CARES ACT Significant SBA Loans That May Be Forgiven In Whole Or In Part

Written By: David T. Azrin Jay L. Hack Jared B. Foley Beatrice Lesser Kyle G. Kunst Craig S. Tarasoff

businessperson offering and giving money

The Payroll Protection Program, or PPP, is a new Small Business Administration (SBA) loan program that will provide loans to small businesses and individuals that may not have to be paid back. Here are some FAQs.

Do I qualify?
Businesses or nonprofits with 500 or fewer employees qualify if current economic conditions require that you obtain the loan to support ongoing operations.

Self-employed or independent contractor?
You qualify.

How much can I borrow?
Approximately 2.5 times average monthly payroll costs during the 12 months before the loan closes, or a shorter period if you have not been in business for a year, excluding any salary over $100,000 per person per year. Health insurance and some other benefits are part of payroll costs.
Example: If your average payroll costs over the past year were $50,000 per month, including health benefits but not the portion of any person’s salary that exceeded $100,000, then you can borrow $125,000.

Interest rate?
No more than 4%. No interest or principal payments or loan fees for at least six months. You only have to pay interest on the amount which is not forgiven.

What can I use the loan for?
Salaries and other payroll costs, certain health care benefits, mortgage interest, rent, utilities, and interest on other debt incurred prior to February 15, 2020.

Who is the lender?
Banks or other lenders approved to make SBA loans.

Does the lender worry about risk?
Not much, because the SBA is giving a 100% guarantee.

Personal guarantee?
No, so long as you use the loan proceeds for permitted purposes.


Loan fees?
None to the SBA, and the SBA pays origination fees to your bank, so bank fees should be minimal or nonexistent.

Do I have to pay the loan back?
That part of the loan proceeds you spend on permitted expenses during the eight-week period after the loan is made may be forgiven. If this amount equals or exceeds the full amount of the loan, then the entire loan may be forgiven, and you do not have to pay back any of the money. You may lose part of the forgiveness if you reduce salaries or fire employees. Also, your initial payments for the first 6-12 months are deferred.

How may the amount of my loan forgiveness be reduced?
Two ways, fewer employees or reductions in salary.

Fewer employees. The average number of full-time equivalent employees per month from February 15 through June 30, 2020 may not be less than the average during one of two periods, either (your choice) February 15 to June 30, 2019 or January 1, 2020 to February 29, 2020. If less, there is a pro-rata reduction in loan forgiveness. A layoff made any time from February 15 to April 26, 2020, does not count against you if you rehire or replace the discharged person by June 30, 2020.

Reductions in salary. Although this section in the law is not clear because it appears there was an error in drafting, we believe the intent was that any salary reduction of more than 25% for an employee earning less than $100,000 results in a dollar for dollar reduction in loan forgiveness. A salary deduction made anytime from February 15 to April 26, 2020 which exceeds this amount will not count against you if you restore the pay reduction by June 30, 2020.

  • Example A: Assuming you borrow $100,000, you do not lay off any employees, and you do not reduce the pay of any employees making less than $100,000 by more than 25%, then the entire loan may be forgiven.
  • Example B: Assuming you borrow $100,000, you reduce your staff by 10% and you reduce the wages of the remaining employees (all who make less than $100,000) by 50%, then you would lose $10,000 ($100,000 x 10%) (for the staff reduction) plus $22,500 ($90,000 x 25%) (for the salary reduction in excess of 25% for the remaining 90% of the workforce) of the forgiveness amount, so you would have to pay back $32,500.

Does the lender lose money on the amount of the forgiveness?
No. The SBA reimburses the lender.

Will the amount of the loan forgiveness be taxable? 
No. The loan forgiveness is not considered taxable income. 

What about any part of the loan that is not forgiven?
You must repay it with a term of up to 10 years.

When will the loans be available? 
Hopefully soon. Banks will likely not start offering the loans until the SBA issues regulations, which it is required to do within 30 days. Then, after you apply with the required documentation, the loan processing time may depend on the bank processing procedures and underwriting requirements.

What should I do to apply? 
Contact your bank immediately to see if it will be offering these loans and start the loan application process. Contact us to assist you in locating a bank making such loans or with the loan application process.
You probably have other questions. Answers must await SBA regulations, expected in the next 15 to 30 days. Clients interested in PPP loans can work with us and be ready to apply once the banks start accepting applications.

about the authors

Beatrice Lesser


For more than 20 years, Ms. Lesser has been counsel to numerous co-ops and condos, individuals and businesses, landlords and tenants, and homeowners associations. Ms. Lesser has been advising them regarding all aspects of litigation in real estate law, contracts, leases, discrimination, restrictive covenants, Loft Law, and other related issues.

View Profile