Coronavirus Aid, Relief, and Economic Security Act” or “CARES Act”, H.R. 748, Section 1106
[2]  CARES Act, H.R. 748, Section 1102
[3] Available at: https://www.sba.gov/size-standards/

[4] Under the meaning of Families First Coronavirus Response Act (“FFCRA”) Section 7002(b)
[5] North American Industry Classification System
[6] The SBA has not identified approved franchise codes as of 3/28/2020
[7] Small Business Investment Company under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 681)
[8] For seasonal employers: use the 12-week period beginning 2/15/2019, or 3/1/2019 – 6/30/2019
[9] 26 U.S.C., Ch. 21 – Federal Insurance Contributions Act
[10] 26 U.S.C., Ch. 22 – Railroad Retirement Tax
[11] 26 U.S.C., Ch. 24 – Federal Income Tax withholding
[12] CARES Act, H.R. 748, Section 1106
[13] Same as the “payroll costs” under CARES Act, Section 1102
[14] Must be a liability of the borrower; is a mortgage on real or personal property; incurred prior to 2/15/2020
[15] Under a lease agreement in force prior to 2/15/2020
[16] Electricity, gas, water, transportation, telephone, or internet, for service that began prior to 2/15/2020
[17] Avg # of FTE is calculated as the avg # of FTEs for each pay period falling within in a month
[18] More details will be provided pending the release of regulations and FAQ’s
Link to Frequently Asked Questions:

The Small Business Administration (SBA), in consultation with the Department of the Treasury, intends to provide timely additional guidance to address borrower and lender questions concerning the implementation of the Paycheck Protection Program (PPP). The Treasury Department has created a link to their own FAQ document, that will be updated on a regular basis. 

For more resources and official guidance, go to The CARES Act | Assistance for Small Businesses page. 


This article is for your general education, and does not create a client relationship or any service engagement between you and Lurie LLP. The content of this article is based on the best information available, but official guidance, rules, laws and/or updates may change and become out of date. Please contact your Lurie advisor before acting on any of the information contained in this article.

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