Ithi Joshi headshotBy Cherylyn Harley LeBon and Ithi Joshi

Lebon is a partner and Joshi is an associate for Dunlap Bennett & Ludwig, practicing out of the Tysons Corner office.


[Apr. 10, 2020 Tysons Corner]   Over 30 million small businesses are the backbone of the U.S. economy, yet many of them will barely survive the COVID-19 pandemic. The U.S. Senate approved the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) and President Trump signed a $2 trillion stimulus package into law on March 27, 2020, in an effort to provide emergency relief to millions of businesses across the country and break the wave of business failures that will result from the shutdown of our economy.

A key component of the CARES Act is the Paycheck Protection Program, a $350 billion loan forgiveness program administered by the Small Business Administration (“SBA”) that incentivizes small businesses to retain their employees through the COVID-19 crisis.  The Paycheck Protection Program (the “PPP”), which is administered through the traditional SBA 7(a) program, provides small businesses with funds to pay up to eight weeks of payroll costs. If you are a small business owner, it is likely that you have already been adversely impacted by the pandemic. Here are the Top 10 things you need to know to receive a PPP loan:

  1. All small businesses with fewer than 500 fulltime employees in federally declared disaster areas can apply for the PPP loans. (All 50 states, District of Columbia, and five territories have been deemed disaster areas.) Nonprofits and veteran organizations can also qualify for loans. The small business or entity must have been in operation on February 15, 2020, to qualify.
  2. Independent contractors are not included for purposes of the 500 fulltime employee count. (See below for information on how independent contractors and self-employed individuals can apply separately.) Businesses with more than 500 employees are eligible in certain industries; so far, the SBA has made exceptions for the hospitality and food and beverage industries.
  3. Lenders will not run standard credit checks when approving loans under the PPP. No collateral or personal guarantees are required. Moreover, the existing debt of a small business does not impact its eligibility for the loans.
  4. A business owner show receives a PPP loan that can only use it to maintain payroll costs, keep workers on the books, make rent or mortgage interest payments, and/or cover utility expenses. The payroll costs can include any benefits an employee receives, such as health insurance, retirement, and/or paid leave.
  5. A business can borrow up to 2.5 times its average monthly payroll cost during the last 12 months. Note that the loan amount through the PPP is capped at $10 million and excludes the coverage of annual employee salaries that exceed $100,000. Payroll costs are capped at $100,000 on an annualized basis per employee. A salary in excess of $100,000 cannot be included in the calculation of a business’s average monthly payroll.
  6. The PPP loan has a 1% interest rate and a two-year maturity date. All interest payments are deferred for six months, but loan payments will only be due if a business uses the loan amount for anything other than payroll costs, mortgage interest, rent, and utility payments over the eight weeks after receiving the loan.
  7. The loan will be forgiven if:
    1. 100% of the loan is used to cover payroll costs (wages, mortgage interest, rent, or utilities) for an eight-week period after the loan is made;
    2. No more than 25% of the loan amount is used for non-payroll costs; and
    3. Employee and compensation levels are maintained and remain unchanged through the end of June. Forgiveness will be reduced if an employee’s wages are cut by more than 25% for the eight-week period ending on June 30, 2020, or if the rehiring of employees is not completed by the end of June.
  8. Small businesses should apply for funding as soon as possible because the $350 billion is being allocated quickly. The SBA started accepting applications on April 3, 2020, and will continue until June 30, 2020. On April 10, self-employed individuals, sole proprietors, and independent contractors can also apply for funding. Here is a link to the PPP application:
  9. Businesses can apply for the loan through existing SBA certified 7(a) lenders, FDIC members banks, and federal credit unions. The SBA is currently certifying additional lenders to meet increased demand; for an up-to-date list of SBA certified lenders, please see
  10. In order to apply for funding through an approved lender, start gathering documents that can show the number of full-time employees on the payroll, the dollar amounts of payroll costs, mortgage interest payments, rent payments, and utilities for the eight-week period after the loan is made.

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Posted in: Business Law

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