In our March 27 E-lert, we explained important provisions of the CARES Act. One of them provides small businesses and nonprofits with forgivable loans to fund payroll and other costs incurred between February 15 and June 30, 2020 as an incentive to keep employees on the payroll.  Under the “Paycheck Protection Program” the federal government will essentially give an employer 2.5 times its monthly payroll, to use for paying wages, rent, mortgage interest and utilities.

The CARES Act appropriates $349 billion for the Paycheck Protection Program.

Eligibility.  Any business or non-profit is eligible if it has no more than 500 employees, however, in many industries, the size standard is much larger.  Employers may look up the size standards here:–table-size-standards.  For this purpose, employees of the business include part-time and temporary agency employees.  Special rules for hotels and restaurants and for franchises allow their size to be determined per physical location.  Gig economy workers (sole proprietors, independent contractors and certain self-employed individuals) are also eligible. The CARES Act establishes other loan programs for employers too large for the Paycheck Protection Program, as we explained in our E-lert on March 27.

Amount: Employers can receive 2.5 times average their monthly payroll cost, taking into account salaries, wages, commissions, tips, paid leave, severance pay, health insurance premiums, retirement benefits, and state and local payroll taxes.  There is a cap of $10 million.  In calculating the loan amount, employers cannot take into account compensation exceeding $100,000 per year per person, or sick leave or family leave for which a payroll tax credit is allowed under the FFCRA.

Use: Employers can use the money for payroll (including paid leave), continued health insurance coverage, mortgage interest, rent and utilities incurred from February 15 to June 30, 2020.  The loan cannot be used to pay wages at a rate exceeding $100,000 per year.

Forgiveness: The entire amount of the loan will be forgiven, provided it is used for costs incurred or payments made for payroll, mortgage interest, rent and utilities during an 8 week period beginning on the date of origination of the loan.  The amount forgiven will be proportionally reduced if the employer reduces the number of employees during the period or if it reduces wages more than 25 percent for any employees, during the period February 15 to June 30, 2020.  Employers who cut payroll after February 15 can avoid the reduction by restoring the cuts by June 30.  The Act requires that employers apply for forgiveness, with documentation.  The amount of the forgiven loan is not taxable income.

Application Process: As soon as the SBA gets this program up and running, the loans will be made through Small Business Administration approved banks and commercial lenders.  The SBA’s on-line referral tool is here:  To apply, an employer will not have to show that it cannot obtain other financing, which is normally an SBA loan requirement.  It does have to certify “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient,” that the loans will be used for the purposes described above, and that the applicant is not making a duplicative application or seeking a duplicative loan.

Effect on Employee Retention Credit: An employer that takes a Paycheck Protection Program loan is not eligible for the 50 percent payroll tax credit for employees subject to closure under Section 2301 of the Care Act.

Other loans and grants available: The Paycheck Protection Program is different from the existing Economic Injury Disaster Loan program, which provides low interest loans up to $2.5 million.  The State of Maryland also has several loan and grant programs. Employers can also conserve cash by deferring payroll taxes.

More information: We will continue to post information on this program as it becomes available.