T.I.E. BlogT.I.E. Blog

(The.Idea.Exchange) Blog. Timely articles on a wide range of topics including new tax legislation, accounting regulations, best practices, industry news, business insights and more.

Warady & Davis Blog – The Idea Exchange (TIE)

Answers to More CARES Act Emergency Loan Questions – Round 2

Applications for the Paycheck Protection Program Are Scheduled to Begin on April 3, 2020.

Check With Your Bank For When You Can Begin to Apply and Application Process.

UPDATE: 4.3.2020 – the SBA issued much needed guidance on the PPP program early this morning, April 3, 2020 VIEW HERE.  The below article is updated with new information.

UPDATE: 4.2.2020 – Due to a lack of guidance from the SBA on how to process and certify the applications for the PPP loans, most banks across the country will not be accepting applications on Friday, April 3, 2020 as originally anticipated. As soon as SBA guidance is available, banks will begin accepting applications.

Economic Injury Disaster Loan applications are already being accepted

Yesterday, more than 500 people attended our sold out webinar COVID-19 Business Loans & Disaster Relief: New CARES Act Paycheck Protection and Other Programs. VIEW LIVE RECORDING.  (You will be prompted to enter your name and email in order to view the recording.)

Below is a follow-up on some of the questions asked.  The SBA still has yet to issue formal guidance as many questions remain.   Hopefully, that information will be released soon and we will share more information.


View ROUND 1 Q&A Here.

Where Can I apply for the Paycheck Protection Program?

You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution
that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.

Click HERE for the PPP application.  Lender documentation requirements may vary.  You will need to provide your lender with payroll documentation. You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender as soon as possible but no later than June 30, 2020.

What’s Available?

The CARES Act provides for US $349 billion in funding for loans through the Paycheck Protection Program( PPP), an expansion of the SBA’s existing 7(a) loan program aimed at supporting small businesses and encouraging those businesses to retain their workers. Loans made under the PPP can be used to cover costs incurred during the period from February 15, 2020 to June 30, 2020. The SBA has authorized lenders to start processing PPP loan applications on April 3, 2020. Check with your bank on the application process and when you can begin to apply.

The Economic Injury Disaster Loan (EIDL) program is a pre-existing program available to certain small businesses located in areas subject to a presidential disaster declaration that have suffered a substantial economic injury as a result. Section 1107 of the CARES Act includes US $10 billion to expand the EIDL program to businesses beyond previous size limits to include those with up to 500 employees, with some relaxed eligibility requirements. Additionally, an EIDL “grant” provision allows applicants to request that SBA provide an immediate advance of up to US$10,000 within three days of an application in an effort to get money into the hands of small businesses as soon as possible.

Who is Eligible?

Paycheck Protection Program

  • Business Concern
  • 501(c) (3) Non-Profit Organization
  • 501 (c) (19) Veterans Organization
  • Tribal Business Concern
  • To qualify, companies and nonprofits must have fewer than 500 total employees, including all affiliates, subsidiaries and companies under common ownership. Certain exceptions apply for small businesses in the food service sector, franchises and SBIC-financed businesses.

Economic Injury Disaster Loans: CARES Act expands EIDL eligibility to small businesses, cooperatives, ESOPs with fewer than 500 employees, passive properties, tribal businesses, all non-profit organizations, including 501(c)(6)s, and to individuals operating as sole proprietors or independent contractors.

How Much Can a Business Receive in Grants or Loans?

PPP: The maximum loan amount is the lesser of (i) $10 million or (ii) 2.5 times the business’s average total monthly payroll amount1 for the prior 12 month period2 plus the amount of any pre-existing EIDL loan an applicant wants to refinance.

  • For seasonal businesses, the maximum loan amount is 2.5 times a business’s average total monthly payroll amount incurred during the 12-week period beginning February 15, 2019 or March 1, 2019, plus the amount of any pre-existing EIDL loan an applicant wants to refinance.

