The Coronavirus Aid, Relief, and Economic Security (CARES) Act has provisions for keeping American workers paid and employed. The Paycheck Protection Program allocates almost $350 billion to support emergency loans to qualifying businesses.

Through the Paycheck Protection Program, the Small Business Administration (SBA) has the authority to provide 100% federally backed loans through December 31, 2020, to help eligible businesses pay operational costs such as payroll, rent, and utilities. If a business satisfies certain conditions, portions of the loans are forgivable.

UPDATE: New legislation has extended the eligibility period and now the PPP program has been expanded to include PPP round 2 loans.


Five hundred (five hundred) employees of your business are eligible for the Paycheck Protection Program. The 500-employee threshold includes all employees, including full-time, part-time, and any other status. There are some limited exceptions to the 500-employee eligibility requirement for certain industries, such as businesses in the hospitality and food sectors that have multiple locations, which can have up to 500 employees per physical location of the business. In addition to this basic eligibility threshold, a lender providing a loan under the Paycheck Protection Program is required to consider whether the business: (i) was in operation on February 15, 2020,
and (ii) had employees or independent contractors for whom the business had paid salaries, compensation, and payroll taxes.

Update: Independent contractors may now apply for their own separate PPP loans.


The Covered Period is defined as the period from February 15, 2020, and ending on June 30, 2020.

Update: The covered period has now been extended.


During the Covered Period, an eligible business’s maximum loan amount is based upon the business’s average total monthly payroll costs incurred during the one-year period before the date of the loan. An adjustment to this one-year period is available for businesses with a seasonal workforce. During the Covered Period, each eligible business may receive up to 2.5 times its average monthly payroll costs subject to a $10 million limitation.

UPDATE: those in certain industries can now apply for 3.5 times under the new extended PPP round 2 program.

Certain payroll costs are excluded in calculating the maximum loan amount, including:

  • individual employee compensation over $100,000;
  • payroll and income taxes;
  • compensation for an employee with a principal place of residence outside the United States; and
  • qualified sick leave or family leave wages for which a business will receive a credit under the Families First Coronavirus Response Act.


During the Covered Period, an eligible business can use the funds obtained through the Paycheck Protection Program for the following categories:

  • payroll costs
  • cost related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
  • employee salaries
  • interest payments on any mortgage
  • rent and utility payments
  • interest payments on any other debt obligations that were incurred before February 15, 2020


Businesses receiving a loan through the Paycheck Protection Program are eligible for loan forgiveness. The amount of forgiveness cannot exceed the principal amount of the loan, but may equal up to a business’s costs during the 8-12 weeks following the date of the loan’s origination for the following categories:

  • Payroll costs
  • Interest on real or personal property mortgage obligations in existence before February 15, 2020, and incurred in the ordinary course
  • Rent under a lease agreement in force before February 15, 2020
  • Utility payments, including electricity, gas, water, transportation, telephone, or internet, for which service began before February 15, 2020


  • No Collateral or Personal Guarantee. Unlike the typical approach to collateral and personal guarantees with SBA loans, collateral and a personal guarantee are not required for a loan obtained through the Paycheck Protection Program, except if the funds are used for non-allowable uses.
  • Loan Fees. Typical SBA loan fees are waived for a loan obtained through the Paycheck Protection Program.
  • Deferral of Payments. Payments of principal and interest on a loan obtained through the Paycheck Protection Program are deferred for a period of six months to one year.
  • Lack of Prepayment Penalties. A loan obtained through the Paycheck Protection Program is not subject to a prepayment penalty.
  • Maximum Rate and Term. The maximum rate of interest that can be charged for a loan obtained through the Paycheck Protection Program is four percent. The maximum term of a loan obtained through the Paycheck Protection Program is ten years from the date on which the business applies for loan forgiveness.
  • Coordination with Other Federal Support. If the business has obtained an Economic Disaster Injury Loan, the business cannot obtain a loan under the Paycheck Protection Program for the same purpose.
  • Payroll Tax Credits and Payment Deferrals. A business obtaining a loan through the Paycheck Protection Program will not be able to use the payroll tax credits available under the Families First Coronavirus Act for employee retention or the deferral of employer-side social security payroll taxes under the CARES Act.

UPDATE: Those that received PPP pay still be eligible for Employee Retention Tax Credit for those payrolls not counted toward PPP forgiveness.

Paycheck Protection Program (PPP)

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.

Current Update to the Program

Borrowers that applied for and received a PPP loan may not apply for forgiveness and apply for a second PPP loan or PPP Round 2.

