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  • Writer's pictureThomas Schorn

Paycheck Protection Program

Updated: Jan 31, 2021

On Friday, legislation passed that includes a new loan program – the Paycheck Protection Program administered through the SBA – that provides up to $349 billion in loans to eligible entities, with such loans being subject to forgiveness under certain circumstances.

You can use The loans can be used for a variety of purposes, including payroll costs (as described below), rent, utilities, mortgage interest (not principal), and interest on debt existing before February 15, 2020.

These loans are forgivable.

Below is detail about these loans and, more importantly, its forgiveness. The banking industry will process these loans. I suggest you contact your bank Monday morning, inquiring about the application process. Ask to be put on their application list, so you are that the top of the application process even though most banks will take several days to be able to process these loans.

This email does not include all provisions, only those that I thought were relevant for my clients. I will provide more information through the coming week. Click this link to Schedule a Call if you have any questions.

Synopsis of the Payment Protection Plan


Eligible entities are those with less than 500 employees, including the following:

· Businesses

· Eligible self-employed individuals

· Independent contractors

· Sole proprietorships

Companies in the accommodation and food services industry (NAICS 72) that have less than 500 employees per physical location

Maximum Loan Amount

Loans are available for the lesser of the average monthly payroll costs times 2.5. Average monthly payroll costs are calculated based on the one year before the loan disbursal date.

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

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


Loans are available for up to a 10-year term (amortized) at 4 percent interest, with six months (and up to one year) deferral of principal and interest payments. Notably, specific SBA requirements are waived.

Loans are available with:

· No personal guarantees of shareholders, members or partners

· No collateral

· No proving recipient cannot obtain funds elsewhere

· No SBA fees (may still have to pay lender processing fee)

· No prepayment fee

Application Process

Eligible entities may file applications with an SBA-approved lender. Lenders have the authority to make loans without an SBA review. Qualified applicants will have been in operation on February 15, 2020, and will have paid employees and payroll taxes or independent contractors.

Applicants will need to certify that the loan is necessary, and will be used to retain workers and pay eligible expenses. Applicants will further need to verify that no other application for a loan for the same purpose is pending and that the entity has not received any other loan for the same purposes through December 31, 2020.

Loan Forgiveness

The forgiven amount will be equal to the amount paid for payroll costs, salaries, benefits, rent, utilities, and mortgage interest during the eight weeks following disbursement of the loan.

The forgiveness amount is subject to reduction if there is a workforce reduction or a reduction in the salary or wages of an employee.

The amount attributable to a workforce reduction will be equal to the initial forgiven amount multiplied by the quotient of average full-time employee hours (also known as full-time equivalent or FTE) during the eight weeks following the disbursement of the loan 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 above 25 percent of the total salary or wages during the most recent full quarter such employee was employed before the disbursement of the loan. Only employees who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay above $100,000 are included in this calculation.

Reductions in the 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.

Borrowers must apply for forgiveness with the lender servicing the loan. Lenders have 60 days to review and decide. The amount of the loan forgiven will be excluded from gross income.

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