Small business employers (fewer than 500 employees)

Under the CARES Act, a small business employer (a business with fewer than 500 employees) can receive forgivable or low-interest loans of up to $10 million, in an effort to provide cash-flow assistance to employers who maintain their payrolls during the COVID-19 crisis.

This program, known as the Paycheck Protection Program, is administered through section 7(a) of the Small Business Act. The CARES Act allocated $350 billion in funding for the PPP.

Who is eligible?

Businesses, start-ups, veteran organizations, and nonprofits with 500 employees or less meet the applicable size under the program. Sole proprietorships and independent contractors are also eligible.

The 500-employee limit does not apply to businesses that are (1) in the “accommodation and food services” sector under the North American Industry Classification System, and (2) maintain more than one physical location. In that case, the 500-employee cap applies for each physical location.

The SBA intends to issue additional guidance “promptly” with regard to the applicability of business affiliation rules for the purposes of determining eligibility.

Time constraints

The loan program is designed to assist employers in maintaining eligible payroll costs within the “covered period.” The “covered period” runs from February 15 through June 30, 2020.

In addition, although there is $350 billion allocated to this program, the loans are made on a “first come, first served” basis, per guidelines issued on April 2 by the SBA.

How much can I borrow?

It depends. The maximum loan amount is capped at $10 million, but what your business can receive will depend on your business’s payroll costs.

Under the CARES Act, a business’s loan amount is the lesser of the following:

    1. 2.5 times the average total monthly “payroll costs” incurred in the one-year period before the loan was made. If your business was not in existence during this time (from February 15 to June 30, 2019), then 2.5 times the average total monthly payroll payments from January 1 to February 29, 2020.


  1. $10 million.

Under the CARES Act, “payroll costs” is the sum of all payments for compensation, which includes (1) salaries, wages, commissions, or similar compensation; (2) payment of cash tips or equivalent; (3) payment for vacation, parental, family, medical and sick leave; (4) allowance for dismissal or separations; (5) payments for group health care benefits, including insurance premiums; (6) payment of any retirement benefits; or (7) payment of state and local tax assessed on compensation of employees.

If you have also obtained an Economic Injury Disaster Relief Loan after January 31, 2020, the outstanding amount of the EIDL will count against the $10 million cap for purposes of calculating the amount available.

How can the loan proceeds be used?

There are limitations to the loan’s usage. Loan proceeds under this program must be used to pay allowable payroll costs (defined above), interest on mortgage obligations (not principal payments), rent, utilities, and interest on debt that existed as of February 15, 2020. To be forgivable, the loan must be used for qualifying reasons in the eight-week period after it originates. Any amount not used during that covered period is converted into a loan with a very low interest rate of 1 percent that must be paid back. See below for more detail.

What other restrictions are there on use of the loan funds?

As stated above, the loan can be used for “payroll costs.” The CARES Act states that “payroll costs” do not include the following:

  • Employee compensation of in excess of $100,000 per year.

  • Compensation for an employee whose principal place of residence is outside of the United States.

  • Qualified sick leave or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.

  • Federal employment taxes imposed or withheld between February 15 and June 30, 2020, including the employee’s and employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees.

Funds spent on these costs are not subject to forgiveness.

What are the requirements for getting a loan?

There are very few requirements to obtain a loan under this program. No collateral is required. The requirements include a good faith certification of each of the following:

  • The loan is needed to continue operations during the COVID-19 crisis.

  • Funds will be used to retain workers, maintain payroll, or make mortgage, lease, and utility payments.

  • The applicant does not have any other application pending under this program for the same purpose.

  • The applicant has not received duplicative amounts under this program (from February 15 until December 31, 2020).

Will the loan be forgiven?

It can be. The principal amount of the loan may be forgiven for costs incurred and paid during the eight-week period after the origination of the loan for eligible payroll costs. Loan forgiveness for rent, mortgage interest, and utility payments are allowed only for those services and contracts that were in place before February 15, 2020. The loan forgiveness amount cannot exceed the loan principal. Finally, not more than 25 percent of the loan forgiveness amount may be attributable to costs that are not eligible “payroll costs” (defined above).

The SBA intends to issue additional guidance on loan forgiveness as the program progresses.

Are there strings attached?

The purpose of the program is to encourage small businesses to maintain their payroll and staff. As a result, loan forgiveness may be reduced if the employer reduces the number of full-time employees (or full-time equivalent employees), or cuts the pay of any of their employees by 25 percent or more, as measured from the most recent full quarter of employment before the “covered period.”

Should an employer reduce its FTEs, then the loan forgiveness will be reduced in the following manner:

(Maximum available forgiveness multiplied by the average number of FTEs per month (during the eight-week loan covered period (measured each pay period))


(average number of FTEs per month employed from Feb. 15 to June 30, 2019


average number of FTEs per month employed from Jan. 1 until Feb. 29, 2020)

Should an employer reduce wages in excess of 25 percent, then forgiveness is reduced by a straight reduction of the total amount of any wages that were reduced in excess of 25 percent.  However, the CARES Act specifically defines “employee” in this subsection only to mean any employee who did not receive, during a single pay period of 2019, a salary or wages at an annualized rate of pay in excess of $100,000.

