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What is the CARES Act Paycheck Protection Program?

What is the CARES Act Paycheck Protection Program?

On March 27, 2020 The Coronavirus Aid, Relief, and Economic Security Act (aka the CARES Act) was signed into law. The CARES Act provides financial relief to struggling small businesses in a few different ways including loans, grants, and credit programs.

This article will cover how employers can get access to key funding to help pay for payroll and other operating expenses from the Paycheck Protection Program via Division A, Title I, aptly named the "Keeping American Workers Paid and Employed Act". This $349 billion program, administered through the SBA via 7(a) loans, has arrived just in time, as many businesses are currently suffering economically from the fallout from Coronavirus- a pandemic turned (potential) global recession.

While the eagerly anticipated Act will provide much needed funding small business owners desperately need, we hope that additional legislation is enacted to fill the gap  through the end of 2020 and into 2021. We will continue to post information about new programs as they become available. 


>>>Read the CARES Act in full here. <<<


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Paycheck Protection Program: Loan Information 

SBA Paycheck Protection Program (PPP) Loan Information

Total Funds Available 

$349 Billion

Funding Period

February 15, 2020 -  June 30, 2020

Maximum Loan Amount 

2.5x average monthly payroll costs


The outstanding amount of an Economic Injury Disaster Loan (EIDL) that was made during the period beginning on January 31, 2020 and ending on the date on which covered loans are made available to be refinanced under the covered loan. 


$10 Million

Maximum SBA Guarantee


SBA Guarantee Fees 

No Fee

Personal Guarantee

None Required


None Required

Use of Proceeds

Payroll and other operating expenses

Maximum Interest Rate


Maximum Term 

2 Years

Prepayment Penalty


Payment Deferral

Not less than 6 months, including payment of principal, interest, and fees, and not more than 1 year.

Turn Time 

~36 Hours after approval

Where to Apply

Eligible entities may file applications with an SBA-approved lender. Lenders have been delegated authority to make loans without SBA review.



Paycheck Protection Program Eligibility


As of March 26, 2020 nearly 3.3 million Americans have filed for unemployment, which has put an enormous strain on state governments, who are in charge of approving and funding unemployment claims. Additionally, businesses feeling the financial pinch are forced to let their staff go, taking with them years of experience and institutional knowledge, both of which are incredibly valuable to the employer.

The Paycheck Protection Program, part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides the crucial funding businesses need to which aims to keep employees and workers paid during this time of crisis and uncertainty. 

Eligibility is rather simple and is clearly defined in the CARES Act, but is centered around small businesses with fewer than 500 employees that were in operation as of February 15, 2020.


You are eligible if you are: 

  • A small business with fewer than 500 employees

    • This includes full time, part time, and any other status

  • A small business that otherwise meets the SBA’s size standard

  • A 501(c)(3) with fewer than 500 employees

  • An individual who operates as a sole proprietor

  • An individual who operates as an independent contractor

  • An individual who is self-employed who regularly carries on any trade or business 

  • A Tribal business concern that meets the SBA size standard

  • A 501(c)(19) Veterans Organization that meets the SBA size standard

Additionally, some special rules may make you eligible: 

  • If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis. This includes: 

    • Hotels and Motels

    • Casino Hotels

    • Bed-and-Breakfast Inns

    • All Other Traveler Accommodation

    • RV Parks and Campgrounds

    • Recreational and Vacation Camps

    • Rooming and Boarding Houses, Dormitories, and Workers’ Camps

    • Food Service Contractors

    • Caterers
    • Mobile Food Services
    • Drinking Places (Alcoholic Beverages)
    • Full-Service Restaurants
    • Limited-Service Restaurants
    • Cafeterias, Grill Buffets, and Buffets
    • Snack and Non-Alcoholic Beverage Bars
  • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply


You must also certify that: 

  1. The uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient

  2. Acknowledge that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments

  3. The eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan

  4. During the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan. 


Many people have applied for an Economic Injury Disaster Loans (EIDL), however as of the fourth week of March, the SBA Disaster Loan Portal was overwhelmed, operating at a snail's pace (if at all), and applicants were forced to apply offline. When we (Accountingprose) filed for an EIDL, there was no notification that the loan documents were even received after being sent by email and uploaded to the SBA Box account. While #3 states that the borrower should not have a loan application pending,  if you have applied and have not heard back from the SBA, it may be safe to assume that your application may be lost in the ether. However, we recommend that you speak to an SBA approved lender who can provide further guidance. 

