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Small Business “Paycheck Protection” Loans

Mar 28, 2020 2:44:19 PM / by CSI Accounting Staff

The most significant provision of the CARES Act for employers establishes new “paycheck protection” loans administered by the Small Business Administration (SBA) to help employers continue to cover payroll costs and other expenses during the COVID-19 crisis. The covered period for loans is February 15, 2020 through June 30, 2020.

Who Is Eligible For Loans?

These loans are available for businesses with not more than 500 employees. However, for businesses in the hospitality industry (those with a NAICS Code of 72) are eligible for a loan as long as they employ not more than 500 employees “per physical location.” For example, a restaurant franchisee with 3,000 employees (but no more than 500 employees at any one location) could qualify for the loans.


In addition, the SBA generally has eligibility guidelines (“affiliation rules”) to determine whether a business qualifies as “small.” Under these provisions of the CARES Act, these “affiliation rules” are waived for (1) NAICS Code 72 businesses that employ not more than 500 employees; (2) franchises; or (3) businesses that receive financial assistance from a small venture investment company licensed under the SBA.

Lenders will determine eligibility for the loans based on whether the business was operational as of February 15, 2020, had employees on payroll, and paid wages and payroll taxes.

What Can The Loans Be Used For?

The loans may be used for payroll costs, healthcare, rent, utilities, and other debts incurred by the business. Notably, the definition of “payroll” costs excludes leave payments made pursuant to the new Families First Coronavirus Response Act (FFCRA). Reimbursement for those leave payments is made through the tax credit process enacted as part of that legislation. These “paycheck protection” loans are available for other payroll expenses and other costs.

How Much Are The Loans available for?

  • Loan amounts will be available based on a formula. The amounts available will be the lesser of:
  • Average monthly payroll costs during the prior year x 2.5; or $10 million
  • For example, if the employer had an average monthly payroll of $900,000 over the prior year, it would be eligible for a loan of $2.25 million ($900,000 average monthly payroll times 2.5).

Can The Loans Be Forgiven? How Much And Under What Conditions?

The federal government will forgive the loans in an amount equal to the amount of qualifying costs spent during an eight-week period after the origination of the loan. These qualifying costs include payroll costs (except of wages above $100,000 per employee), interest on secured debt obligations (like mortgages), and rent and utilities in place prior to February 2020.

[The amount of the forgiveness for the loans will be reduced if the employer: Reduces its workforce during the eight-week period compared to prior periods; or Reduces the salary or wages paid to an employee by more than 25% during the 8-week period (compared to the most recent quarter).]

Please do not hesitate to call our team for further information. We will be distributing application instructions as appropriate and when available.

To see more updates like this, especially those that impact small businesses, follow us and visit CSI’s COVID-19 (Coronavirus) Resource Center.

CSI Accounting Staff

Written by CSI Accounting Staff

Client Development Manager

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