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Colin Gorman, CPA/PFS, CVA, CCIFP, CIT

Managing Partner: Firm Strategic Growth

CARES Act Paycheck Protection Program Part 1

The CARES Act establishes the Paycheck Protection Program (PPP) to be administered by the U.S. Small Business Administration (SBA).

The purpose of the program is to provide funding to qualified small businesses as well as certain non-profit organizations.

Many traditional SBA requirements are waived, including personal guarantees, collateral requirements, 'credit elsewhere' and most fees commonly associated with SBA financing.

PPP includes the ability to have loans forgiven if the borrower meets certain requirements.

Who Is Eligible for the Paycheck Protection Program?

PPP is available to small businesses, defined as a business with not more than 500 employees (including 501(c)(3) charitable organizations) or the applicable size standard for the industry as provided by SBA, if higher.

It also includes sole-proprietors, independent contractors, and other self-employed individuals.

How Much Funding Is Eligible and What Can It Be Used For?

The maximum amount of the loan is the lesser of:

- The average total monthly payments for payroll costs incurred during the 1-year period before the loan origination date multiplied by 2.5 or

- $10 million.

A special calculation is available for seasonal employers, as defined by SBA.

Payroll costs include payment for:

- Salary, wages, commission, or similar compensation
- Payment of cash tip or equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment for health care benefits and retirement benefits
- Payment of state & local tax assessment on compensation

Payroll costs do not include:

- Compensation in excess of an annual salary of $100,000 as prorated for the covered the period
- Compensation for employees not residing in the US
- Qualified sick leave wages or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act

Funds can be used to meet payroll costs (as described above), & operating costs such as rent, utilities, mortgage interest and interest on debts incurred before February 15, 2020.

How is the Loan Forgiven?

The program includes loan forgiveness provisions which are limited to the principal amount borrowed and which may not exceed the amount spent by the borrower during the 8-week period after the loan origination date on:

- Payroll costs (as defined earlier)
- Interest on any mortgage & other debt incurred prior February 15, 2020
- Rent on any lease in force prior to February 15, 2020
- Utility costs

The amount eligible for forgiveness will be reduced proportionally by any reduction in employees retained compared to:

- The average number of full-time equivalent employees per month in the period February 15, 2019, through June 30, 2019; or
- During the period January 1, 2020, through February 29, 2020.

The amount of forgiveness will also be reduced by the reduction in pay of any employee beyond 25% of their prior-year compensation.

For employers that have already laid off workers, those that rehire employees and reinstate compensation to at least 75% of an employee’s prior year compensation by June 30, 2020, will not be penalized.

What are the Payment Terms for Amounts Not Forgiven?

Amounts not eligible for forgiveness are payable up for a period of up to 10 years with an interest rate of 4% or less. No adjustments to the loan agreement are required and the loan will continue to be 100% backed by the SBA.

Are There Other Considerations?

For current SBA loan holders, a deferral for up to 6 months payments on certain of those loans is possible, so first check on getting that deferral to see if that gets you what you need during this time.

What Now?

If you have a current banking relationship, start there to see if they are or will be on the list of financial institutions able to make PPP loans. You can also get more information at


Watch on Youtube:

Part one of the Paycheck Protect Program series can be found here:

Part two of the Paycheck Protect Program series can be found here:

Part three of the Paycheck Protect Program series can be found here:

Part four of the Paycheck Protect Program series can be found here:

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