The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep employees working during this pandemic. We’ve received thousands of inquiries over the past few weeks, and here are answers to some of the top questions with our understanding of the rules (disclaimer: we aren’t bankers, so always confirm with your lender or the SBA):
Who can apply?
All businesses – including nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees may apply. Businesses may have more than 500 employees if they meet applicable SBA employee-based size standards for those industries. For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries (NAICS code 72) ; or (2) that are franchises in the SBA’s Franchise Directory; or (3) that receive financial assistance from small business investment companies licensed by the SBA.
How much can I borrow under the CARES Act Payroll Protection Program?
The maximum loan is 2.5x the average monthly payroll costs during the one-year period immediately prior to the loan closing date. If your business wasn’t operational in 2019, then it’s 2.5x the average payroll for January and February 2020. Payroll costs are defined as wages, commissions, tips, paid time off (vacation, family leave, medical leave, etc.), health insurance benefits (including premiums), retirement benefits, and state and local payroll taxes. Note that federal taxes are excluded.
How soon can I get my money after my loan has been approved?
The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.
How much of the loan will be forgiven?
The entire loan and interest in eligible for forgiveness. The amount spent on payroll costs, interest, rent, and utilities during the eight-week period after the loan closes reduces the loan balance.
What period of time should I use to determine Average Monthly Payroll?
For existing businesses calendar year 2019 or February 15, 2019 – June 30, 2019. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29. Note that compensation over $100,000 on an annualized basis for each employee is excluded from payroll costs calculation.
Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs?
No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.
What criteria will the SBA bank be considering?
The uncertainty of current economic climate makes the loan request necessary (i.e., your business has been negatively impacted by Coronavirus)
Borrower will use the loan proceeds to retain workers and utilize the proceeds to pay essential expenses – payroll costs mortgage or rent payments, other debt payments, and utilities.
Borrower doesn’t have a duplicate emergency loan outstanding (such as an EIDL loan) that was created prior to 2020. Other disaster relief loans such as an EIDL loan issued in 2021 may be refinanced into a pending PPP application (less the $10,000 advance, which is considered a grant).
The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period. When does that eight-week period begin?
Answer: The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower.
The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?
No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including employer contributions to defined-benefit or defined-contribution retirement plans; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and payment of state and local taxes assessed on compensation of employees. For example, an employee who made $120,000 in salary and had retirement benefits of $10,000 and health care coverage of $15,000 would be considered $125,000 in payroll costs($100,000 max + $10,000 + $15,000).
What qualifies as “payroll costs?”
Include the following:
Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
Exclude the following:
Any compensation of an employee whose principal place of residence is outside of the United States; the compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary; federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
Is the underwriting for a CARES Act 7(a) loan different than a traditional SBA loan?
Yes, much different. Unlike traditional 7(a)s, these loans do not require personal guarantees of owners, collateral, and there are no loan fees paid by borrower.
What if an eligible borrower contracts with a third-party payer such as a payroll provider or a Professional Employer Organization (PEO) to process payroll and report payroll taxes?
SBA recognizes that eligible borrowers that use PEOs or similar payroll providers are required under some state registration laws to report wage and other data on As of April 10, 2020 the Employer Identification Number (EIN) of the PEO or other payroll provider. In these cases, payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP loan payroll documentation. Relevant information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the eligible borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. In addition, employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.
The examples below illustrate this methodology.
Example 1 – No employees make more than $100,000
Annual payroll: $120,000
Average monthly payroll: $10,000
Multiply by 2.5 = $25,000
Maximum loan amount is $25,000
Example 2 – Some employees make more than $100,000
Annual payroll: $1,500,000
Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000
Average monthly qualifying payroll: $100,000
Multiply by 2.5 = $250,000
Maximum loan amount is $250,000
Example 3 – No employees make more than $100,000, outstanding EIDL loan of $10,000.
Annual payroll: $120,000
Average monthly payroll: $10,000
Multiply by 2.5 = $25,000
Add EIDL loan of $10,000 = $35,000
Maximum loan amount is $35,000
Example 4 – Some employees make more than $100,000, outstanding EIDL loan of $10,000
Annual payroll: $1,500,000
Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000
Average monthly qualifying payroll: $100,000
Multiply by 2.5 = $250,000
Add EIDL loan of $10,000 = $260,000
Maximum loan amount is $260,000