Emergency Coronavirus Legislation Expands Access to SBA Loans (PPP Loans)

Last Updated: April 2, 2020

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020.  The CARES Act provides a wide range of relief to various individuals and businesses in addition to support for the health care sector and coronavirus (“COVID-19”) containment measures.  Provisions that may be of particular interest to our clients are amendments to the Small Business Act (the “SBA”) that create the Paycheck Protection Program (“PPP”). Specifically, the PPP offers expanded access to loans under the SBA and creates opportunities for at least partial loan forgiveness that is tax free.

Businesses and self-employed individuals (including independent contractors and sole proprietors) facing hardship as a result of COVID-19 should quickly determine their interest in and eligibility for a PPP loan.  While the CARES Act allocates $349 billion to PPP loans, available funds are expected to dissipate quickly due to unprecedented demand. Interested borrowers should apply immediately.  In addition, because employers can reduce their entitlement to forgiveness of their PPP loans by reducing their workforce and/or wages, they should first consider foregoing force reductions while they explore the availability of a PPP loan.  Lenders will begin accepting applications from small businesses and sole proprietors beginning April 3, 2020 (independent contractors and self-employed individuals can apply as early as April 10, 2020).   


The CARES Act increases SBA loan eligibility for certain small businesses and organizations for which the COVID-19 epidemic has made the loan necessary to support the recipient’s ongoing operations.  PPP loans will be available not only for the “small business concerns” to which SBA loan eligibility is generally restricted, but also for any business employing no more than (1) 500 employees (full- and part-time included); or, if applicable, (2) the number of employees determined by the SBA to be standard for the industry.  Eligible recipients include non-profits, sole-proprietorships, independent contractors, and the self-employed. Borrowers need not provide collateral or a personal guarantee.

Several facets of the PPP are designed to expand eligibility within the food and hospitality industries, which have thus far been among the hardest hit sectors in this pandemic.  For example, businesses falling into that sector are eligible despite having more than 500 employees overall, if they have no more than 500 employees per location. Such companies are also among those entitled to a waiver of the SBA affiliation rules under which the numbers of affiliated and commonly-owned companies can be combined to exceed qualifying thresholds.  

Other businesses that may receive preferential treatment in the allocation of loan funds may also include:  

  • businesses in underserved and rural markets;
  • businesses owned by socially and economically disadvantaged individuals;
  • women-owned businesses; and
  • businesses that have been in operation less than two years.   


The maximum loan amount is generally limited to the lesser of:

  1. 2.5 times the recipient’s average total average monthly payroll expenditures during the one-year period before the loan is made; or
  2. $10 million.  

For purposes of this calculation, payroll costs in excess of $100,000 per employee are disregarded.  


Permissible uses of PPP loan proceeds include the following:

  1. payroll and other employee compensation costs;
  2. costs of maintaining health care benefits during leave;
  3. health care insurance premiums;
  4. rent or mortgage interest; 
  5. utilities; and
  6. interest payments on debts incurred before February 15, 2020.

Payroll costs are subject to a per employee cap based on a maximum annual salary of $100,000.  


One very attractive component of PPP loans under CARES is the possibility for at least partial forgiveness.  Specifically, for the 8-week period beginning on the date of funding, PPP loan proceeds spent on the following expenses are forgivable up to the aggregate amount of money spent on the following expenses during that period:

  1. payroll;
  2. interest on mortgages incurred in the ordinary course of business and that has been in effect since February 15, 2020;
  3. rent on any lease that has been in effect since February 15, 2020; and
  4. utilities on services in effect since February 15, 2020.  

The Cares Act contains a provision to discourage employers from taking reduction in force measures by reducing forgiveness entitlement based on a formula that compares 2020 staffing and salaries to the same time period in 2019.  Employers can avoid this penalty for reductions that occur between February 15, 2020 and April 26, 2020 by restoring the number of employees and salaries to their pre-decline levels no later than June 30, 2020.  

While forgiven debt is generally subject to tax, the Act expressly provides that any balance forgiven thereunder shall be non-taxable.  The SBA Administrator will issue guidance and regulations implementing the SBA Loan forgiveness program within 30 days of enactment.


In the days following passage of the CARES Act, the SBA and the Treasury Department set the following terms that will govern all PPP loans that are not forgiven:  

  1. Interest rate of 0.5%; 
  2. First payment deferred for 6 months; and 
  3. Maturity of 2 years


Prospective borrowers should work with a bank authorized to issue SBA loans.  Applications are available now.  Lenders may begin processing loan applications on April 3, 2020 for small businesses and sole proprietorships.  Independent contractors and self-employed individuals can apply starting April 10, 2020. Interested borrowers should immediately connect with an SBA-approved lender and complete the application so that they can apply at the earliest possible time.  Funds are expected to dissipate quickly.

This summary is provided for informational purposes only and does not constitute legal advice, nor do we guaranty the accuracy of its contents or its applicability to your particular situation.  You should work with your accounting and qualified banking professionals to further determine your eligibility for relief under the CARES Act and whether such relief would be beneficial for your business.  The Treasury Department has also promulgated a fact sheet for borrowers.

The CARES Act is voluminous and complex with a myriad of provisions that might impact your business.  Please contact Reicker Pfau at (805) 966-2440 for assistance with any legal issues or questions arising out of the CARES Act.  We remain fully operational and available to our clients during the COVID-19 crisis.

Share this post