Also, it important to note that there is an opportunity to refinance the Economic Injury Disaster Loans (EIDL) made between Jan. 31, 2020 and the date this loan program becomes available into a new loan. We highly encourage you to speak to your lender about this potential if you apply for funding through this program.  



Calculating the Paycheck Protection Program Maximum Loan Amount


Employer Information

Maximum Loan

Option1: If qualified business was in operation for one year prior to loan date

2.5 x the average total monthly payroll costs incurred during the year prior to the loan date

Option 2: If qualified business was not operational in 2019

2.5 x the average total monthly payroll costs incurred for January and February 2020

Option 3. Seasonal Employers

2.5 x  the average total monthly payments for payroll costs for the 12-week period beginning February 15, 2019 or March 1, 2019 (decided by the borrower) and ending June 30, 2019.


Essentially, the maximum loan amounts are calculated by averaging your monthly payroll costs and multiplying that by 250%. Those businesses who were not operational as of 2019, but have payroll costs in January 2020 and February 2020 are still eligible to apply and will use the payroll costs in those two months to find their average. 

Not every single payroll costs will be eligible to be included in this monthly average, so it is important to understand what to use to calculate the average.


What is included in payroll costs?

  • Salary, wage, 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 required for the provisions of group health care benefits, including insurance premiums 

  • Payment of any retirement benefit

  • Payment of state or local tax assessed on the compensation of the employee


What is excluded from payroll costs?

  • UPDATED as of 04/03/20- Payments to independent contractors

  • Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, 2020 to June 30, 2020.

  • Federal payroll taxes, railroad retirement taxes, and income taxes

  • Any compensation of an employee whose principal place of residence is outside of the United States

  • Qualified sick leave wages for which a credit is allowed via HR 6201, the Families First Coronavirus Response Act 

  • Qualified family leave wages for which a credit is allowed via HR 6201, the Families First Coronavirus Response Act

The exclusion of the qualified sick and family leave wages paid/credited via HR 6201, is put in place so that the employer doesn't "double dip", essentially getting two benefits applied for the same wages paid. 


FAQ: What if YOU are an Independent Contractor?

You are also eligible for a PPP loan if you are an individual who operates under a sole proprietorship or as an independent contractor or eligible self employed individual, you were in operation on February 15, 2020. You must also submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.  You may apply for a PPP loan starting 04/10/20.


Example Payroll Costs Calculation
Cost  Option 1. Amounts in 12 month Period 
Payroll Wages $1,000,000

Federal Employer Payroll Taxes

Wages x 6.2%


State Employer Payroll Taxes (varies by state)

Wages x 1.7%


Simple IRA

Wages x 3% Employer Match

Health Insurance  $60,000
Total Payroll Cost  $1,169,000

Minus Excluded Costs

Federal Payroll Taxes


Adjusted Payroll Costs 


Average Monthly Payroll Costs 

Adjusted Payroll Costs / 12 months


Max Loan Amount

Average Payroll Costs x 2.5



We recommend that you set up a grouped Income Statement in Xero, our accounting software of choice, to calculate the total wages paid, average those wages, and see your max loan amount. 

>>>Click to Download our Payroll Costs Spreadsheet<<<


Paycheck Protection Program Fund Usage


The Paycheck Protection Program is intended for small businesses to cover the following costs: 

  • Payroll, commissions, and similar compensation (as noted in the allowable payroll costs above)

  • Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums

  • Mortgage Interest

    • Principal payments and prepayments are excluded

    • Mortgage must have been in place prior to February 15, 2020

  • Rent

    • Rent agreement must have been in place prior to February 15, 2020

  • Utilities

    • Utilities must have been in place prior to February 15, 2020

  • Interest on any other debt obligations

    • For debt obligations in place prior to February 15, 2020

By limiting the usage to these types of expenses, it ensures that the funds are being used for what the CARES Act intended- keeping employees paid and employed. 


