Summary of the Paycheck Protection Program

This article was updated on March 31, 2020.  Updates to this article will be made as new information becomes available. 

Schneider Downs continues to track the evolving landscape of Federal Financial Assistance Programs offered due to the disruption of the coronavirus (“COVID-19”).  The CARES Act Paycheck Protection Program (“PPP”) under the Small Business Act is one of the key parts of the Federal government’s relief efforts.  This program is summarized below:

1. Background

Section 1102 of the CARES Act, entitled Paycheck Protection Program (“PPP”) has allocated $349 billion to provide 100% federally guaranteed loans to small businesses to assist in keeping workers employed during the pandemic.

2. Eligibility

The eligibility requirements for certain small businesses and organizations to qualify for the PPP are as follows:

  • Small business concerns OR any business concern, nonprofit organization, veteran organization, or Tribal business concern are eligible if:
    • It employs not more than the greater of 500 employees OR the size standard in number of employees established by the SBA for the business’ industry.  You can check the size requirements by number of employees at this website:;
    • They are sole proprietors, independent contractors, or eligible self-employed individuals;
    • A business concern with more than 1 physical location that employs not more than 500 employees per physical location AND is assigned a NAICS code beginning with 72.  See the following website for details on what industries are included in NAICS Code 72:

The 500 employee (or SBA industry size standard) threshold includes all employees whether they be full-time, part-time, or any other status.

Additionally, the determination of a business concern’s number of employees is subject to the affiliation rules under Section 121.0103, Title 13, Code of Federal Regulations.  In general, affiliation applies when a business concern (including nonprofit organizations or veterans organizations) has control or has the power to control more than one business.  In determining a concern’s number of employees, the SBA includes the concern’s number of employees and the number of employees of all of its domestic and foreign affiliates.

However, the CARES Act allows for a waiver of these affiliation rules for:

  • Any business with not more than 500 employees AND is in NAICS 72; 
  • Any business concern operating as a franchise that is assigned a franchiser identifier code (“FIC”) by the SBA;  Whether or not a franchise has a FIC can be determined at this website:;
  • Any business concern that receives financial assistance from a company licensed under Section 301 of the Small Business Investment Act of 1958.

3. Loan Amounts

Loan amounts can be up to 2.5x a borrower’s average monthly payroll costs (based on trailing twelve months), not to exceed $10 million.  Payroll costs are defined to include:

  • salary, wage, commission, or similar compensation (capped at $100,000 on an annualized basis); 
  • payment of cash tip or equivalent; 
  • payment for vacation, parental, family, medical, or sick leave; 
  • allowance for dismissal or separation; 
  • payment required for the provisions of group health care benefits, including insurance premiums;
  • payment of any retirement benefit; or 
  • payment of state or local tax assessed on the compensation of employees.

For Sole Proprietors, Independent Contractors, and Self-Employed Individuals, payroll costs include any compensation to or income that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.

Payroll costs exclude:

  • the compensation of an individual employee in excess of an annual salary of $100,000 (pro-rated for the covered period);
  • taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986;
  • any compensation of an employee whose principal place of residence is outside of the U.S.; 
  • qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–127); or 
  • qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

4. Documentation

Lenders will ask for a good faith certification that:

  • The uncertainty of economic conditions makes the loan necessary;
  • The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments.
  • Borrower does not have a duplicative application for a loan for the purpose and amounts applied for under PPP.
  • From February 15, 2020 to December 31, 2020, the borrower has not received a duplicative loan under the PPP.

We are waiting for guidance on what the specific information required for the loan application will be.

5. Loan Forgiveness

A borrower is eligible for loan forgiveness equal to the amount the borrower spent during the eight-week period starting on the date of loan origination on the following items (not to exceed the loan’s principal):

  • Payroll costs, as defined above;
  • Interest on the mortgage obligation incurred in the ordinary course of business;
  • Rent on a leasing agreement;
  • Payments on utilities (electricity, gas, water, transportation, telephone, or internet);
  • For borrowers with tipped employees, additional wages paid to those employees.

However, loan forgiveness can be reduced if there is a reduction in: (1) the number of employees; OR (2) employee wages in excess of 25% since the goal of the Act is to provide “payroll protection”.  Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.

If you need more information, please reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal ([email protected]) or Steve Thimons ([email protected]) directly.

Please visit our Coronavirus Resource Center for related content.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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