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Part 1 Cares Act and the Paycheck Protection Program

APRIL 1, 2020
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In a continuing effort to combat the economic fallout caused by COVID-19 and the ensuing public health emergency, Congress recently enacted the third major piece of legislation to provide various forms of relief to individuals and businesses. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed by the President on March 27, 2020. While the economic impact payments are one of the most widely reported aspects of the CARES Act, it also provides significant financial assistance to small and medium-sized businesses. The major provisions of the Act include:


  • $349 Billion allocated for “Paycheck Protection” forgivable Loans for Small Businesses

  • $454 Billion for mid-sized Businesses affected by COVID-19

  • Expansion of the SBA’s Economic Injury Disaster Loans & Emergency Economic Injury Grants

  • Employee Retention Tax Credits

  • Payroll Tax Deferral

  • Additions to the previously enacted Families First Coronavirus Response Act


This bulletin will address the Paycheck Protection Program. The additions to the FFCRA were addressed in the updated bulletin issued on March 30, 2020. We will address the other major provisions in a subsequent bulletin.


Paycheck Protection Program

The CARES Act created the Paycheck Protection Program (“PPP”), to be administered by the Small Business Administration (SBA) pursuant to Section 7(a) of the Small Business Act. The purpose of the PPP isto provide loans for cash-flow assistance to help employers maintain payroll during the COVID-19 crisis. It is available to eligible parties or entities who experienced economic harm due to COVID-19 between February 15, 2020 through June 30, 2020 (the “Covered Period”).


Eligibility. Applicants must have been in business before February 15, 2020. In addition to small business concerns, the PPP is available to any business concern, nonprofit, veterans organization, or Tribal organization with less than 500 employees or the number of employees that the SBA has established as the size standard for the business’s primary North American Industry Classification System (“NAICS”) code, whichever is higher. Businesses in the hospitality industry (those with a NAICS Code of 72) are eligible for a loan as long as they employ not more than 500 employees “per physical location.” For example, a restaurant franchisee with 3,000 employees (but no more than 500 employees at any one location) could qualify for a loan. In addition, self-employed individuals, independent contractors, and sole-proprietorships are also eligible if they submit the documentation necessary to meet the requirements established by the Administrator and the Secretary.


As part of the application, the applicant must make a good faith certification i) that the loan is necessary to support ongoing operations due to the uncertainty of current economic conditions caused by COVID-19; ii) acknowledging that the funds will be used to retain workers and maintain payroll, or make mortgage, lease, and utility payments; iii) that the applicant does has not have an application pending for another loan under this program for the same purpose that is duplicative of amounts applied for or received under the PPP; and iv) that between February 15, 2020 and December 31, 2020, the borrower is not receiving funding through another loan for the same purpose.


In considering the eligibility of an applicant, the lender may only consider i) whether the applicant was in operation on February 15, 2020; and ii) whether the applicant had employees for whom it paid salaries and payroll taxes or if the applicant is a paid independent contractor.


Loan Amounts. Applicants may receive up to 250% of the applicant’s average monthly payroll costs during the one-year period prior to the loan. If the applicant is a seasonal employer, the average shall consist of the 12-week period beginning February 15, 2019 or the period beginning March 1, 2019 and ending June 30, 2019. The maximum loan is $10 million.


“Payroll costs” include the total amount of compensation paid to employees, including i) salaries, wages, commissions, or similar compensation; ii) cash tips or equivalent; iii) payments for vacation, parental, family, medical, or sick leave; iv) payment for dismissal or separation; v) payment for group health care benefits, including insurance premiums; vi) payment of retirement benefits; or vii) payment of state or local taxes assessed on employee compensation. For sole proprietors or independent contractors, “payroll costs” include wages, commissions, income or similar payments not to exceed $100,000 in one year, as prorated for the covered period.


Payroll costs do not include the following:

  • compensation of an individual employee/owner in excess of an annual salary of $100,000, prorated for the covered period;

  • taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code;

  • compensation of employees whose principle place of residence is outside the United States; or

  • compensation associated with qualified sick and family leave for which a credit is allowed under the Families First Coronavirus Response Act.


Allowable Uses of the Loan. During the covered period, an applicant may use the proceeds of the loan to cover i) payroll costs; ii) costs related to providing group health care benefits during periods of paid sick, medical or family leave, and insurance premiums; iii) employee salaries, commissions, or similar compensations; iv) payment of interest on any mortgage obligation; v) rent and/or lease payments; vi) utilities; and vii) interest on any other debt obligations incurred before the covered period.


Loan Terms. Currently, the SBA has indicated that loans will have an annual interest rate of 0.5%, a two-year term, and payments will be deferred for six months. All borrower and lender fees are waived.


How to Apply. Loans are immediately available through current SBA-certified lenders and the SBA is required to streamline the process to authorize additional lenders. Lenders will not inquire whether the borrower was unable obtain credit elsewhere as otherwise required by other previous SBA loans. No collateral is required for the loan, nor is a personal guarantee required. Lenders may begin processing loan applications as soon as April 3, 2020. The deadline to apply for a PPP loan is June 30, 2020. Here is a sample application to help gather the necessary information.

Loan Forgiveness. Borrowers are eligible for loan forgiveness in an amount equal to the amount spent on the following items during the eight weeks following loan origination:

  • payroll costs (using the same definition of payroll costs used to determine loan eligibility);

  • interest payments on any covered mortgage obligation;

  • covered rent obligations (meaning an obligation in effect prior to February 15, 2020); and

  • covered utility payments (meaning utilities in service prior to February 15,2020).


The amount of loan forgiveness cannot exceed the original principal amount.


Because a central goal of the CARES Act is to discourage employee layoffs or wage reduction, the amount of the loan that is forgiven will be reduced if the borrower lays off workers or lowers wages by more than 25% for any individual employee during the Covered Period. To the extent a borrower has previously laid off employees or reduced wages, the borrower will be eligible for the full forgiveness if it eliminates the reduction in force or restores reduction in wage prior to June 30, 2020.


The borrower must apply for forgiveness through their lender. The application must include the following:

  • documentation verifying the number of full time equivalent employees on payroll and pay rates, including IRS payroll tax filings and state income, payroll, and unemployment insurance filings;

  • documentation verifying the covered payments listed above; and

  • certification from a representative of the borrower that the documentation is true and correct and that the amount being forgiven was used to retain employees and/or make covered interest, rent, or utility payments.


This documentation is mandatory. Without the required documentation, a lender is precluded from forgiving any loaned amounts.


The CARES Act is subject to revision and clarification as it is implemented. Applicants and borrowers are encouraged to consult with legal counsel. The lawyers at Socius Law Group are available to help navigate through this period of uncertainty. If you would like to schedule a call to discuss the PPP or other options available to help address the impacts of COVID -19 and this public health emergency, please contact Jeannette Adams Gorman (, Jason Bergevin ( or Kevin Eggers (



This is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorney-client relationship with our readers. If you would like more information regarding whether we may assist you in any particular matter, please contact one of our lawyers, using care not to provide us with any confidential information until we have notified you in writing that there are no conflicts of interest and that we have agreed to represent you on the specific matter that is the subject of your inquiry.

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