Paycheck Protection Program Forgiveness


Borrowers are eligible for loan forgiveness equal to the amount spent on the following expenses during the 8-week period beginning on the date the loan was originated: 
  • Payroll costs (as outlined above)

  • For borrowers with tipped employees, additional wages paid to those employees

  • Mortgage Interest

    • Mortgage must have been in place prior to February 15, 2020

  • Rent

    • Rent agreement must have been in place prior to February 15, 2020

  • Utilities, including: Electricity, gas, water, transportation, telephone, or internet

    • Utilities must have been in place prior to February 15, 2020

  • Interest on any other debt obligations

    • For debt obligations in place prior to February 15, 2020

The CARE Act also states that the loan forgiveness cannot exceed the principal of the loan, so keep that in mind when you are making it rain. 


Parks and Rec- Free Money


Example Loan Forgiveness Calculation


Amounts in 8-Week Period

Payroll Wages


State Employer Payroll Taxes (varies by state)

Wages x 1.7%


Simple IRA

Wages x 3% Employer Match


Health Insurance 




Utilities: Electricity


Utilities: Telephone


Utilities: Cable/Internet


Utilities: Gas 


Interest for Other Debt Obligations


Total Potential Loan Forgiveness





What Reduces the Loan Forgiveness?

Many employers have had to make tough decisions recently, like cutting their staff count or their staff's salaries in order to stay afloat. The Paycheck Protection Program was put in place to save jobs and keep wages up so, should you not rehire employees or return wages to their normal rate by June 30, 2020, you will see the following reductions in the loan forgiveness .

Reduction Based on Reduction of FTE Headcount

Average Number of Full-Time Equivalent Employees (FTEs) Per Month for the 8-Weeks Beginning on Loan Origination


(Divided By)

Option 1. Average number of FTEs per month from February 15, 2019 to June 30, 2019

Option 2. Average number of FTEs per month from January 1, 2020 to February 29, 2020

Seasonal Employers. Average number of FTEs per month from February 15, 2019 to June 30, 2019

18 FTE


20 FTE


= 90% or a 10% reduction in loan forgiveness



So this means that if this employer reduced their average headcount from 20 Full Time Employees to 18 Full Time Employees, their loan forgiveness amount would be reduced by 10%. 


Example Forgiveness Reduction Based on FTE Headcount

Total Potential Loan Forgiveness


10% Reduction for Reduced Headcount


Adjusted Loan Forgiveness


Loan Amount

without Forgiveness


Adjusted Loan Amount

After Forgiveness is Applied



This means that if the the borrower had received a loan for the maximum loan amount $230,625 but let 2 full time employees go, their loan forgiveness would be reduced by $17,440 as a penalty for not keeping their employee headcount at pre-Coronavirus levels


FAQ: What is a Full Time Equivalent or FTE?

"The total number of regular straight-time hours (i.e., not including overtime or holiday hours) worked by employees divided by the number of compensable hours applicable to the fiscal year, as defined by the Office of Management and Budget, Circular No. A-11.


For the purposes of estimating FTEs in this survey, 2,080 hours (per year) would be equal to one FTE. 


8 hours per day x 5 days per week x 52 weeks = 2,080 hours per year

or if you want to see it by week....

2080 hours per year / 52 weeks = 40 hours per week


Let's do some math... 


Hours Worked Per Week









Total Hours Worked




Total Hours Worked


FT Hours in Week

# of FTEs

140 Hours






Reduction Based on Reduction in Salaries

While some employers choose to layoff or furlough employees, others choose to reduce salaries instead. 

Payroll Costs 


Any employee who did not earn during any pay period in 2019 wages at an annualized rate more than $100,000, the amount of any reduction in wages that is greater than 25% compared to their most recent full quarter. 


