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Small Business Administration Announces Access to Emergency Relief Loans (Updated April 6, 2020)

The Small Business Administration (SBA) announced on March 31, 2020, that small businesses and sole proprietorships may apply for Paycheck Protection Program (PPP) loans authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act starting Friday, April 3, 2020. Independent contractors and self-employed individuals may begin to apply for such loans starting Friday, April 10, 2020. 

The CARES Act was passed by Congress and signed into law last week to provide emergency relief to American businesses in the wake of the disruptions caused by the COVID-19 pandemic. Among its most notable provisions, the CARES Act establishes the PPP, which will:

  • Enable small businesses to borrow up to $10 million that may subsequently qualify for forgiveness

  • Provide additional funding for the Economic Injury Disaster Loan (EIDL) program, pursuant to which certain businesses may qualify for loans of up to $2 million

  • Authorize grants of up to $10,000 for EIDL loan applicants. 


The interim final rules contain two changes to the information provided in the original alert. The SBA:

  • Announced that the interest rate on PPP loans would be 1.0% per annum (not the 0.5% per annum previously reported).

  • Clarified that repayments on such loans would be deferred for six months.

PPP Loans

Businesses and individuals may apply for PPP loans through any existing SBA lender or through any federally insured depository institution, federally insured credit union, Farm Credit institution or other regulated lender that is participating in the program. The SBA recommends consulting with local lenders to determine whether they are participating. A list of SBA lenders can be found at

A form application for PPP loans can be found at Applications must be submitted to a participating lender, not the SBA. Loan applications must be submitted and processed prior to June 30, 2020. 


Businesses with 500 or fewer employees generally will be eligible to apply for PPP loans (with some exceptions for businesses with more employees in the hospitality and foodservice industries). The 500-employee threshold applies to all employees whether full-time, part-time or any other status, and SBA affiliation rules typically apply when counting employees. Passive business investments, gambling businesses, private clubs or businesses that limit membership for reasons other than capacity, religious organizations and other businesses listed in 13 CFR § 120.110 generally are not eligible for PPP loans. 


As part of the application, borrowers will be required to certify in good faith the following:

  • Current economic uncertainty makes the loan necessary to support ongoing operations.

  • Borrowed funds will be used to retain workers and maintain payroll or make mortgage, lease or utility payments.

  • Borrower will provide lender with documentation verifying the number of employees, payroll costs, and covered mortgage, lease or utility payments for eight weeks after receipt of the loan. 

Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage, lease or utility payments. However, the SBA advised that due to expected subscription, it anticipates that no more than 25% of the amount of forgiven loan principal may be allocated to non-payroll costs. 

No collateral and no personal guarantees will be required in connection with PPP loans. 

Terms and Amount

PPP loans will mature after two years and accrue interest at an annual rate of 0.5%. Proceeds of the loans may be used to cover “payroll costs,” group health care benefit costs and insurance premiums, mortgage interest payments, rent, utilities and interest on debt existing prior to February 15, 2020 (Qualifying Expenses). Payroll costs include wages, commissions, salaries and similar compensation (provided that prorated compensation in excess of $100,000 annual salary will not be included as a payroll cost), federal payroll and income taxes, and certain sick leave and family leave wages. 

The maximum total principal amount of a PPP loan will be the lesser of (a) $10 million or (b) the sum of two and one-half (2.5) times the business’s average monthly “payroll costs” during the year prior to the closing of the loan (subject to adjustment for seasonal workers) plus EIDL loans received after January 31, 2020, that are refinanced as PPP loans. 

Extension and Forgiveness

The CARES Act provides for a possible deferment of repayment of PPP loans for a period of at least six months but not more than one year. The Act also provides for the forgiveness of a portion of the principal of PPP loans on a tax-free basis for federal income tax purposes (states have not yet announced whether they will offer a similar exemption). The amount forgivable will equal the sum of Qualifying Expenses paid with loan proceeds during the eight-week period following the date of the loan less 25% of the amount that payroll expenses were reduced during that eight-week period as the result of wage or salary cuts or the layoff or furlough of employees. However, the SBA has advised that due to expected subscription, it anticipates that no more than 25% of the amount of forgiven loan principal may be allocated to non-payroll costs. 

EIDL Loans and Grants

EIDL loans, like the PPP loans, are generally available for businesses with 500 or fewer employees and the proceeds of such loans may generally be used for similar purposes. However, EIDL loans differ from PPP loans in several important ways. The maximum amount of EIDL loans is $2 million with a maximum term of 30 years. Borrowers apply directly to the SBA for such loans, for which the interest rate was 3.75% as of March 12, 2020. There is no provision for forgiveness of principal of EIDL loans. However, businesses that have secured EIDL loans may refinance such loans with PPP loans. 

Businesses that apply for EIDL loans also may request a grant of up to $10,000 from the SBA. Such funds must be used to maintain payroll to retain employees or pay sick leave resulting from the COVID-19 pandemic, make rent, lease or mortgage interest payments, repay obligations that cannot be met due to revenue loss or satisfy increased materials costs resulting from supply chain interruption. Award of the grant is not dependent on approval of the loan.

© 2020 Wilson Elser


About this Author

William Behr Corporate Finance Attorney Wilson Elser

Will Behr concentrates his practice on mergers and acquisitions, corporate finance, commercial transactions and securities offerings, working with clients to manage their risks in an efficient manner and anticipate issues before they arise in order to minimize liability.

Will counsels companies at all stages of their evolution – from business creation to day-to-day governance to liquidation and dissolution. He has advised clients in operational, strategic, extraordinary corporate governance and commercial matters, including business combinations, recapitalizations and...