The CARES Act: Paycheck Protection Program

| Apr 2, 2020 | Firm News |


On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act establishes the Paycheck Protection Program (“PPP”) – a program where small business owners can obtain loans to pay employees and other business expenses during this difficult time. Many businesses may qualify for this loan to assist during this challenging economic environment. Below is a short summary that answers basic questions about eligibility for and the terms of PPP loans. This summary is not intended to be a comprehensive description of all aspects of the PPP.

What is the PPP?

A program that provides federally guaranteed loans to small businesses to help them retain employees and meet expenses during the COVID-19 pandemic. PPP loans may be forgiven, in whole or in part.

Who is eligible?

  • Businesses, nonprofits, veterans groups, and tribal organizations that (1) have no more than 500 employees, and (2) were in business on February 15, 2020
  • Sole proprietors, independent contractors, and other eligible self-employed persons
  • Businesses involved in the hospitality industry having more than one physical location, but no more than 500 employees at any one location

What is the maximum loan amount?

  • For businesses in existence between 02/15/2019 and 06/30/2019:
  • The average monthly payroll costs in the 12 months before the loan is made multiplied by 2.5, plus the outstanding amount of any SBA Economic Injury Disaster Loan received between 1/31/2020 and the date the PPP loan is made
  • For businesses not in existence before 06/30/2019:
  • The average monthly payroll costs in the period from 01/01/2020 to 02/29/2020 multiplied by 2.5, plus the outstanding amount of any SBA EIDL received between 1/31/2020 and the date the PPP loan is made
  • For seasonal employers:
  • The average monthly payroll costs for the 12 week period starting on 02/15/2019 , or the period from 03/01/2019 to 06/30/2019 multiplied by 2.5, plus the outstanding amount of any SBA EIDL received between 01/31/2019 and the date the PPP loan is made
  • The maximum amount of the loan in all instances cannot exceed $10 million
  • Payroll costs do not include, among other things, federal payroll taxes and withholdings, compensation of any person in excess of $100,000, and compensation of employees who primarily reside outside the U.S.

What can the loan be used for?

  • Payroll, salaries, commissions, etc.
  • Costs related to continuing group healthcare benefits during periods of paid sick, medical or family leave, and insurance premiums
  • Interest on mortgages (but not principal)
  • Rent
  • Utility expenses
  • Interest on other debt obligations incurred before 02/15/2020

How much of the loan can be forgiven?

  • A borrower can obtain forgiveness of their PPP loan in an amount equal to the sum of expenses it incurs, in the eight-week period after the loan is made, for:
  • Payroll costs
  • Payment of interest on a mortgage in existence before 02/15/2020
  • Payment of rent on a lease in effect before 02/15/2020
  • Payment of utilities, where such utility service was started before 02/15/2020
  • The amount forgiven cannot exceed the amount of the loan
  • The amount forgiven will be proportionally reduced if:
  • There is a reduction in the number of the borrower’s employees during the eight-week period, and that reduction is not eliminated by 06/30/2020, and/or
  • Any employee’s salary or wages is reduced by more than 25% during the eight-week period, and such reduction is not eliminated by 06/30/2020
  • No loan forgiveness can be obtained without submitting required documents.

Can loan payments be deferred?

  • Deferral of loan payments (including principal, interest, and fees) is available for at least 6 months and not more than 1 year

What is the interest rate?

  • 1.00% fixed rate

When is the loan due?

  • In 2 years

Other favorable terms?

  • PPP loans are nonrecourse against individual shareholders, members and partners as long as loan funds are used for authorized purposes
  • Applicable loan fees are waived
  • Borrowers need not show they cannot obtain credit elsewhere
  • No personal guarantee required
  • No collateral required
  • No prepayment penalty

The information above has been prepared by LimNexus LLP for general information purposes only. Such information is not, nor is it intended to be, legal advice. You should not act on the information contained in this website before consulting with an attorney for advice with respect to your individual situation. In addition, the Paycheck Protection Program is subject to change by the government and future regulations issued by the government may alter the information provided above.

LimNexus offers guidance and advice regarding the complex restrictions and rules governing the CARES Act programs. Contact any LimNexus attorney via or send an email to [email protected]