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Paycheck Protection Plan Loan Updates

On April 2 the Small Business Administration issued interim rules to implement the Paycheck Protection Loan provisions of the CARES Act. The Rules:

  • increased the interest rate on the loans to 1% (from 0.5%) – the repayment period for any portion of the loan that is not forgiven remains at 2 years);
  • clarify that household employers (individuals who employ nannies or housekeepers) are not eligible small businesses;
  • clarify that independent contractors are not included in payroll for purposes of calculating loan availability (independent contractors can apply on their own);
  • provide additional guidance on how to calculate the amount of the average monthly payroll for purposes of calculating the amount of the loan;
  • specify that no payments are due under the loan for the six months following the disbursement of the loan; and
  • specify that no more than 25% of the amount of the loan forgiveness amount can be for non-payroll costs (rent, interest on a mortgage, utilities, etc.).


Businesses that otherwise meet the eligibility criteria are ineligible for a loan if:

  • they are engaged in any activity that is illegal under federal, state or local law;
  • a 20% or more owner is incarcerated, on probation, on parole, presently subject to an indictment or criminal information, under criminal charges, or has been convicted of a felony in the last 5 years; or
  • the entity applying or any business owned or controlled by the entity or any of its owners has ever obtained a direct or guaranteed loan from the SBA or any other federal agency that is currently delinquent or has defaulted in the last 7 years and caused a loss to the government.


The rules provide the following method for determining the average monthly payroll for purposes of calculating the amount of the loan:

  • Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
  • Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
  • Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
  • Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
  • Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan.


What is includable in payroll costs?

  • compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation (up to $100,000 for any one employee- amounts over $100,000 for an employee are not counted);
  • 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 (but not the employer’s share of FICA); and
  • for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.


Qualified sick and family leave wages for which a credit is allowed under Sections 7001 and 7003 of the Families First Coronavirus Response Act are excluded from the payroll costs calculation.

Although the lenders are supposed to be able to start processing loan applications today (April 3), many are not ready to process loan applications yet, and most lenders have indicated that they will only be making loans to their current customers.

If you are interested in securing a paycheck protection provision loan, you should check with your bank to determine if they are an approved SBA lender (most major banks are). The previously released application form has been revised and the new application form can be found HERE, along with some very basic instructions on how to complete the application form.

If you need assistance with determining eligibility or completing an application form, please contact Susan King at [email protected]



© Caulkins & Bruce PC, 2020. The information presented is for informational purposes only. You should not construe it as legal advice or a legal opinion on any specific fact or circumstances.

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