INFORMATION UPDATE: Forgivable US Government Loans for Small Businesses

Last updated April 9, 2020.

On Friday, March 27, 2020, President Trump signed the historic $2 trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the largest emergency relief package in US history. It represents a massive financial injection into a struggling economy with provisions aimed at helping American workers, small businesses and industries grappling with the economic disruption.

The CARES Act authorizes the Small Business Administration (SBA) to guarantee $349 billion in loans under the SBA’s new Paycheck Protection Program (PPP). If certain conditions within your business are maintained, the loans could be forgiven.

Updated Information

On March 31, the US Department of the Treasury released the application form for the PPP loan along with some guidelines for lenders and borrowers. Guidance continued to be updated thereafter. Here are the up-to-date links, as of April 9, for your ease of reference:

  1. Overview of the Program
  2. Information for Borrowers
  3. Application form
  4. Information for lenders

We anticipate that the demand for this relief will be very high.  We strongly advise businesses to submit their applications as quickly as possible. If you need help with your application, please call us at 212 545-8022 or email

Here is an overview of the Paycheck Protection Program:

Who is eligible for PPP loans?

Eligible entities are those with fewer than 500 employees, including the following: businesses, 501(c)(3) nonprofit organizations, veterans organizations, certain tribal business concerns, eligible self-employed individuals, independent contractors, sole proprietorships, and businesses in the accommodation and food services industry with a (NAICS 72) code that have fewer than 500 employees per physical location.

In determining the 500-employee threshold, applicants should include full time and part-time employees. It does not include your 1099 workers or other independent contractors. The SBA ordinarily counts the employees or annual receipts of a business concern’s affiliates when determining whether the business concern qualifies as a small business. However, the CARES Act waives this regulation for:

  • Businesses in the accommodation and food services industry with a (NAICS 72) code
  • Franchises assigned a franchise identifier code
  • A business licensed under Section 301 of the Small Business Investment Act

Most Venture-Backed Start-Ups Remain Uncovered

As of April 3, 2020, the new guidance issued by the Small Business Administration did not include language that would give most start-ups eligibility to apply for the Paycheck Protection Program loans. This is despite pleas to Treasury Secretary Steve Mnuchin by House Minority Leader Kevin McCarthy (R-Calif.) and House Speaker Nancy Pelosi (D-Calif.).

According to an article in TechCrunch published on April 4, 2020, “the issue for startups seems to be centered on the board rights that venture investors have when they take an equity stake in a company. For startups with investors on the board of directors, the decision-making powers that those investors hold means the startup is affiliated with other companies that the partner’s venture firm has invested in — which could mean that they’re considered an entity with more than 500 employees.”

Maximum Loan Amount

The maximum loan amount is 2.5 times the average total monthly payments by the applicant for payroll costs incurred during the one-year period before the date the loan is made (calendar year 2019 is also accepted), with the final loan amount capped at $10 million. If an applicant was not in business from February 15, 2019, to June 30, 2019, the maximum loan amount is the lesser of the average total monthly payments by the applicant for payroll costs incurred from January 1, 2020, to February 29, 2020, multiplied by 2.5, and $10 million. No collateral or personal guarantee is required for a covered loan.

Payroll costs include employee salary, wages, and commissions; payment of cash tips; payment of vacation; parental, family, medical or sick-leave; an allowance for dismissal or separation; payment required for group health benefits (including insurance premiums); payment of retirement benefits; or payment of state or local tax assessed on employee compensation.

Payroll costs exclude all compensation of an individual person above the first $100,000 (noting our point above); federal employment taxes imposed or withheld taxes; compensation to an employee whose principal residence is outside of the U.S.; qualified sick leave for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act; and qualified family leave wages for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act.


Loans are available for up to a two-year term at 0.5 percent interest, with six months (and up to one year) deferral of principal and interest payments. Notably, certain SBA requirements are waived. Loans are available with:

  • No personal guarantees of shareholders, members or partners
  • No collateral
  • No proving recipient cannot obtain funds elsewhere
  • No SBA fees (may still have to pay lender processing fee)
  • No prepayment fees

Application Process

Eligible parties may file applications with an SBA-approved lender. Lenders have been delegated authority to make loans without SBA review. Eligible applicants will have been in operation on February 15, 2020, and will have paid employees and payroll taxes or independent contractors.

Applicants will need to certify that the loan is necessary, and will be used to retain workers and pay eligible expenses. Applicants will further need to certify that no other application for a loan for the same purpose is pending and that the entity has not received any other loan for the same purposes through December 31, 2020.

Loan Forgiveness

The forgiven amount will be equal to the amount actually paid for payroll costs, salaries, benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan. Additional wages paid to tipped employees may also be forgiven. At least 75% of the forgiven amount must have been spent on payroll costs.

The forgiveness amount is subject to reduction if there is a workforce reduction or a reduction in the salary or wages of an employee.

Reductions in workforce, salaries, and wages that occur from February 15, 2020, to April 26, 2020, will be disregarded for purposes of reducing the forgiveness amount so long as the reductions are eliminated by June 30, 2020.

Borrowers must apply for forgiveness with the lender servicing the loan and include documentation verifying:

  • The number of full-time equivalent employees on payroll and pay rates for the applicable periods, including payroll tax filings; and state income, payroll, and unemployment insurance filings; and
  • Payments on mortgage obligations, lease obligations and utilities, including canceled checks, payment receipts transcripts of accounts, or other documents.

We understand that the application process can be complicated and getting it right the first time is critical to avoid returning to the back of the line of applicants. If you need help with your application, please call us at 212 545 8022 or email


This Article Is One Of A Series Intended To De-Mystify Common Legal Issues For The Non-Lawyer And Entrepreneur Audience – They Are Designed To Foster Discussion And Is By No Means Exhaustive. These Materials Are For Informational Purposes Only. Nothing Herein Is Intended Nor Should Be Regarded As Legal Advice. The Distribution Of This Article To Any Person Does Not Establish An Attorney-Client Relationship With Our Firm. Rooney Nimmo Assumes No Liability In Connection With The Use Of This Publication. This Bulletin Is Considered Attorney Advertising Under The Applicable Rules Of New York State. Rooney Nimmo UK Is Regulated By The Law Society Of Scotland And Rooney Nimmo US By The New York Rules Of Professional Conduct. All Attorneys And Solicitors Listed In This Firm Stipulate Their Jurisdictional Limitations. Rooney Nimmo In The USA Is A Law Firm Registered As A New York State Professional Corporation.

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