Paycheck Protection Program

Paycheck Protection Program (PPP) - CARES Act Section 1102 & Small Business Administration (Economic Injury Disaster Loan)

March 30, 2020 - The $2.2 trillion coronavirus stimulus bill was enacted by Congress on March 27, 2020. Even though the new legislation has $2.2 trillion allocated to it, the law appropriates $349 billion to be used to support small businesses to maintain their payroll and some overhead expenses through the period of emergency. The stated goal is to keep workers paid and employed during the period of the emergency.

The Paycheck Protection Program (PPP) included in the bill is an emergency lending program, administered by the Small Business Administration (SBA) under its 7(a) lending program, to provide small business loans on favorable terms to borrowers impacted by the current state of economic uncertainty.  The goal of the program is to help small businesses cover their near-term operating expenses and to provide an incentive for employers to retain their employees.

We suggest you contact your banker right away to begin the application process.

We also suggest you visit  and contact the Small Business Development Center (SBA) in your area regarding the SBA Economic Injury Disaster Advance Loan:

1)    SBA Economic Injury Disaster Advance Loan

As per the SBA:

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.

This 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. This loan advance will not have to be repaid.

You can apply on the SBA website.

2)    SBA Coronavirus Economic Injury Disaster Loan

As per the NYS SBDC:

SBA is offering low-interest federal disaster loans for working capital to (a) small businesses or (b) private nonprofit organizations that are suffering substantial economic injury as a result of the Coronavirus.

If you are a New York State-based business, we can help guide you through this loan process. If you are based in another state, go here to see if your state qualifies.


    • Your business must be experiencing a business loss due to COVID-19
    • Entities may qualify for loans up to $2 million
    • Maximum unsecured loan amount is $25,000
    • Interest rates: 3.75% for small business; 2.75% for private nonprofits
    • Term – up to 30 years
    • Use of funds: working capital, paying fixed debts, payroll, accounts payable, other bills that could have been paid had the disaster not occurred
    • Loans are NOT intended to replace lost sales or profits or for expansion
    • There is no obligation to take the loan if offered
    • Applicants can have an existing SBA loan or other SBA loan and still qualify for this disaster loan. Loans cannot be consolidated.

The SBA Coronavirus Economic Injury Disaster Loans (EIDL) will become part of the Paycheck Protection Program as noted below.

Paycheck Protection Program (PPP)  Overview

Eligible Business -

  • Businesses with fewer than 500 employees.
  • Small businesses as defined by the Small Business Administration (SBA) Size Standards at 13 C.F.R. 121.201.
  • 501(c)(3) nonprofits, 501(c)(19) veteran’s organization, and Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees.
  • Hotels, motels, restaurants, and franchises with fewer than 500 employees at each physical location without regard to affiliation under 13 C.F.R. 121.103.
  • Businesses that receive financial assistance from Small Business Investment Act Companies licensed under the Small Business Investment Act of 1958 without regard to affiliation under 13 C.F.R. 121.103.
  • Sole proprietors and independent contractors.

Maximum loan amount -

Loans are available for the lesser of the average monthly payroll costs times 2 1/2 plus any EIDL (Economic Injury Disaster Loan) received after January 31, 2020 that are refinanced under subsection 36 or $10 million.  The maximum loan size is equivalent to roughly 10 weeks of payroll expenses or $10 million, whichever is less.

  • Interest rate may not exceed 4%
  • Guarantees - 100% by the government of 7(a) loans

The average monthly payroll costs is based on the following:

  • The one-year period prior to the loan disbursal date except for seasonal employers and employers not in business between February 15, 2019 and June 30, 2019.
  • In the case of seasonal employers, the employer may choose to calculate the average monthly payroll costs based on the 12-week period starting February 15, 2019 or the period starting March 1, 2019 through June 30, 2019.
  • In the case of new employers not in business between February 15, 2019 and June 30, 2019, the average monthly payroll costs is calculated based on the period beginning January 1, 2020 through February 29, 2020.

