Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, businesses, not-for-profits and self-employed individuals that do not have more than 500 employees can receive a loan for payroll costs, health insurance, rent, utilities and interest payments that are incurred between February 15, 2020 and June 30, 2020. The principal on these loans would be eligible for forgiveness on payroll costs, rent, utilities and interest on mortgage obligations and not included in the borrowers taxable income as cancellation of indebtedness. Although the loan proceeds can be used for things other than payroll costs, the loan itself is based on average monthly payroll in the preceding 12 months multiplied by a factor of 2.5 (some lending institutions are looking at the 2019 calendar year instead). It would appear based on one of the exclusions listed that FEDERAL taxes imposed or withheld would not qualify (but again some lending institutions are not taking this into account, based on guidance from SBA and the U.S. Treasury). It is imperative that you talk directly with your lending institution when applying for these loans and make sure you understand their terms and conditions as well as what information is needed to apply for the loan.

Who is Eligible?

  • Any “business concern” or non-profit that has 500 employees (full and part-time included) or less OR
  • If applicable, the size standard in number of employees established by the Administration (this is the SBA Administration that maintains a list) for the industry it operates in
  • ALSO – if your NAICS code begins with 72 then this 500 employee limit is based on per physical location
    There is inclusion of sole proprietors, independent contractors and eligible self-employed individuals:


    • ELIGIBILTY – the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as prorated for the covered period
    • DOCUMENTATION – An eligible self-employed individual, independent contractor, or sole proprietorship seeking a covered loan shall submit such documentation as is necessary to establish such individual as eligible, including payroll tax filings reported to the Internal Revenue Service, Forms 1099–MISC, and income and expenses from the sole proprietorship, as determined by the Administrator and the Secretary

Allowable Uses for the Loan

  • Payroll Costs INCLUDE:
    • Salary, wages, commission or similar compensation
    • Payment of cash tip or equivalent
    • Payment of vacation, personal or sick leave
    • Allowance for dismissal or separation
    • Health benefits
    • Retirement benefits
    • Payment of state or local tax assessed on paid compensation of employee
  • Payroll Costs DO NOT INCLUDE:
    • Compensation in excess of $100,000, as prorated, over the covered period
    • Taxes imposed or withheld under chapters 21, 22 or 24 or IRC 86 – payroll taxes, railroad retirement taxes, income taxes
    • Compensation paid to residents outside U.S.
    • Qualified leave payments under the Families First Act
  • Continued group health coverage
  • Payments of interest on mortgage obligation (cannot include prepayments)
  • Rents
  • Utilities
  • Interest on any other debt obligations that were incurred before the coverage period

Covered Period

  • February 15, 2020 through June 30, 2020
  • Loan application must be submitted by June 30, 2020
  • Businesses and sole proprietors (that have employees) can begin applying by April 3, 2020
  • Self-employed and subcontracted individuals can begin applying by April 10, 2020

Maximum Amount of Loan

  • The product of multiplying –
    • the average total monthly payments by the applicant for “payroll costs” incurred (as listed above) during the 1-year period before the date on which the loan is made (average monthly cost over previous 12 months), except that, in the case of an applicant that is seasonal employer, as determined by the Administrator, the average total monthly payments for payroll shall be for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019; by
      • 2.5
  • OR $10,000,000
  • If not in operation during February 15, 2019, would use average payroll costs incurred January 1, 2020 through February 29, 2020
  • Business had to be in operation as of February 15, 2020
  • If you have taken an EIDL through SBA you may qualify for refinancing it into this program so that it may be eligible for forgiveness

Fees and Guarantees

  • Fees are waived
  • Personal guarantees are waived
  • No collateral
  • No recourse against any shareholder or individual UNLESS they use these loan proceeds for a purpose not covered above
  • Does not matter if the borrower could obtain credit elsewhere
  • No prepayment penalties

Maturity and Interest Rate

  • Maturity will be for a maximum of 10 years from date of application of loan forgiveness for any balance not forgiven (this term will most likely be at the discretion of the lender).
  • Interest cannot exceed 4%
  • Loan repayment (including interest) would be deferred for a minimum of 6 months and maximum of one year – basically would need to apply for loan forgiveness by then

Borrower Requirements

  • Borrower must make a good faith certification –
    • that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient
    • acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments – IT’S SAFE TO SAY THAT IF THE LOAN PROCEEDS ARE USED FOR COSTS OTHER THAN THE ELIGIBLE ONES LISTED ABOVE, THE BANK CAN SEEK RECOURSE, ATTACH PERSONAL GUARANTEES, COLLATERAL, CHANGE TERMS, ETC.
    • that 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
    • 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

Loan Forgiveness

  • Covered period is the 8 week period beginning on the date of the origination of the covered loan – any eligible costs paid for with loan proceeds outside this period (both before and after) are not eligible for forgiveness.
  • Eligible for forgiveness on payroll costs, interest on mortgage obligations, rent and utilities. Although you can use the loan for interest on other debt obligations those costs are NOT eligible costs to be forgiven.
  • Borrower would submit an applications for forgiveness that includes:
    • Number of full-time equivalent employees on payroll and payroll rates
      • Includes payroll tax filings
    • Canceled checks, payment receipts or other documentation verifying interest, rent and utility payments
  • Documentation is a MUST to qualify for forgiveness
  • Lender shall issue a decision within 60 days
  • Forgiveness would NOT be included in taxable income
  • There is a reduction in forgiveness based on maintaining employment determined by a ratio of dividing FTEs during the covered period by FTEs during the period of the preceding year (or the FTEs from January 1, 2020 through February 29, 2020 – if that’s what was used to base the loan) AND/OR if total salaries (of an employee who makes less than $100,000) are reduced in excess of 25% of the total salary of an employee during the most recent full quarter- this basically means you need to maintain the same level and rates of employees
  • If you currently have a reduction in employees from the period of February 15, 2020 through 30 days from enactment date of this act from the previous year due to layoffs and you bring those people back by June 30, 2020 there is no reduction.