Example Forgiveness Reduction Based on Salary Reduction


Previous Period

Covered Period

% Diff

Excess Reduction over 25%

Forgiveness Reduction

Excess % x Salary in Previous Period























In this case, this employer reduced wages for Joe, Bob, and Jane.

  • Joe's salary reduction was not in excess of 25%, so the reduction will not affect the loan forgiveness
  • Bob's salary was reduced by 33.33%, which is 8.33% over the max. The loan forgiveness will reflect this difference of $1,000.
  • Jane's salary was reduced by 40%, which is 15% over the max. The loan forgiveness will reflect this difference of $2,250.

In total, the loan forgiveness will be reduced by $3,250.


Rehiring Employees and/or Restoring Wages

If the employer can re-hire for the same position (whether the same employee or a replacement) and return to the average pre-Coronavirus headcount or if they can eliminate wage reductions by June 30, 2020 they will not be penalized and will receive the loan forgiveness at the normal rate. 



How to Apply for Loan Forgiveness

Each borrower must apply for forgiveness with the lender servicing the loan. The lender will have 60 days to review the forgiveness request and will determine if the borrower's loan can be reduced to reflect the forgiveness total. Be prepared to provide the following information:

  • Documentation verifying the number of full-time employees on payroll and pay rates via:

    • Payroll tax filings reported to the IRS

    • State income, payroll, and unemployment insurance filings

  • Documentation to prove your mortgage, lease, or utility payments, including:

    • Cancelled checks

    • Payment receipts

    • Account statements

  • Certification from the borrowed that states:

    • The documentation presented is true and correct; and

    • The amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments; and

  • Any other documentation the Small Business Administration determines necessary

We recommend setting up a second checking account to deposit the loan funds in, and paying for all qualified expenses with this account to make the forgiveness process go more smoothly. 


Super Bonus: The amount of the loan that has been forgiven will not be included in gross income of the borrower. 



How to Get Approved for Paycheck Protection Program Loan

Lenders who have opted into the Paycheck Protection Program have a massive incentive to lend via the Paycheck Protection Loan Program. The SBA has promised to pay each lender a percentage of the loan amount, to make lending more enticing. They also promise to pay lenders their fee within 5 days after funding- so the faster the lenders get loans through, the faster they get paid. 


Loan Amount

SBA Pays Lender



>$350,000 and <$2,000,000





Additionally, the SBA has told lenders to prioritize certain borrowers, including: 

  • Businesses in underserved and rural markets

  • Veterans and members of the military community

  • Businesses owned and controlled by socially and economically disadvantaged individuals

  • Businesses owned by women

  • Businesses in operation for less than two years


They are also waiving the following: 

  • Collateral
  • Personal Guarantees
    • In fact, the SBA will guaranteeing 100% of the loans, again making lending more appealing to lenders who now have no worry about getting paid back
  • Prepayment Penalties
  • Time in Business
    • The requirement that an applicant needs to be in business for the 1-year period before the disaster. They only require that a business must have been in operation as of January 31, 2020
  • Tax return transcripts
  • No credit elsewhere
    • During the covered period, the requirement that a small business concern is unable to obtain credit elsewhere shall not apply to a covered loan. 


Finally, SBA approved lenders have been delegated authority to make loans without SBA review, which will further speed up the process.


But an applicant business must certify that:

  • The applicant does not have an application pending for another loan under Section 7(a) for the same purposes; and
  • The applicant has not received loan proceeds from another loan under Section 7(a) during the period February 15, 2020, to December 31, 2020, for the same purposes.

However, A recipient of an Economic Injury Disaster Loan (EIDL) that was obtained between January 31, 2020, and the date PPP loans are first available is not precluded from receiving a PPP loan so long as the EIDL was obtained for purposes of paying costs other than payroll costs and the above obligations.


In order to get lending with this program you should: 

Your SBA lender will be able to provide a complete list of required documentation. We will update this blog once the applications go live next week. 








V3 Updated Loan App

Dept of Treasury Interim Ruling

Dept of Treasury FAQ 


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