Understanding the Payroll Protection Program (PPP) of the CARES ACT

Important Definitions

Covered Loan

  • Loan made under this program of the CARES Act during the covered period (essentially just refers to the PPP loan itself).

Covered Period

  • The period beginning February 15, 2020 and ending on June 30, 2020

Payroll Costs

  • Includes
    • Salaries, wages, commissions, or similar compensation
    • Payment of cash tips or equivalent
    • Payment of vacation and sick leave
    • Payment of group health benefits including insurance
    • Payment of retirement benefits
    • Payment of State or local taxes on employee comp
    • Payment to independent contractor (NOT TO EXCEED $100,000) per year / per contractor
  • Shall NOT Include
    • Compensation of an individual employee IN EXCESS $100,000 per year
      • Capped at $100,000 per year
    • Compensation of a non US resident
    • Sick  and family leave wages that will qualify for credit under the Families First Act (first act passed for Covid-19)

How the Program Works

Who Qualifies

  • Businesses (including sole proprietors) with less than 500 employees (per physical location)
  • Business in operation before the covered period

Paycheck Protection Loan

Loan Amount

The PPP loan amount is the lesser of the following:

  • The product of multiplying (a x b)
    • The average total monthly payments for payroll costs (see definition above) for the 1-year period beginning before the date on which the loan is made.
      • For seasonal employers: use the 12-week period beginning on February 15, 2019, or March 1, 2019 – June 30, 2019 if preferred.
      • For businesses that were not in operation from February 15, 2019 – June 30, 2019
        • use the average total monthly amounts for a period of January 1, 2020 – February 29, 2020
  • 2.5
  • Plus (c)
  • The outstanding amount of a SBA disaster loan that will be refinanced under the terms of this PPP loan.


  • $10,000,000

Allowable Uses

  • Payroll
  • Health benefits
  • Retirement
  • Payments of interest on mortgage obligations
  • Rent
  • Utilities
  • Interest on any other covered debt obligation incurred before the covered period.


  • Max of 4% interest per annum
  • Max of 10 years amortization of loan payback

Other things to know

  • Will apply through qualified bank of choice
  • No personal guarantee
  • No collateral required
  • Payments (including both principal and interest) will be deferred between 6 to 12 months

Loan Forgiveness

  • Have to think about completely separate from the loan application and approval process.

Definitions (see section 1106 of CARES ACT for other definitions – link at end)

Covered period

  • The 8 week period beginning on the date of the origination of a covered loan

Payroll Costs

  • Given the same definition as provided in the PPP loan section above.

Forgiveness amount

Sum of the following costs incurred and paid during the covered period:

  • Payroll costs, including healthcare and retirement costs
  • Payments of interest on any covered mortgage obligation
  • Payment of covered rent/lease obligation
  • Any covered utility payment

Forgiveness may not exceed principal amount of loan

Treatment of amounts forgiven

  • Will be treated as canceled debt (NOT INCLUDED IN TAXABLE INCOME)

Possible Reduction of forgiveness amount (See me for more details on this)

  • If number of full time employees are reduced under the covered period
  • Salaries and wage amounts are reduced over the covered period

Reduction of Forgiveness amount

If number of employees is reduced, calculation of forgiveness amount is based on the following calculation

  • Avg # of full-time equivalents during covered period/Avg # full time equivalents from 2/15/19 – 6/30/19 (changes if seasonal)


  • Forgivable amount

If salary or wages are reduced, forgiveness amount is reduced as follows

  • Forgivable amount will be reduced by the amount of any reduction in wages of an employee (excludes employees that make over $100,000) that is in excess of 25% of the total salaries and wages of that employee during the most recent full quarter in which the employee was employed during the covered period.

Reduction exemption for rehires

The amount of loan forgiveness shall be determined without regard to a reduction in employees or employee wages as compared to 2/15/19 if:

  • The employee was laid off or had wages reduced between 2/15/2020 and 30 days after the CARES Act was enacted March 26.
  • Not later than June 30, 2020, the eligible employer has eliminated the reduction in the number of employees and reduction in wages.

Documents that will be needed to substantiate forgiveness amount

  • Documents verifying number of full-time employees
    • Payroll tax filings to IRS
    • State payroll tax filings
    • Canceled checks, payment receipts, transcripts of accounts, and verification of mortgage, lease and utility payments

CARES Act bill Link

Economic Injury Disaster Loan (EIDL)

What is the EIDL

The following was a statement from the SBA’s website describing the EIDL

  • In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.
  • The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.

Important take away

  • The EIDL program is completely separate from the PPP program, although if completed in a timely manner, there is potential to refinance EIDL amounts into the PPP loan.
  • EIDL has to be applied for directly through the SBA’s website (see below for link)
  • The EIDL loan on its own is not forgivable.

SBA Website link