By: Ian A. Loos

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, creates the Paycheck Protection Program, which provides loans to small businesses to assist with business obligations. Loans made through this program may also be forgiven, so long as the funds are used for qualifying purposes, and the borrower keeps, and continues to pay, its employees.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), often been referred to as the Senate Stimulus Bill, which may provide hope for many businesses struggling through this unprecedented time. While the CARES Act contains a number of provisions—including an expansion of federal unemployment benefits to individuals and stimulus rebates to individuals—the provision of most interest to small businesses is the Paycheck Protection Program, with is an expansion of the Small Business Administration (SBA) loan program.

Small businesses eligible for this program includes those with 500 or fewer employees, or those meeting the industry size standard or number of employees set by the SBA. The CARES Act also provides eligibility for certain independent contractors, sole proprietors, and non-profit entities.

For entities that have not obtained an SBA loan after January 31, 2020, the maximum about of a loan under the Paycheck Protection Program is 2.5 times the borrower’s average total monthly payroll costs incurred in the previous 12 months. The statutory definition of “payroll costs” includes:

  • Salary, wages, or similar compensation (not to exceed $100,000 as annualized per employee);
  • Payment for vacation, sick, parental, or family medical leave (not including the leave required to be paid by the Families First Coronavirus Response Act);
  • Payment of group health care benefits, including premiums;
  • Payment of any retirement benefit; and
  • Payment of state or local taxes assessed upon compensation of employees.

Permissible uses for funds obtained from a Paycheck Protection Program loan includes payroll costs, payment interest on mortgage obligations, rent payments, and utilities.

Borrowers shall be eligible for forgiveness in an amount equal to the following costs incurred and payments made in the eight weeks following the date of the loan, not to exceed the principal amount for:

  • Payroll costs (as defined above, excluding pay to an employee which, if annualized, would exceed $100,000);
  • Interest on mortgage payment;
  • Any payment of rent (on a lease that was in effect before February 15, 2020); and
  • Any utility payment (for service established before February 15).

However, no more than 25% of the payments for which forgiveness is sought may relate to expenses other than payroll costs. The amount of loan forgiveness may further be reduced if the borrower decreases its number of full-time employees or reduces salaries or wages by more than 25% for any employee that earned less than $100,000 annualized in 2019. Notably, the CARES Act contains a savings provision, that permits borrowers to re-hire employees and restore salary levels no later than June 30, 2020, to avoid reduction of forgiveness.

The SBA has announced that loans made under the Paycheck Protection Program will have an automatic deferment of payments for 6 months, an interest rate of 1%, and a term of 2 years.

If you have any questions regarding the CARES Act or whether your business may benefit from the Paycheck Protection Program, please do not hesitate to contact Ian Loos at 270-781-8111, or, or any member of our Corporate or Business Planning practice areas.

Please note that the foregoing summary does not constitute legal advice. Please contact an attorney to address any specific concerns you may have with regard to how this legislation may specifically impact you or your business.