EIDL: The maximum loan amount is US $2 million. EIDL loans are based on an applicant’s actual economic injury as determined by the SBA, less any recoveries such as insurance proceeds. The cap can be waived by the SBA if an applicant’s business is a “major source of employment” in the area, as defined by 13 C.F.R. § 123.202.

  • An applicant can also request an emergency grant advance of no more than US $10,000. This advance can eventually be forgiven if it is spent on paid leave, maintaining payroll, mortgage or lease payments, increased costs due to supply chain disruption, or repaying obligations that cannot be met due to lost revenues.
  • If additional EIDL funds are needed, under some circumstances, a small business may request an increase in the loan amount within the two years following initial approval of the EIDL loan.

Can Indepedent Contractor Wages be Included in Payroll Calculation for PPP?

The April 3, 2020 SBA guidance definitevely states that employers should NOT count independent contractors as employees for purposes of PPP loan calculations.  independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.

How do Non-US Employees Affect Eligibility?

Generally, to be eligible for a 7(a) loan, an applicant must have its place of business located in the US and operate primarily within the US or make a significant contribution to the US economy through payment of taxes or use of US products, materials, or labor. Once that threshold is met, the applicant’s domestic and foreign employees (including the domestic and foreign employees of the applicant’s affiliates) count toward the number of employees considered for size determinations.

Under the CARES Act, a borrower may not use the proceeds of a PPP loan for compensation of employees whose principal place of residence is outside the US.

What are the Fees and Interest Rates?

PPP: The SBA has waived all otherwise applicable 7(a) fees for PPP loans, and the interest rate is 1% with a 2 year term.

EIDL: The CARES Act has altered the statutory 4% interest rate for EIDL loans. For businesses impacted by COVID-19, the interest rates for EIDL loans will be 3.75% for small businesses and 2.75% for nonprofits.

Are There any Collateral or Personal Guarantee Requirements?

PPP: No collateral requirements or personal guarantees are required.

EIDL: The personal guarantee requirement is waived for loans of US$200,000 or less from January 31, 2020 through December 31, 2020. Traditional collateral requirements under the EIDL—generally required for loans of more than US$25,000—appear to still apply.

What Can Small Businesses Use SBA Loan Money For?

PPP: A recipient can use loan proceeds under the PPP only to cover the following costs:

  • Payroll costs (including salary, wages, commissions, retirement and medical benefits, etc.)3;
  • Mortgage payments;
  • Rent;
  • Utilities; and
  • Interest on loans obtained prior to February 15, 2020.

An applicant must certify in good faith that the loan only will be used to cover allowed costs.

EIDL: The CARES Act expands the allowable uses of EIDLs to cover:

  • Working capital to continue business operations;
  • Necessary expenditures to alleviate the specific economic injury suffered;
  • Sick leave to employees unable to work due to the direct effects of COVID-19;
  • Maintaining payroll;
  • Increased supply costs;
  • Rent or mortgage payments; and
  • Repaying debt that cannot be otherwise repaid due to revenue losses.

Importantly, EIDL proceeds cannot be used to refinance debt incurred prior to the disaster, repair physical damage, or pay dividends.

Does Receiving One Type of Small Business Loan Make an Applicant Ineligible to Receive Another Type?

  • Under the PPP, a business and each 20%-or-greater owner must certify on its application that, among other things, it has not and will not receive another PPP loan.
  • A borrower that received an EIDL loan between January 31, 2020 and the date on which the PPP becomes available can still receive a PPP loan.
  • A borrower can also refinance an EIDL loan into a PPP loan for forgiveness purposes (see below for further details). We anticipate the SBA will provide further clarification regarding what it considers to be the same purpose with respect to loan eligibility.

Does Participation in the PPP Preclude a Borrower From Taking Advantage of CARES Act Tax Relief Programs and Vice Versa?

The CARES Act provides that borrowers that receive PPP loansare ineligible to receive the employee retention tax credit. Additionally, the payroll tax deferral benefit is not available to a taxpayer that participates in the loan forgiveness program under the PPP.

Can SBA CARES Act Loans Be Forgiven?

