Important Update on the Payroll Protection Program Under the CARES Act

This article was updated on April 6, 2020.  Updates to this article will be made as new information becomes available.

On April 2, 2020, the U.S. Small Business Administration (“SBA”) published its Interim Final Rule (“IFR”) relating to the implementation of Section 1102 – Paycheck Protection Program (“PPP”) and Section 1106 – Loan Forgiveness Under the CARES Act.

The following article summarizes some of the key points of the IFR that are either new or provide clarification to previous guidance.

Terms and Conditions

  • 1% interest rate which has been increased from 0.5% from prior guidance;
  • Two-year maturity;
  • No collateral;
  • No personal guarantees;
  • No payments due for six months following disbursement although interest will accrue;
  • First-come, first served;


There is some confusion regarding the eligibility rules under the IFR and the CARES Act.  We believe the IFR’s intention was to be consistent with the CARES Act and more clearly indicate that either of these types of businesses may qualify.  However, we understand that this issue has been raised with the SBA and Treasury for more clarity and there has not yet been a resolution.

The measurement date of the 500 employees for the determination of size under the SBA standards is still unclear.

The IFR added that you would be ineligible if:

  • You are engaged in any activity that is illegal under federal, state, or local law; 
  • You are a household employer (individuals who employ household employees such as nannies or housekeepers); 
  • An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years; or 
  • You, or any business owned or controlled by you or any of your owners, has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government. 


The SBA did issue guidance on the applicability of affiliation rules for PPP loans, but it did not provide any significant additional information beyond what was in the IFR except to waive affiliation requirements for faith-based organizations.  It is still unclear whether certain foreign-owned companies may be eligible.

Loan Amount

The calculation has stayed consistent with the CARES Act.    It is average monthly payroll costs times 2.5, plus the outstanding amount of an EIDL made between January 31, 2020 and April 3, 2020 less the amount of any advance under an EIDL COVID-19 loan.  The maximum loan amount is still $10 million.  It is still unclear if independent contractors of a business concern should be included under various calculations.  Borrowers should check with their banks on this issue.

Additionally, we have seen applications from banks requiring 2019 payroll costs for this calculation.  The IFR states that it should be payroll for the last twelve months.

Loan Uses: How Can the Loan Proceeds be Used? 

Loan uses have not changed under the IFR, but it does confirm that you may include refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.  If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan.  If the EIDL loan was used for payroll, your PPP loan must be used to refinance your EIDL loan.

What is included in payroll costs?

Payroll costs are defined under the IFR as compensation to employees.  Compensation to employees includes: 

  • Salary, wages, commissions, or similar compensation; 
  • Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); 
  • Payment for vacation, parental, family, medical, or sick leave; 
  • Allowance for separation or dismissal; 
  • Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; 
  • Payment of state and local taxes assessed on compensation of employees; and 
  • For an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

The IFR explicitly states that certain amounts are excluded from compensation, include payroll taxes and compensation over $100,000 for an individual employee.

What does that mean?

Most notably, if an individual has any compensation in excess of an annual salary of $100,000, the compensation in excess of $100,000 is excluded.  Other exclusions include any compensation of an employee whose principal place of residence is outside of the United States and qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127). 

A commonly unclear provision from what is excluded from payroll costs is federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees.  The time period explicitly stated related to excluded federal employment taxes is consistent between the CARES Act and the IFR.  That period is not consistent with the time frame necessary to calculate the maximum loan, which at this point it is unclear why they differ and if payroll costs should be reduced by federal employment taxes in the maximum loan calculation.  Federal employment taxes paid after the loan origination are not an allowable use of the loan funds and thus not part of the forgiven portion.

Can I Apply for More than One PPP Loan?

No eligible borrower can apply for more than one loan.

Forgiveness: What Loan Amounts Can be Forgiven?

Up to full amount of both principal and interest (the CARES Act originally limited loan forgiveness to principal) can be forgiven if used for forgivable purposes. However, not more than 25% of the forgiven amount may be for non-payroll costs.

The IFR does not mention the reduction in loan forgiveness related to any reduction in total wages of more than 25% or reduction in number of full-time employees.  It is unclear whether that rule has been waived as the SBA stated that it will provide additional guidance on loan forgiveness.

If Misused

If PPP loan proceeds are used for unauthorized purposes, those amounts must be repaid.  If a borrower knowingly uses PPP loan proceeds for unauthorized purposes, it will be subject to additional liability such as charges for fraud.  If one of a business concern’s shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against them.

Required Certifications: What Must the Applicant Certify?

The applicant must certify a number of things.  Please see the application for a detailed list of these items.

Lending Criteria

Under the IFR, lenders:

  • Do not have to comply with section 120.150 of Title 13;
  • Can rely on borrowers’ certifications regarding eligibility and use of loan proceeds;
  • Must comply with the obligations in the IFR;
  • Will be held harmless for borrowers’ failure to comply with program criteria.

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 page at for related content.

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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.

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