By Elizabeth A. Culley

On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law.  As part of the CARES Act, $349 billion will be allocated to the Paycheck Protection Program (“PPP”), to help small businesses retain employees and cover certain expenses through very favorable Small Business Administration (“SBA”) Loans.

The PPP Loans are available to small businesses having up to 500 employees.  The PPP increased eligibility for SBA Loans to allow sole proprietors, independent contractors, self-employed individuals, and freelance and gig economy workers to apply for PPP Loans.

All of those who are eligible should seriously consider applying for a PPP Loan, not only because the terms are extremely favorable, but also because all loan amounts spent during the first 8 weeks from the date of origination of the loan (“Forgiveness Period”) are subject to forgiveness and will be considered canceled indebtedness.  Amounts spent during the Forgiveness Period on all covered (i) payroll costs; (ii) interest on mortgage obligations; (iii) payment of rent; and (iv) utility payments will be forgiven with few limitations, including, in some instances, the reduction of employees or wages/salaries.  The Treasury Department has issued additional guidelines since the passage of the CARES Act, noting that loan forgiveness for loan amounts used on non-payroll costs will likely be capped at 25%.

The maximum amount that can be borrowed under the PPP is generally (1) the lesser of $10 million, or (2) the average total monthly “payroll costs” incurred during the 1-year period before loan origination, multiplied by 2.5.  “Payroll costs,” however, do not just include salaries and wages.  Rather, “payroll costs” include all of the following categories of costs:

  • salary, wage, commission or similar compensation;
  • cash tip or equivalent;
  • vacation, parental, family, medical or sick leave;
  • dismissal or other severance payments;
  • group health benefits, including insurance premiums;
  • payment of retirement benefits; and
  • state or local taxes on compensation.

“Payroll costs” excludes the compensation of an employee in excess of an annual salary of $100,000, prorated.  There are other limitations regarding what can be calculated as “payroll costs” including, for example, costs for which a credit is allowed under the Families First Coronavirus Response Act.

Interest on any outstanding amounts not forgiven will not exceed 4% per year, and the Treasury Department has clarified that the interest rate will be the same for all borrowers – a .5% fixed rate.  No payments are due for a period of at least 6 months.  The maximum loan term is 10 years.  Use of PPP Loan funds is strictly limited to (i) payroll costs; (ii) health care benefits and insurance premiums; (iii) sick, family and medical leave payments; (iv) employee salaries and commissions; (v) interest on any mortgage obligation; (vi) rent under a lease agreement; (vii) utilities; and (viii) interest on certain other debt incurred prior to February 15, 2020.

Qualifying for PPP Loans merely requires the submission of an application which includes a borrower certification relating to the need for the loan and the use of loan funds.  PPP Loans do not require a personal guarantee or collateral.  Borrowers will also need to provide their lender with payroll data evidencing the “payroll costs” described above.

Though the application for PPP Loans has not been released, a sample application is available on the Treasury Department’s website and can be viewed HERE.  The application process for small businesses and sole proprietorships is slated to open on April 3, 2020, although there is speculation that the process will be delayed.  As of this writing, the application process for independent contractors and self-employed individuals is scheduled to open on April 10, 2020.  A list of participating SBA lenders can be found at, but additional non-SBA lenders may become authorized in the future.

AMB encourages anyone who is interested in applying for a PPP Loan to act quickly, as the money allocated to the PPP is likely to run out quickly.  If you need any assistance understanding the PPP, loan forgiveness, or the application process, AMB is available to help.  Please contact Elizabeth A. Culley at or by calling (805) 543-4171.