The PPP Loan is Free Money (and we cannot stress this enough) IF you follow the rules.

Example 1

You borrow $50,000. Over the next eight weeks, you then use the $50,000 for employee payroll (an approved expense.) You don’t have to pay back the $50,000 loan.
Note: No more than 25% of the money you spend from the PPP loan proceeds can go for non-payroll casts if you want full forgiveness of the loan.

Also, if you reduce the average number of full-time employees in your firm after receiving the PPP loan, the headcount reduction also reduces the amount of loan forgiveness.

Example 2

You reduce firm employees from ten to eight workers, a 20 percent reduction. Then in theoretically you only receive forgiveness for 80 percent of the loan because you only retained 80 percent of your workforce.

To determine whether you have reduced the number of full-time employees, the loan forgiveness formula compares the full-time employees during the eight weeks after you get the loan to the average number of full-time employees you paid from February 15 to June 20, 2019, or January 1 to February 29 of 2020. You have the option of whether the comparison will look at 2019 or 2020 numbers. If you reduce the wages you pay your employees by more than 25%, that reduction also reduces the amount of loan forgiveness.

Example 3

To save money, you reduce employee salaries by 30 percent after you receive your loan. In this case, you only receive forgiveness for 70 percent of the loan because you pay employees only 70 percent of what you paid when you got the loan.

You do not get forgiveness for the federal taxes you withhold from an employee’s paycheck. Only the employee’s net paycheck results in forgiveness. Because of this, we advise that you ensure your company can cover payroll taxes.

Example 4

You have an employee who makes $1,000 a week for the eight weeks the forgiveness formula looks at. The employee’s weekly paycheck, however, equals $800. The $200 reduction occurs because of the Social Security, Medicare, and federal income taxes imposed or withheld. Only the $800 net paycheck will be forgiven.

If the PPP loan is not for you, you may still qualify for an employee retention credit. Regardless of if you qualify for PPP we recommend all of our clients consider the SBA EIDL program.

PPP Limitations

  • The loan amount is limited to firms with fewer than 500 employees.
  • The maximum loan amount is $10,000,000.
  • You may count payroll costs up to $100,000 per employee per year.

Example: A firm with ten employees each making $100,000 annually qualifies for the same size loan as a firm with ten employees each making $200,000 a year.

Eligibility for a PPP Loan

  • Your small business is eligible for a loan if you can self-certify that you need the loan. You must provide “a good faith certification . . . that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient . . .”
  • You also need to indicate that you will use the funds, “to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.”

The Small Business Administration disqualifies a handful of people from this opportunity: those who have defaulted on an SBA loan in the past, felons, folks the target of a criminal investigation, to name a few.

Audits & Fraud


What is the best course of action for avoiding trouble in an audit?

The best preventative actions you can take are ones you take before the audit.

  • Be truthful and honest in all of your application paperwork.
  • If you have made a mistake, disclose it to the SBA and if necessary, to SIGPR immediately.
  • Work with an attorney in making the self-disclosure.

We expect the Special Inspector General’s office to be lenient with those who self-disclose. Once you receive funds:

  • Make sure you are familiar with all of the terms of your loan and or grant.
  • Make sure you spend funds in compliance with the program.
  • Document how you are spending the funds so you have proof.
  • Submit follow-up documentation to the SBA as appropriate.
  • And reach out if you have any questions or concerns.

We know these programs are constantly changing and developing and that can be overwhelming especially with the added stress of the pandemic.

It is important, however, that you keep current with all the programs you have received money from so that you can be in compliance. In addition, you can have the documentation you need in the instance of an audit.

What do you need to know and how can you stay out of trouble?

The Special Inspector General for Pandemic Relief (SIGPR) will be auditing and reviewing the SBA pandemic relief loans and looking for fraud, waste, or abuse. They will prosecute civil and criminal cases against individuals.

What are some examples of fraud, waste, and abuse?

Fraud, waste, and abuse can mean any number of things including, but not limited to, the following:

  • Not properly disclosing information on the other businesses you own in accordance with the SBA affiliate disclosure requirements
  • Applying for multiple loans for the same business under different names
  • Inflating your Average Monthly Payroll calculation
  • Not using your SBA funds for the program’s intended purposes
  • Not keeping the appropriate records to be in compliance with your SBA loan requirements
  • Not being truthful about the number of employees you have
  • Not disclosing receipt of SBA loan funds in an application for additional loan funds
  • Not notifying the SBA of a restricting or sale of the business, and much more.