PPP: Subject to certain limitations, a PPP loan is eligible for forgiveness up to the amount spent by the borrower in the eight-week period after the origination date of the loan on:

  • Payroll costs (including additional wages paid to employees as tips);
  • Interest payment on any mortgage incurred before February 15, 2020;
  • Payment of rent on any lease in force before February 15, 2020; and
  • Payment of any utility for which services began before February 15, 2020.

The amount eligible for forgiveness may not exceed the principal amount of the loan.

The amount of the loan eligible for forgiveness will be reduced proportionally by the number of employees laid off during the eight-week period beginning on the date of the origination of the loan relative to the borrower’s prior employment levels for one of two time periods, at the election of the borrower:

Option (1) February 15, 2019 to June 30, 2019, or

Option (2) January 1, 2020 to February 29, 2020.4  That same reduction in forgiveness would also apply if employees’ salaries are reduced by more than 25%.

EIDL: These loans are generally not eligible for forgiveness, although advance grants up to $10,000, as described above, need not be paid back if an EIDL application is subsequently denied.  Furthermore, an EIDL loan may be forgiven if it is refinanced under a PPP loan depending on the date the EIDL loan was taken out. If an applicant receives an EIDL advance under the CARES Act but is approved for a 7(a) loan instead, the advance amount is reduced from the amount of the loan eligible for forgiveness under the 7(a) program.

Is a Business Eligible for Forgiveness if it Has Already Laid Off Workers and/or Reduced Salaries?

PPP: The CARES Act does not disqualify a business from loans under the PPP if it has already conducted reductions in force, furloughed, or otherwise laid off employees or reduced employee salaries. However, in instances other than seasonal employers, the SBA calculates the number of employees based on the average number of employees over the preceding 12 months. Also, as discussed above, the amount of the loan that is eligible for forgiveness is based on the number and salaries of employees at the time of an application, taking into account any reductions that have recently been made.

Practically speaking, borrowers that lay off employees or reduce employee salaries between February 15, 2020 and April 26, 2020 should not be penalized with a reduction in loan forgiveness amount as long as they re-hire the employees that they previously laid off or eliminate the salary reductions by June 30, 2020. Otherwise, as discussed above, the amount of the 7(a) loan that is eligible for forgiveness is reduced as described above.

EIDL:  EIDL loans are generally not eligible for forgiveness. The CARES Act does not otherwise modify the eligibility requirements for EIDLs with respect to any reductions in force, furloughs, or other layoffs or salary reductions.


1 Under Section 1102 of the CARES Act, payroll is defined to include the sum or payments of any compensation of employees that is (1) salary, wage, commission, or similar compensation; (2) payment of cash tips or equivalent; (3) payment for vacation, parental, family, medical, or sick leave; (4) allowance for dismissal or separation; (5) payment required for the provisions of group healthcare benefits, including insurance premiums; (6) payment of any retirement benefits; and, (7) payment of state or local taxes assessed on the compensation of employees. Payroll costs do not include compensation of an individual employee in excess of US$100,000, as prorated for the covered period.

2 See Small Business Administration, Paycheck Protection Program Application (March 30, 2020) (“For purposes of calculating ‘Average Monthly Payroll,’ most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee.”) If the business was not operating from February 15, 2019 to June 20, 2019, then for the period from January 1, 2020 to February 29, 2020.

3 Whether applying as a company, or as a sole proprietor or independent contractor, payroll costs include compensation and benefits up to an annual salary of  $100,000.

4 The time period of February 15, 2019 to June 30, 2019 applies to seasonal employers.

We Are Here to Help

Please visit the Warady & Davis LLP COVID-19 Resource Center for a wealth of information on stimulus assistance, new legislation and much more.  This information is updated daily.  This is a rapidly evolving situation so please do not hesitate to reach out to us with any questions or concerns at 847-267-9600.


Legal Notice: The materials communicated in this transmission are for informational purposes only and not for the purpose of providing accounting, legal or investment advice. You should contact your accountant or advisor to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an accountant-client relationship between Warady & Davis and the user or browser. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. Any accounting, business or tax advice contained in this communication is not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Warady & Davis would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.  © 2020  All Rights Reserved.