CARES Act – Loan Program: Paycheck Protection for Small Businesses

A discussion of the full Coronavirus Aid, Relief and Economic Security (CARES) Act is available here.

Within CARES are a number of programs to assist businesses and keep workers employed during the Coronavirus pandemic and economic downturn. The Paycheck Protection Program designates $350 billion in federally guaranteed loans to qualifying businesses. Paycheck Protection Program loans can be forgiven when used to maintain payroll through June. The loan amount is based on payroll expenses along with mortgage interest, rent payments and utility payments, as described below. While additional federal guidance is pending, a quick summary of the Paycheck Protection Program loan follows:

Eligible Businesses

The Paycheck Protection Program offers loans for:

  • small businesses with fewer than 500 employees;
  • select types of businesses with fewer than 1,500 employees:
    • 501(c)(3) non-profits with fewer than 500 workers and
    • some 501(c)(19) veteran organizations;
  • self-employed, sole proprietors, independent contractors and freelance.

Special notes:

  • Businesses, even without a personal guarantee or collateral, can get a loan as long as they were operational on February 15, 2020 – which means not only in legal existence but paid salaries and payroll taxes (or in some instances independent contractors).
  • The 500 employee rule is determined on the physical location of the employee for businesses in the accommodations and food services industry (NAICS 72).
  • Employees includes all employees (whether full or part time).

Loan Forgiveness

Provided the business continues paying employees at normal levels during the eight weeks following the origination of the loan, then the amount spent on “payroll costs” (see below); continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums; salaries or commissions or similar compensation; interest on mortgage obligations; rent; utilities; and interest on other outstanding debt.


Start by speaking with your existing business lender. Applications for the Paycheck Protection Program loans will be administered through lenders, including banks and credit unions.

SBA applications, along with certain Finance Authority of Maine loan applications under the 7(a) SBA program can be found at: Loan Relief Programs

Loan Details and Benefits

The maximum loan amount under the Paycheck Protection Act is 2.5 x the borrower’s average monthly payroll costs – not to exceed $10 million, with an interest rate no higher than 4%.

  • Typical Borrower – the maximum loan amount is 2.5x the average total monthly payments by the applicant for “payroll costs” (as described in more detail below) incurred during the one-year period before the date on which the loan is made. If the borrower has received an “Economic Injury Disaster Loan” (EIDL), the Paycheck Protection Program loan amount may be increased (to exceed the 2.5x cap but not to include and refinance the amount of the EIDL).
  • Seasonal Employers – the maximum loan amount is 2.5x the eligible monthly payments of the borrower for payroll costs during the 12-week period beginning February 15, 2019 (or if elected by the borrower, March 1, 2019). Again, if the borrower has received an EIDL, the Paycheck Protection Program loan amount may be increased (to exceed the 2.5x cap) to include and refinance the amount of an EIDL.

“payroll costs” means:

  • For a borrower with employees — the sum of payments of any compensation with respect to employees (in an amount not more than $100,000 in one year, as prorated for the covered period) that is a:
    • salary, wage, commission or similar compensation;
    • payment of cash tips or equivalent;
    • payment for vacation, parental, family, medical or sick leave (unless a credit is claimed under the Families First Coronavirus Response Act);
    • allowance for dismissal or separation;
    • payment required for the provision of group health care benefits, including insurance premiums;
    • payment of any retirement benefit; or
    • payment of state or local tax assessed on the compensation of employees.
  • Sole proprietor or independent contractor — aggregate payments of compensation that is a wage, commission, income, net earnings from self-employment or similar compensation and that is in an amount not more than $100,000 in one year, as prorated for the covered period.

“payroll costs” that are excluded:

  • Employee compensation in excess of $100,000, as prorated for the covered period
  • Taxes imposed or withheld under the following Internal Revenue Code Sections:
    • Chapters 21 (Social Security and Medicare taxes, employee and employer portion)
    • Chapters 22 (railroad retirement tax)
    • Chapters 24 (Withholding obligations from employees
  • Compensation to non-US residents

In additional to payroll, loan proceeds can be used to maintain payroll or make mortgage, lease, and utility payments.

The US Chamber of Commerce prepared the following helpful borrowing guide for determining payroll costs and eligible loan forgiveness: US Chamber of Commerce Small Business Guide

COVID-19 Resources:

CARES Act Summary

Loan Relief Programs

Dealing with Debt: COVID-19’s Effect on Foreclosures, Bankruptcy, and Collections

Maine Employer Update

Families First Corona Virus Response Act

Tax Advisory Credit

Municipal Response

COVID-19 and the Construction Industry

Delays and the AIA Owner – Contractor Agreements

Essential Businesses – Construction Industry

These materials have been prepared for general informational purposes only and are not intended as legal advice.