Paycheck Protection Loans Under the CARES Act


Apr 3, 2020

Paycheck Protection Loans Under the CARES Act

On March 27, 2020, President Trump signed H.R. 748: Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law. The purpose of this article is not to recite the CARES Act (full text available here), rather it is intended to provide a review of its significant points as it relates to the borrowing of certain funds to maintain payroll continuity (i.e., “paycheck protection loans”). Therefore, the remainder of this article is intended to provide an overview of the CARES Act in that regard.

I. What businesses can apply for a loan?

During the covered period (February 15, 2020, through June 30, 2020) any business concern (this article does not discuss non-profits, self-employed individuals, sole-proprietors, veterans organizations, Tribal businesses, or seasonal businesses) shall be eligible to receive a covered loan (a loan made pursuant to the CARES Act) if the business employs not more than: (1) the greater of 500 employees; or (2) if applicable, the size standard in a number of employees established by Small Business Administration (“SBA”) for the industry in which the business concern operates.

II. Loan Amount

A. Maximum loan amount shall be the lesser of:


B. What are “payroll costs”?

C. What are not “payroll costs”?

III. What expenses can the loan be spent on?

Notwithstanding that the loan amount is based on payroll costs, the loan can be used for:

IV. Loan Forgiveness

A. Covered period (i.e., the period of time over which the use of the loan proceeds will be analyzed so as to possibly be forgiven):

B. Depending on how the loan is used/spent during that 8-week covered period will determine if the loan, in part or in full, will be forgiven.

C. What the loan can be spent on during that 8-week period so as to be forgiven:

V. Limit on Amount of Loan Forgiveness

A. Assuming the loan is spent in the correct manner, how might the forgiveness of the loan, otherwise be limited?

B. Employees

a. The amount of loan forgiveness shall be reduced, but not increased, by multiplying the loan by the following percentage:

Percentage =


One of the following (borrower gets to choose)

a. The average number of full-time employees per month during the period of February 15, 2019 through June 30, 2019


b. The average number of full-time employees per month during the period beginning January 1, 2020 through February 29, 2020.

C. Salary


VI. Other Important Information

A. The application period begins on April 3, 2020 for small businesses and sole proprietorships and April 10, 2020 for independent contractors and self-employed individuals.

B. You should apply as soon as possible. The loan program is open until June 30, 2020, but there is a cap on funding and it is expected that the cap will be met well before June 30, 2020.

C. Applications may be made through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.

D. There should be no loan origination fee.

E. The loan would be without recourse against borrowers unless the loan is used for unauthorized purposes.

F. There should be no personal guarantees of the loan.

G. Assuming that all, or a part, of the loan is not forgiven, then:

H. Loan application documentation to be submitted may include:

b. Documentation, including canceled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments.

I. Lender shall make a decision on the application not later than 60 days after receipt.

J. A copy of the Paycheck Protection Program loan application may be found here.

K. A copy of the Paycheck Protection Program Information Sheet may be found here.

The foregoing article is prepared by attorneys James C. “Jim” Purnell V and Sherwood C. “Chris” Henderson (Mr. Henderson is a Board Certified Specialist in Estate Planning and Probate Law, as designated by the NC State Bar Board of Legal Specialization) of White & Allen, P.A. in order to provide general information to interested parties who wish to learn more about these topics discussed. This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation, and does not establish an attorney-client relationship. If you would like additional information or to discuss your specific situation, please contact White & Allen, P.A. by calling 252-527-8000.

White & Allen, P.A. is a full-service law firm in eastern North Carolina. Since we opened our doors in 1927, our reputation has been built on trust.