Are there benefits to rehiring employees?

Yes. If an employer lays off workers or makes wage reductions as a result of the COVID-19 crisis during the period of February 15-April 26, 2020, and then rehires those workers or makes up for the wage reductions by June 30, those employers will not be penalized for having reduced their payrolls.

Is there anything else I need to know?

Under this program, any repayment is deferred for six months. The SBA will issue further guidance on loan repayment and deferrals within 30 days after the enactment of the CARES Act (March 27).

The loan matures no later than two years after issuance. The interest rate is set at a maximum of 1 percent.

How do I apply for loan forgiveness?

A borrower must submit to the lender an application with all of the following information:

  • Documentation verifying the number of FTE employees on payroll, and pay rates, for the eight-week period. This includes payroll tax filings reported to the IRS, state income, payroll, and unemployment insurance filings).

  • Documentation verifying payments of covered mortgage obligations, covered lease obligations, and covered utility payments. This includes cancelled checks, payment receipts, and other documents evidencing the above.

  • A certification from a company representative that the documentation is true and correct, and that the amount for requested forgiveness was used for eligible purposes (retaining employees, make covered payroll costs, etc.).

  • Any other documentation requested by the SBA.

Where can I apply for a PPP loan?

The PPP loans are made by SBA-certified lenders, which exist in all 50 states. The SBA provides potential borrowers with an online tool to locate one of the hundreds of SBA-certified lenders in your state. A link to these lenders can be found here.

The Treasury Department has posted the application form here.

Please note that some lenders are choosing to use their own application forms, so contacting your lender (or simply visiting their website) is prudent before filling out an application.

Under the CARES Act, the SBA-certified lender need only verify that your business was in operation on February 15, 2020, and that you paid employee salaries and payroll taxes (or paid independent contractors as reported on Form 1099-MISC).

Do I need to shop to find the best rates?

No. The SBA set the rate terms, so all SBA servicing institutions will be offering the same terms.

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Medium-sized employers (500-10,000 employees)

Financing programs also exist for medium-sized employers (businesses with 500-10,000 employees) and non-profits under the CARES Act. Although complete loan forgiveness is not available for medium-sized employers, these businesses can still receive low-interest loans to cover business expenses, subject to a number of restrictions.

What are the terms?

Loan terms are quite favorable. Interest rates are set at a maximum of 2 percent, and no payments need be made for at least six months. The loan must be repaid within five years.

Is there a limit on how much I can borrow?

There is no stated cap on the amount that a medium-sized employer can borrow. The CARES Act simply allocates $454 billion for loans, loan guarantees, and investments to support lending to eligible businesses, states, and municipalities.

What restrictions exist?

Because these financing programs are designed to assist employers in maintaining staff and continuing business after the COVID-19 crisis, several restrictions are placed on the use of these loans which evince that legislative purpose.

Employers may not use loan funds for either of the following:

  • Repurchasing stocks or equity securities listed on national exchanges (including by any parent companies) for one year after the loan is repaid.

  • Payment of dividends or capital distributions with respect to common stock for one year after the loan is repaid.

Employers must also certify all of the following:

  • That uncertainty of conditions makes the loan necessary to support ongoing operations.

  • That funds received will be used to retain at least 90 percent of the employer’s workforce at full compensation and benefits, until September 30, 2020.

  • That the employer intends to restore not less than 90 percent of the workforce that existed as of February 1, 2020; and that the employer will restore all compensation and benefits to its employees no later than four months after the termination of the public health emergency declared by the Secretary of Health and Human Services.

  • That the employer is domiciled in the United States, with significant operations in, and has a majority of its employees located in, the United States, and that it is created, organized in the United States, or under the laws of the United States.

  • That the employer is not in a bankruptcy proceeding.

  • That the employer will not pay dividends of common stock, or repurchase equity securities listed on a national securities exchange by the company or by a parent company, while the loan is outstanding. The only exception is if there was a contractual obligation that was in effect as of March 27, 2020, the date of enactment of the CARES Act.

  • That the employer will not outsource or offshore jobs for the term of the loan, or two years after completing repayment of the loan.

  • That the employer will not abrogate existing collective bargaining agreements for the term of the loan and for two years after completing repayment.

  • That the employer must remain neutral in any union organizing effort for the entire term of the loan.

Are there any special restrictions relating to high-earning employees?

In addition to the above restrictions, employers must agree to cap all employee compensation for a period of one year after the loan is repaid, as follows:

  • If an employee made more than $425,000 in 2019, that employee cannot be paid more than what he or she made in 2019, or receive more than twice what he or she received in severance pay or other benefits in 2019.

  • If an employee made more than $3 million in 2019, that employee cannot receive total compensation in excess of $3 million, plus 50 percent of the amount in excess of $3 million. For example, if an employee made $10 million in 2019, his or her salary would be capped at $3 million, plus 50% of $7 million ($3.5 million), which makes for a combined total of $6.5 million.

We will be providing updates as new guidance becomes available.

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