Paycheck Protection Program

Updated May 6, 2021

Paycheck Protection Program

The Paycheck Protection Program was designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses. If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable.


How Does It Work?
  • The plan provides $349 billion in cash flow assistance through 100% federally guaranteed loans to small businesses and 501(c)(3) nonprofit organizations during this emergency. To help bring workers who may have already been laid off, the program can be retroactive to February 15, 2020, so employees can return onto payrolls. The loan’s covered period is February 15 to June 30, 2020. The expected forgiveness amount can be expended on payroll costs, payments of interest on a mortgage obligation, rent obligations, and utility payments. The loan can pay for:

    • The sum of payments of any compensation with respect to employees that is a salary or wage;

    • Payment of cash tip or equivalent;

    • Payment for vacation, parental, family, medical, or sick leave;

    • Allowance for dismissal or separation;

    • Payment required for the provisions of group health care benefits, including insurance premiums;

    • Payment of any retirement benefit; or

    • Payment of State or local tax assessed on the compensation of employees.

The maximum loan amount must be the lesser of:

  1. Two and a half months payroll, as calculated by taking the average total monthly payments by the business for payroll costs incurred during the 1-year period before the date on which the loan is made. For a seasonal employer, the business calculates the average total monthly payments for payroll during the 12-week period beginning February 15, 2019, or at the choice of the business, March 1, 2019, and ending June 30, 2019. Multiply this number by 2.5 for two and a half months payroll.

  2. $10,000,000

    • Restricted from being included in the payroll calculation are: Any salaries above $100,000 per year and any qualified sick leave wages for which a tax credit is allowed under section 7001 or 7003 of the Families First Coronavirus Response Act.


What Businesses Are Eligible?
  • Only small businesses that employ less than 500 employees are eligible for Paycheck Protection Program and SBA Loan Forgiveness. However, restaurant, foodservice, caterers, and hotels that employ not more than 500 employees per physical location of the business are also eligible to receive a single loan if they operate under the North American Industry Classification System code beginning with 72 (Accommodation and Food Services – U.S. Census Bureau).

  • The program enacted by this legislation would remove the “Credit Elsewhere Test,” which requires an extensive analysis to determine whether the borrower has the ability to obtain some, or all, of the requested loan funds from alternative sources, without causing undue hardship. That test could also have required them to utilize those alternative sources – rather than obtain the Small Business Administration (SBA) loan – if so.

  • No collateral, or personal guarantee, shall be required for the covered loan.

    • Restaurant entities expressed concerns about the SBA’s existing collateral requirements that could disqualify them from obtaining these loans. The Association successfully requested that the collateral requirements be eliminated.

  • Waives affiliation rules for businesses in the hospitality and restaurant industries, franchises that are approved on the SBA’s Franchise Directory, and small businesses that receive financing through the Small Business Investment Company (SBIC) program.


What Is Loan Forgiveness?
  • The borrower is eligible for loan forgiveness equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.

    • Amounts forgiven may not exceed the principal amount of the loan.

  • Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered eight-week period compared to the previous year or time period, proportionate to maintaining employees and wages:

    • Payroll costs plus any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation + any covered utility payment.

    • The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation.

  • To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

  • The SBA Administrator and the Treasury Secretary may prescribe regulations granting de minimis exemptions from the requirements under this subsection.

  • Borrowers will verify through documentation to lenders their payments during the period.  Lenders that receive the required documentation will not be subject to an enforcement action or penalties by the Administrator relating to loan forgiveness for eligible uses.

  • Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest. The 100% loan guarantee remains intact.

  • The calculation for an average monthly number of full-time equivalent employees is about 30 hours per week, under the Affordable Care Act. The forgiveness amount is reduced according to the amount of full-time employees on staff compared to the previous year, February 15, 2019 to June 30, 2019.

  • Loan forgiveness may also cover any additional wages paid by businesses to tipped employees (as defined in the Fair Labor Standards Act).


Loan Mechanics

The program is administered through the (SBA) 7(a) Loan Program, and the government guarantee increases to 100% through December 31, 2020, and then reduce to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.

  • Waives both borrower and lender fees for 7(a) loans.

  • Increases the maximum loan for an SBA Express loan from $350,000 to $1 million through December 31, 2020.

  • Exclusions: Provides a limitation on a borrower from receiving this assistance and an economic injury disaster loan through SBA for the same purpose. However, it allows a borrower who has an economic injury disaster loan (EIDL) unrelated to coronavirus to apply for a PPP loan, with an option to refinance that loan into the PPP loan. The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.


Qualified Improvement Property (QIP)
  • Businesses will be able to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.

  • This corrects the error in the Tax Cuts and Jobs Act and increases a business’ access to cash flow by allowing them to amend a prior year return, while incentivizing investment.