Paycheck Protection Program

Last updated on June 23, 2020

Legislation passed last week changed many of the original terms of the PPP loans.

– Originally, employers had 8 weeks to spend the money on qualified expenses to receive full forgiveness and this must be completed by June 30. New legislation gives employers 24 weeks and until December 31.

– Payroll expenditures have been lowered from 75% to 60%. The Treasury Department has stated that the 60% payroll cost threshold is not a cliff but rather a cap. If a borrower uses less than 60% of the loan amount for payroll, the borrower will be eligible for partial forgiveness.

– New borrowers have up to five years to repay instead of two. Existing PPP loans can be extended up to five years if the lender and borrower agree. Interest rate remains at 1%.

Historical Context
Small businesses and sole proprietors affected by the coronavirus pandemic can apply for loans under the federal Paycheck Protection Program (PPP) beginning Friday, April 3. Independent contractors and self-employed individuals can apply beginning Friday, April 10.

Loans can be for up to 2 1/2 months of your average monthly payroll costs from the last year plus 25%. If you are a new or seasonal business, you will use different applicable time periods for your calculation.

The application can be found on the Treasury site (, search “application paycheck protection program”). The Treasury is urging those in need of funding to apply quickly, noting that the program has a cap and demand is likely to be high.

Loan forgiveness is based on the employer’s maintaining or quickly rehiring employees and maintaining salary levels; forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease. The funds can also be used to pay interest on mortgages, rent, and utilities. At least 75% of the forgiven loan amount must be used for payroll.

An employer who receives a loan under the program is not eligible to also claim an employee retention credit under the CARES Act. The employee retention credit gives eligible employers whose business operations are fully or partially suspended due to the COVID-19 pandemic a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.