March 26, 2020

CARES Act – Paycheck Protection Program

Ian S. Macdonald is a shareholder in the firm’s Tallahassee office. Ian’s practice focuses primarily on business and real property disputes.

CARES Act – Paycheck Protection Program

TALLAHASSEE (March 26, 2020) –

On March 25, 2020, the U.S. Senate unanimously passed a bill known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  It is expected that the House of Representatives will pass the bill on March 27, 2020, and send it to the President for signature.  

The CARES Act supplements and expands the Small Business Act (SBA) through the Paycheck Protection Program (PPP).  The PPP guarantees loans to small businesses, a portion of which may be forgiven if used for certain payroll and operating costs during the current pandemic.  The amounts otherwise subject to forgiveness can be reduced for businesses who either lay off or substantially reduce employees’ pay.


Loans under the PPP are typically offered through local financial institutions and are available to “small business concerns” as defined under the Small Business Act.[1]  The PPP also expands its loans to any business, nonprofit, veterans organization, or Tribal business concern if it employs no more than 500 employees, as well as to many sole proprietorships and independent contractors.[2]

The PPP does not require that a small business concern first be unable to obtain credit outside of the SBA loan program.  It remains unclear how, or if, SBA lenders will apply the “credit elsewhere” test to businesses otherwise eligible for PPP loans that are not small business concerns.


One particular term used throughout PPP that requires careful consideration in evaluating the needs of your business is “Payroll Costs.”  Payroll costs means:

All compensation of employees (salaries and benefits), excluding:

  • Compensation of an employee in excess of a $100,000.00 annual salary, prorated for the period between February 15, 2020, and June 30, 2020
  • Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code between February 15, 2020, and June 30, 2020
  • Compensation to employees residing outside of the United States
  • Sick and family leave wages for which credit is allowed under the Families First Coronavirus Response Act

Borrowing Limits:

The amount available to any eligible business will be the lesser of:

  • 5 x Average total monthly “payroll costs” for the 1-year period prior to the loan, + the outstanding balance of any disaster loan through the SBA that was made between January 31, 2020, through the date that the PPP loan is eligible to be refinanced[3];


  • $10,000,000.00.

Permissible Uses (between February 15, 2020 and June 30, 2020):

  • Those already allowed under SBA section 7(a) loans
  • “Payroll Costs”
  • Group Healthcare Benefits[4]
  • Salaries and Commissions
  • Interest Payments on Mortgage Obligations
  • Rent
  • Utilities
  • Interest paid on any other debt incurred prior to February 15, 2020


  • No personal guarantee or collateral
  • No recourse against shareholders, members, or partners unless they use funds for an unauthorized purpose
  • No origination fee
  • No annual fee between February 15, 2020, and June 30, 2020
  • Interest rates no higher than 4.0% between February 15, 2020, and June 30, 2020
  • 6 to 12 month complete payment deferment for most eligible businesses

Loan Forgiveness:

  • Available for expenditures made during the 8-week period beginning the date of loan origination, for:
    • “Payroll costs”
    • Mortgage Interest: Interest payments on mortgages secured by real or personal property arising in the regular course of business before February 15, 2020.
    • Rent: For leases agreements in force before February 15, 2020.
    • Utilities: Electric, Water, Gas, Transport, Telephone and Internet if service began before February 15, 2020.
  • Forgiven amount is excluded from gross income

Reductions in Forgiveness:

The PPP seeks to incentivize businesses to retain employees and maintain their wages during the COVID-19 pandemic.  The PPP contemplates that employers of tipped workers may receive forgiveness of loan proceeds used to pay those workers higher wages during the covered period.

  • Retaining Employees:
    • Amount eligible for forgiveness will be limited to the product of that amount times:
      • the average number of full time equivalent employees per month during the 8-week period following the loan,
      • Divided by, either, at the election of the business, the average number of full time equivalent employees per month
        • Between February 15, 2019, and June 30, 2019[5]; or
        • Between January 1, 2020, and February 29, 2020.
  • Maintaining Salary and Wages:
    • Amount eligible for forgiveness will be reduced by any decrease in salary or wages in excess of 25% during the 8-week period following the loan compared to the preceding quarter for any employee who did not receive salary or wages in any 2019 pay period that would equate to over $100,000 on an annualized basis.
  • Exemption for Re-Hires:
    • Employers who re-hire employees or return their wages to prior levels prior to June 30, 2020, will not be penalized for the reductions arising between February 15, 2020, and 30 days after enactment of CARE.

Loan Forgiveness Documentation:

  • Businesses seeking to take advantage of the loan forgiveness provisions will have to make an application to their lender and should ensure that they have at least:
    • Verification of employees and pay rates by way of payroll tax filings, unemployment insurance filings, and other documentation; and
    • Evidence of mortgage interest, lease and utility payments.
  • The appropriate business representative will also be required to certify that the above documentation is true and correct and that the amount sought to be forgiven was used for the outlined purposes.

Download a printable PDF of CARES Act – Paycheck Protection Program

[1] Information to determine if your business is a “small business concern” can be found at:
[2] The Small Business Administration may allow for a greater number of employees and may calculate the number per physical location for certain industries.  The PPP also includes certain business affiliations that may not otherwise qualify for SBA loans.
[3] Otherwise eligible seasonal businesses and those not in operation between February 15, 2019, and June 30, 2019, are subject to different calculations.
[4] Includes insurance premiums and continuation of benefits during periods of paid sick, medical or family leave.
[5] This period must be used for seasonal employers.


Ian S. Macdonald is a shareholder in the firm’s Tallahassee office. Ian’s practice focuses primarily on business and real property disputes. Ian represents title insurers and their insureds as well as individuals and businesses to identify and resolve impairments to their property. Ian represents a range of creditors including financial institutions and small businesses in and outside of bankruptcy proceedings. His practice is also focused on probate litigation and representing his clients in all manner of disputes arising from wills, trusts, estates and powers of attorney. Contact Ian at (850) 320-6825 or

About Clark Partington:

Clark Partington is the largest business focused firm in the Florida panhandle with offices in Pensacola, Destin, Grayton Beach & Tallahassee.  The firm also maintains a presence in South Alabama with an Orange Beach office.  Since 1976 Clark Partington has grown to over forty lawyers and has served the people and businesses of Florida through an innovative and collaborative approach to practicing law.  Our lawyers are consistently recognized for their service to the profession and excellence in the courtroom.  More information about the firm’s practice, its attorneys, and recognitions may be found at