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Updated: Jun 22, 2020

The Paycheck Protection Program

COVID-19 has turned our entire world upside down.The sudden halt and shutdown of many small businesses has had a jolting and significant impact on our economy. To address the economic impacts of the COVID-19 crisis for American individuals and small businesses, Congress recently passed the Coronavirus Aid, Relief, and Economic Securities Act, know as the "CARES Act."

For my business owner friends, here's a little something I put together on the highlights of the CARES Act. These are busy, confusing times, if you need help or have questions, give me a call or drop me a line.

The CARES Act provides a significant amount of government assistance for small businesses including the Paycheck Protection Program; Emergency Economic Injury Grants; Small Business Debt Relief Program; and Counseling programs for small businesses. I will highlight other CARES programs in subsequent posts but the focus of this article is on the Paycheck Protection Program.

The Paycheck Protection Program, called PPP, provides federal guaranteed loans through the Small Business Administration (SBA) and U.S. Treasury to assist businesses with ongoing costs amidst COVID-19 related slowdowns and closures. If the business maintains pre-COVID-19 employment levels, then the principal of PPP loans may be forgiven, and thereby a loan will operate like a grant rather than a loan.


The goal of the PPP loan program is to ensure that a business can continue to cover the costs of retaining employees and maintain status quo through the COVID-19 economic slow down. Only business entities with 500 or less employees that have been in existence since February 15, 2020 are eligible for PPP loans. The PPP loans will provide funds to businesses to maintain the same level of employees and pay the employees at the same rates through an 8-week period. The business must also certify that the loan funds are necessary due to economic uncertainty. Accordingly, only those small businesses that meet the criteria and can maintain existing staffing levels without layoffs are good candidates for these loans.

Forgiveness Requirements

If a business that receives a PPP loan maintains its pre-COVID-19 employment levels for the 8-week period from the date the funds were issued, the principal of the loan is forgiven. If the loan is forgiven it will operate as if it were a government grant. If a business reduces its wages or workforce, then the debt forgiveness portion of the loan is reduced and the business must pay that portion back according to the terms of the loan. To be eligible for loan forgiveness after the 8-week period, the business must provide documentation to its lender that it has maintained the same number of employees and verify other eligible expenses, in writing.

Loan Terms

Even if the loan is not forgiven, the loan terms are quite favorable. The PPP will provide small business loans for up to a 10-year term at 4% with payments deferred 6 months to 1 year. The favorable loan terms include:

-No origination fees

-No prepayment penalties

-No collateral required

-No personal guarantee

-Payment deferral

Accordingly, for a small business that normally lacks access to capital for business loans, the favorable terms make the PPP loans a worthwhile consideration even if the business may not be able to meet the criteria for forgiveness.

Amount of Loan

The amount of the loan is based on a formula using historical payroll and operating expenses. The maximum loan amount is 10 million dollars. However, the amount of the loan is based on documented, historical financial information for the company. The maximum loan amount for any business is calculated using the payroll expenses for the last year divided by 12 and then multiplied by 2.5% (250% of the average monthly payroll costs).

Covered Expenses

Again, the goal of the PPP is to assist businesses in maintaining staff and certain fixed expenses during the COVID-19 crisis. The main goal is to ensure that small businesses have access to the funds to maintain, and not layoff, employees. Accordingly, the loan funds can be used for all payroll and related expenses, including:

-Employee payroll and other compensation

-Employer covered heath care and health insurance costs

-Retirement paid by the employer

-Mortgage interest


-Certain pre-existing debts

Application Process

If you are considering a PPP loan you may apply through any SBA approved bank. Contact your local SBA office and local banker to inquire about the PPP loan application process. You will need to provide a significant amount of historical financial information to submit an application, including all payroll tax reports for the prior year, and documentation of all health insurance premiums and retirement plan funds paid through a group plan or employer match.


The PPP loans can provide much needed capital and security for small businesses and an incentive to avoid employee layoffs. If your small business meets the application criteria, it will likely be worthwhile for you to apply for a PPP loan. However, it is important to consider the tax and other implications for your business. Due to economic constraints relating to the COVID-19 crisis, your business may need to make additional changes such that it may not be practical to maintain current staffing levels. In addition, if the PPP loan principal is forgiven, then the debt forgiven will be considered income subject to tax. Accordingly, it is essential to discuss the PPP loan implications for your specific business with your CPA, attorney, and tax and financial advisor to ensure you understand all of the potential implications for your specific business.

If you have questions about the "CARES Act" programs for your business or business planning in general, contact Measure Law, P.C. at (406) 752-6373/

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