Dear ABC Central Ohio Members,

Within the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), there is a program that small businesses can use to maintain their workforce, inject liquidity, and ultimately receive loan forgiveness.  It’s called the Payroll Protection Act.

1.  What is the Payroll Protection Program?

The Paycheck Protection Program modifies the SBA’s 7(a) loan program in four ways: (1) it expands the list of eligible businesses, (2) it modifies loan terms, including elimination of guarantees and collateral requirements, (3) it allows a portion of the loan to be forgiven if payroll criteria are met, and (4) it modifies a number of provisions to incentivize banks to make loans quickly.

Lenders under the Payroll Protection Program will be any financial institution that currently handles SBA lending.  Those lenders will be authorized to make what is known as a Payroll Protection Loan under the new rules.

2.  What Small Businesses are Eligible?

Eligible Small Businesses are those with less than five hundred (500) employees.  They must be organized for profit and operate primarily in the United States; related companies or subsidiaries are part of the same business concern.  Qualified non-profits may also be eligible.

The CARES Act waives the “credit available elsewhere” test.  This test typically applies to SBA 7(a) lending and requires a business to show that they sought other sources of capital and capital injections from their owners.  Because of this, a lot more small businesses are eligible, even if their owners have liquid assets or they could raise capital elsewhere.

3.  What are the Terms of a Payroll Protection Loan?

Payroll protection loans have defined and modified terms including the following:

Loan Amount: Small Businesses are eligible for loans up to 2.5 times their 2019 monthly payroll costs.  Payroll costs include salaries, certain employee benefits, state and local taxes, and some compensation to sole proprietors.  Seasonal employers and businesses in operation less than a year have different calculations.

Use of Proceeds: Paycheck Protection Loans may be used to pay payroll costs, group healthcare benefits, insurance premiums, interest on pre-existing debt, rent and utility payments.

Collateral: Payment Protection Loans do not require collateral.

Guarantee: Payment Protection Loans do not require personal guarantees.

Interest: Not to exceed four percent (4%).

Maturity: Any portions of notes not forgiven as described below will have a term up to 2 years.

Deferment: The CARES Act defers loans automatically for at least six months and up to a year.

SBA Disaster Loans: After the date Payroll Protection Loans are available, you may not receive both a Payroll Protection Loan and an SBA disaster Loan.

4.  How is the Loan Forgiven?

Payroll Protection Loans are eligible for loan forgiveness equal to the amounts spent by the borrower during the eight (8) week period after the loan originates. The loan forgiveness applies to amounts spent on payroll costs, interest on pre-existing debt, payments on pre-existing leases and utility payments.

The loan forgiveness will be reduced proportionately by any reduction in employees during the covered period.  Because of this, businesses are incentivized to keep their employees on staff and receiving paychecks. Forgiveness is also reduced if pay is cut so employers are incentivized to keep pay levels consistent.

To incentivize re-hiring, employers are not penalized if they re-hire employees who are laid off at the beginning of the period.

5.  How is Lending Incentivized?

To incentivize these loans, the CARES Act is increasing the SBA’s guarantee of these loans to 100%.  This guarantee functions as a bank’s backstop if a loan is not paid and is repurchased in the event of default.  Lenders are responsible for ensuring the business was operational on February 15, 2020 and that payroll and quarterly returns were being filed.  However, most other eligibility requirements are waived.

Borrowers are required to make certifications regarding the impact of COVID-19 on their business and their intentions to use the Paycheck Protection Loan.

Additional information about small business loan opportunity can be found here. A Payroll Template for maximum loan eligibility can be found here. Finally, a copy of the Paycheck Protection Program Application Form can be found here.

If you have any additional comments, questions, or concerns, please contact me at or via telephone at 614-597-3591.


Barton Hacker