Paycheck Protection Loans

It is important to note that information provided is valid as of 3/30/2020 and is likely to evolve once this article has been published.

The Erika Record team is back with an overview of the Paycheck Protection Loan (a key provision of the recently passed CARES Act) that can potentially help bakeries, restaurants, and other food establishments keep their doors open and employees paid.

We reviewed a variety of different resources to better understand this new Small Business Administration program. Below is an overview of our findings.

Who Is Eligible?

Businesses that meet the following criteria are eligible to apply for the loan.

  • Businesses with less than 500 employees
  • Businesses must still be operational
  • Businesses must have been established before 2/15/2020
  • Businesses must be paying salaries and/or wages to employees or 1099 subcontractors
  • Businesses must be able to demonstrate how they have been economically impacted by the coronavirus outbreak.
  • Businesses can be sole proprietorships, partnerships, independent contractors, or 501C3 non-profit organizations.

What Is Covered?

Eligible covered expenses include:

  • Payroll (this may also include tipped wages and commissions).
  • Mortgage or Rent for the business
  • Utilities
  • Administration of group benefits.
  • Interest payments on debt that occurred before 2/15/2020.

How Can I Apply For the Loan?

The details provided below are valid as of 3/30/2020 and currently evolving. Lenders have yet to receive guidance from the SBA on how businesses should be applying for these funds. As of this writing, lenders are collecting information from potential applicants and starting a queue for processing once details become clearer. Below is what is known about the application process thus far.

  • You do not apply directly with the SBA (Small Business Administration). The SBA guarantees the loan against default to the lending institution and sets the criteria that the institution must use when reviewing your application.
  • You must apply for the loan via a participating bank/lender.
  • You should begin the application process via your preferred and qualified lender as soon as possible.
    • Banks will only be able to release funds as soon as they can process applications.
    • The sooner you can submit your application, the sooner the bank can review, potentially approve, and provide your business with funding.
    • There is a limited amount of funds available. Once funds are exhausted, further funding is subject to Congressional approval.
  • You should ensure that you have all the required documentation to avoid any delay in processing your loan.

How Are the Loans Calculated?

  • Businesses will have to submit payroll documentation for a defined period.*
  • Using the documents submitted, the average monthly payroll will be multiplied by 2.5.
    • Employees making an excess of $100,000 will have their payroll calculation capped at $100,000/year.
    • See below for non-eligible payroll expenses that must be removed from the calculation process.
  • The maximum loan amount will be the lesser of the calculation referenced above or $10 million.

What Isn’t Covered?
Non-eligible payroll expenses include:

  • Individual salary over $100,000.
  • Payroll taxes, railroad retirement taxes, and income taxes.
  • Salary paid to an employee whose principal residence was outside of the United States
  • Qualified sick leave wages for which a credit is allowed (as defined by the Families First Coronavirus Response Act).

Additional information regarding potential loan calculations can be found via this useful guide from the U.S. Chamber of Commerce: click here.

*It is important to note that specifics regarding payroll documentation are currently evolving, with additional guidance pending from the SBA. There may also be different rules with regard to seasonal employees.

What Are the Loan Terms?

  • Any portion of the loan that is not forgiven is subject to a maximum APR of 4%.
  • The maximum repayment term in 10 years.
  • Depending on the financial institution, payments can be deferred between 6 – 12 months.
  • After an 8-week period, the business could then apply for loan forgiveness based on how the funds were used (see “What Is Covered?”) and other eligibility criteria.

How Does Loan Forgiveness Work?

  • Loan funds must be used on eligible expenses (see “What Is Covered?”).
  • Eligible expenses must be incurred after 8 weeks from the date of the loan approval.
    • This means for the entirety of the loan to be forgiven, all funds must be used on covered expenses for the 8-week period following the loan approval date.
  • The business must maintain the same number of employees between 2/15/2020 – 6/30/2020 that it during the same period in 2019 or the same number of employees from 1/1/2020 – 2/15/2020.
  • No reduction in employee wages (by more than 25%) for employees making less than $100,000/year.
  • Any loans that are forgiven, will not be considered taxable income to the business nor its owner(s).
    • Upon forgiveness, this loan becomes a non-taxable grant from the U.S. government.
  • The business can apply for loan forgiveness once all the funds have been exhausted during the specified 8-week period.

What If My Business Reduced Staffing or Wages Before the CARES Act Passed?

According to the U.S. Chamber of Commerce, employers who reduced staffing and/or wages beginning on 2/15/2020 and up to 30-days after the CARES act was passed will not experience reduced loan forgiveness, providing the employer eliminates the reduction in both employees and wages by 6/30/2020.

This means that if you previously laid-off employees or reduced wages/work-hours but were able to secure a loan after the Paycheck Protection Loan provision was passed; the total loan amount could be forgiven if staffing changes were returned to normal levels before 6/30/2020.


This resource is for educational purposes only. The Paycheck Protection Loan is one of several loan options available by the SBA, for businesses who were negatively impacted by the coronavirus outbreak. It is important to consider all the available SBA disaster relief programs before committing to any specific program.

We strongly advise that you contact both your trusted accounting and/or financial planning professional, as well as your preferred and qualified lender before proceeding. Seeking out this type of counsel will help to identify which program(s) may be most appropriate for your unique business operation(s).

Lastly, we recommend that you begin the application process with your preferred bank or lending institution as soon as possible, since demand is expected to be high. This will help avoid any further delays to your application and ensure your application is processed while funds are readily available.


Below are resources our team referred to when publishing this article.

Coronavirus Emergency Loans Small Business Guide and Checklist. (2020). Coronavirus Emergency Loans Small Business Guide and Checklist. Retrieved from

Coronavirus SBA Loan Forgiveness Program. (2020). Retrieved from

COVID-19 Small Business Loan Option: The Paycheck Protection Program. (2020). COVID-19 Small Business Loan Option: The Paycheck Protection Program. Retrieved from

Small Business Interruption SBA 7(a) Loans That Can Be Forgiven (Paycheck Protection Program). (2020, March 29). Retrieved March 30, 2020, from