Payment Protection Program Loan Under the CARES Act


By Alan R. Sasserath, CPA, MS

Here is a high-level summary of the “Payment Protection Program Loan” (The loan that can be forgiven under certain circumstances):

  • The amount of the loan is the lesser of (1) the average monthly payroll (salary, wage, commission, tips, vacation, group health benefits…) up to $100,000 per employee for the preceding 12 months multiplied by 2.5 plus the balance of any pre-existing emergency loan or (2) $10,000,000.
  • Interest rate on such loan not to exceed 4%.
  • The loan proceeds may only be used for payroll as defined above, interest on any mortgage obligation, rent, utilities and interest on any other debt obligations that were in place before February 15, 2020 (“Covered”).
  • In evaluating the eligibility of a borrower, the lender shall consider whether the borrower was in operation on February 15, 2020; had employees; or paid independent contractors as reported on Form 1099-MISC.
  • No personal guarantee requirement. No collateral requirement.
  • Forgiveness: The amount that can be forgiven include the amounts paid by the borrower during the 8-week period following the loan origination date for:
    • Covered payroll costs – Generally including payroll as defined above up to $100,000 per employee on an annualized basis. In other words, the amount of loan forgiveness available is limited to $1,923.07 per week or $15,384.56 over an 8 week period per employee.
    • Interest on a “Covered” mortgage obligation.
    • “Covered” rent obligation.
    • “Covered” utility obligation.

A few other items to note:

  1. There are reductions to the amount of the loan forgiven based on a reduction in the number of employees. So, if you have had layoffs, now is the time to reconsider since you can bring them back within 30 days of enactment without such penalty. However, as noted below, it is going to take a little time for the banks to ramp up to be able to distribute these dollars, so you may want to wait on such re-hiring until you are closer to getting this loan. Keep in mind that this hasn’t been signed into law yet, so you have a little time to make this decision.
  2. If you reduced the salaries of employees that make less than $100K annually, there are further reductions in the amount of loan forgiven if such salary reduction exceeds 25% of their compensation.

As stated above, we think that it is going to take a little while for the banks to gear up to be able to make these loans.

We are working on a summary of the payroll credits mentioned in my prior emails as well as the other provisions in the legislation and will send more detailed information on this as well.