• Matt Crumpton, Esq.

How The CARES Act Helps Your Business With Free Money (Diving In To The Details: Part 2 of 3)



For those just joining us for this three-part series, in part one, we discussed a general overview of how almost every small business (under five hundred employees) qualifies for a CARES Act loan. In part three, I will cover frequently asked questions about the CARES Act payroll protection loans.

The CARES Act has officially been signed in to law as of Friday afternoon (which means all of the research I have done on it is not a total waste of time – hooray!). That also means it is time for you to get serious about diving in to the details of your business to see what the law does for you.

My focus within the CARES Act is on the most consequential part for small businesses – the payroll protection loans in Section 1100 of Title 1. That section provides emergency payroll protection loans of two and a half times the average monthly payroll costs for a business, which are fully forgivable if the rules are followed regarding how the money is spent in the first eight weeks after receiving it.

Before we jump in to the granular beauty that is Section 1100 of Title 1 of the CARES Act, here is a nifty framework to use to keep the big picture in mind:

Small Business Payroll Protection Loan Steps for Success

1. Determine your average monthly payroll cost and what the period of time is that you are averaging. Multiply that number times 2.5 to get your loan amount.

2. Gather documents to support your average monthly payroll costs.

3. Apply for loan.

4. Plan a budget for how you will spend all of the funds during the first 8 weeks on payroll, rent, mortgage insurance, or utilities.

5. Gather documents to support covered expenditures.

6. Apply for loan forgiveness.

Ok, now we can dive in…

Eligibility Standards

  • Includes any business with less than 500 employees and 501(c)(3) Non-Profits. Sec. 1102(a)(1)(D)(i)

  • Includes sole proprietors as long as they can provide 1099 forms and income and expense statement. Whether the 1099 forms are mandatory to have or whether they are just required to submit if you have them is not clear from the language of the text. The SBA Administrator will determine the details. Sec. 1102(a)(1)(D)(ii)(II)

Loan Process

  • In determining whether to issue the loan, the banks are only allowed to consider whether the business was in operation on February 15, 2020 (it must have been to get the loan) AND whether the business 1) had employees for whom the business paid salaries or payroll taxes OR 2) paid independent contractors reported through Form 1099. Sec. 1102(a)(1)(F)(ii)(II)

  • No loan fees.Sec. 1102(a)(1)(H)

  • No personal guaranties or collateral required! Sec. 1102(a)(1)(J)


  • Business owner must certify that all of the following are true: Sec. 1102(a)(1)(G)(i)

  1. The uncertainty of current economic conditions makes the loan necessary to support the ongoing business operations.

  2. Acknowledgement that funds will be used to retain workers, pay rent, mortgage payments, or utility payments.

  3. No other SBA loans pending for the same purpose. (But you can still get a SBA disaster loan for non-payroll purposes. Sec. 1102(a)(1)(Q))

Determining Which Monthly Periods To Consider For Average Monthly Payroll

  • General Rule = “average total monthly payments by the applicant for payroll costs incurred during the 1 year period before the date on which the loan is made” - Sec. 1102(a)(1)(E)(i)(I)(aa)(AA).

  • Seasonal Employers (definition to be determined by SBA) can choose either: the 12 week period beginning Feb 15, 2019 OR March 1, 2019 to June 30, 2019. Sec. 1102(a)(1)(E)(i)(I)(aa)(AA)

  • Businesses Not Open Prior to June 30, 2019 use January 1, 2020 to February 29, 2020. Sec. 1102(a)(1)(E)(i)(I)(aa)(AA)

Determining Your Payroll Costs

  • Payroll Costs = The sum of compensation that is

  1. Salary, Wage, Commission

  2. Cash or Tip Equivalent

  3. Paid Vacation, Parental, Sick or Family Leave

  4. Payments for Dismissal or Separation

  5. Health Care Benefit Payments

  6. State or Local Tax Assessed on Employee Compensation

  7. Payments to a Sole Proprietor or Independent Contractor “that is a wage, commission, income, net earnings from self-employment, or similar compensation” and not more than $100,000 in one year ($8,333 per month).

Sec 1102(a)(2)(A)(viii)

Refinance of Existing SBA Loans After January 31, 2020.

  • If you happened to get an SBA loan between January 31, 2020 and the date that loans become available under the CARES Act, that loan can be refinanced and rolled in to the loan amount. Sec. 1102(a)(1)(E)(i)(I)(bb).

Spending The Money In The 8 Weeks After Disbursement

  • Payroll costs (see definition above)

  • Payments of interest on mortgages incurred before Feb 15, 2020

  • Rent if the lease is signed before Feb 15, 2020

  • Utilities, which consists of electricity, gas, water, transportation, telephone, or internet access for which service began before Feb 15, 2020.

  • Interest on any other debt obligations incurred prior to February 15, 2020.

Sec. 1102(a)(1)(F)(i)


  • If you do not spend payroll protection loan proceeds on the above items, the loan is not forgivable to the extent that you don’t. If you use the loan for unauthorized purposes, the bank can require a personal guaranty. (Sec. 1102(a)(1)(F)(v)

To Optimize Loan Forgiveness Maintain The Same Number of Full Time Equivalents

  • Business must have the same number of full-time equivalent employees during Covered Period (8 weeks after loan disbursement) as during either 1) Feb 15-June 30, 2019 OR 2) January 1 – Feb 29, 2020. Otherwise, loan forgiveness is reduced by pro-rata percentage. Section 1106(d)(2)


Don’t Reduce Individual Employee Pay By More Than 25%


  • Salary to employees during Covered Period cannot be more than a 25% reduction of Salary during last quarter employee was employed. To the extend it is, loan forgiveness is reduced on a pro-rata percentage. Section 1106(d)(3)

Process For Loan Forgiveness

  • Application to lender who must decide within 60 days.

  • Documentation verifying:

  1. FTEs on payroll, payments, and pay rates including quarterly payroll tax filings

  2. State income, payroll, and unemployment insurance filings

  3. Mortgage, Rent, and Utility Payments

  4. A certification that the documents are accurate; the purpose of the funds were for payroll, rent, mortgage interest, or utilities.

  5. Other documents the SBA may request.

Section 1106(e)

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