Payroll costs include: employee salary, wages and commissions; payment of cash tips; payment of vacation; parental, family, medical or sick-leave; allowance for dismissal or separation; payment required for group health benefits (including insurance premiums); payment of retirement benefits; or payment of state or local tax assessed on employee compensation; and sole proprietor income or independent contractor compensation not in excess of $100,000.  

Payroll costs exclude: compensation of an individual person in excess of $100,000 (as prorated for the period); federal employment taxes imposed or withheld taxes; compensation to an employee whose principal residence is outside of the U.S.; qualified sick leave for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act; and qualified family leave wages for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act.


Repayment terms are to be determined by the SBA/Lender, however Congress mandated lenders provide complete payment deferment relief for borrowers impacted by COVID-19. This include six months to one year of deferred repayment, fee waivers, and streamlined application requirements. 

Loan Forgiveness

Section 1106 outlines forgiveness of loans obtained under the Act.

Borrowers are eligible for loan forgiveness equivalent to the sum spent on covered expenses during the eight-week period after the loan is originated. 

Those covered expenses include the many typical business’s fixed operating costs:

  • Payroll costs
  • Continuation of health care benefits
  • Employee compensation (for those making less than $100,000)
  • Mortgage interest obligations as long as the mortgage was signed before February 15, 2020
  • Rent on any lease in force prior to February 15, 2020
  • Utilities
  • Interest on debt incurred before the covered period
  • Additional wages paid to tipped employees under Section 3(m)(2)(A) of the Fair Labor Standard Acts may also be forgiven

We expect that covered expenditures (for which debt will be forgiven) will be clarified by the SBA.

The forgiveness amount is subject to reduction if there is a workforce reduction or a reduction in the salary or wages of an employee. However, reductions in workforce, salaries and wages that occur from February 15, 2020 to April 26, 2020 will be disregarded for purposes of reducing the forgiveness amount so long as the reductions are eliminated by June 30, 2020.

  • The amount attributable to a workforce reduction will be equal to the initial forgiven amount multiplied by the quotient of average FTEs during the eight-week period divided by the average FTEs for the period from February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020, as determined by the recipient
  • The amount attributable to a salary or wage reduction will be the amount of any salary or wage decrease in excess of 25 percent of the total salary or wages during the most recent full quarter such employee was employed before the eight-week period. Only employees who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in excess of $100,000 are included in this calculation

The forgivable nature of these loans in effect turns them into grants.

Borrowers do not need to demonstrate actual economic harm in order to qualify. Instead, they simply need to make a series of good faith certifications, principally that current economic conditions necessitate the loan to support ongoing business operations, and that the funds will be used to maintain payroll and address other covered expenses. 

Borrowers must apply for forgiveness with the lender servicing the loan. Lenders have 60 days to review and make a determination. Any portion of the loan that is forgiven will be excluded from gross income.

When submitting your application for loan forgiveness, you must provide the following documentation (no exceptions):

1. Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the periods described above, including:

  • Payroll tax filings reported to the IRS
  • State income, payroll, and unemployment insurance filings

2. Documentation to prove your mortgage, lease, or utility payments:

  • Cancelled checks
  • Payment receipts
  • Account statements

3. A certification from a representative of the eligible recipient authorized to make such certifications that:

  • The documentation presented is true and correct; and
  • The amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments; and

4. Any other documentation the Administrator determines necessary


Many businesses will be requesting loans.  While the SBA has not released details on the specific information an applicant will have to provide, we suggest you have the following items ready:

  • Your most recent IRS Form 941 - Employer's Quarterly Federal Income Tax Return
  • A breakdown of your January 2019 through February 2020 payroll expenses to help determine loan sizing; and
  • Complete 2019 financials (profit/loss and balance sheet) to be ready with specific line items for which you may be asked

Note: These guidelines are based on the official 880-page bill.  The SBA is required to issue implementing regulations within 15 days, and the U.S. Department of Treasury will be approving new lenders. The SBA has been given 30 days to issue official guidance regarding loan forgiveness. We will share updates as soon as we learn of them. We suggest that you visit the SBA website for updates as they become available.

Please feel free to contact your Dermody, Burke & Brown tax advisor to further discuss any questions you may have.


The information reflected in this article was current at the time of publication.  This article will not be modified or updated for any subsequent tax law changes, if any.