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The information you obtain on this website is not, nor is it intended to be, legal advice. You should consult with an attorney for individual advice regarding your own situation.

The Paycheck Protection Program is part of the CARES Act Economic Relief Plan passed by Congress and signed by the President on March 27, 2020 in response to the Coronavirus emergency.  It provides low interest loans to small businesses so they can keep their employees on payroll.  Most importantly, the loans are eligible for complete forgiveness.  The deadline to apply is June 30, 2020.


From what I'm seeing, most small businesses will qualify for these loans and for loan forgiveness.  Below is a summary of the rules governing the loans.


I. Who is eligible for the loan


Any business with under 500 employees including sole proprietors, self-employed individuals, and independent contractors.  The business must have been active as of February 15, 2020.


II. Maximum Loan Amount


The maximum loan amount is equal to 2.5 times the employer's average monthly payroll costs during the 1-year period prior to when the loan is made.  The loan amount may not exceed $10 million.


Payments to employees for any payroll period at a rate exceeding $100,000 per year are not included in payroll expenses.


III. Allowable Uses


The loan proceeds may be used to cover payroll costs, health care benefits, mortgage interest, rent obligations, utility payments, and interest on other debt obligations.


IV. Terms of Forgiveness


Loans will be forgiven in an amount equal to payroll costs, payment of interests on mortgages, rent obligations, and utility payments paid in the 8 week period after the loan's origination date.  Compensation of employees in excess of a rate of $100,000 per year is not included.  The loan forgiveness, of course, cannot exceed the amount borrowed.


However, if the employer has less employees as compared to the same period in 2019 its loan forgiveness amount will be reduced.  If the employer's total wages paid are reduced the loan forgiveness amount will also be reduced.


V. Other Terms


On loan amounts not forgiven, the interest rate will not exceed 4% per annum.  These are non-recourse loans.  No personal guarantee is required. 


The forgiven principal and interest are not taxable as cancellation of indebtedness.


Borrower's are required to make a good faith certification that the loan is necessary due to "economic uncertainty" caused by COVID-19 and that the loan proceeds will be applied to maintain payroll and make required payments.


The loans are being administered by private banks.



March 31, 2020

Coronavirus: Free Money? Paycheck Protection Loans