Updated: Apr 4

March 28, 2020


To our Clients and Friends:

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act a $2.2 trillion stimulus package providing aid for individuals, States, small businesses, and businesses impacted by the coronavirus pandemic.

The CARES Act authorizes the Small Business Administration (“SBA”) to provide loan guarantees for up to $349 billion in loan commitments under the SBA’s 7(a) program, through a new “paycheck protection” loan program under which loans may be forgiven. This letter discusses how the SBA provisions in the CARES Act can provide much needed relief for small businesses during the Corona Virus pandemic.


The Loans may be used for a variety of purposes, including payroll costs, rents, utilities, mortgage interest (not principal), and interest on debt existing prior to February 15, 2020. A Portion of these loans may be forgiven at the discretion of the local bank implementing these SBA 7a loans under the CARES Act for the covered period of eight (8) weeks from loan origination. That means if the Banks can start originating these loans by mid to late April and distributing funds by May 1, 2020 the 8 week period would commence May 1, 2020 and end June 30, 2020. But remember the implementing rules have not been written yet. The SBA has 15 days to write the rules from the date the act was passed on March 27, 2020.

A very good article on the Paycheck Protection Loan Program in the National Law Review is located at the below link, and I have attempted to summarize the details of the program below



Eligible entities are those small businesses with less than 500 employees, and include the following entities

· Small Businesses (less than 500 employees).

· 501c3 Nonprofit organizations. In general, 501(c)(3) and 501(c)(19) non-profits with 500 employees or fewer as most non-profit SBA size standards are based on revenue, not employee number.

· Veterans Organizations

· Businesses in the Accommodation and Food Service industries with less than 500 employees

per physical location. Below is a list of Accommodation and Food Services industries (NAICS code72) that are covered.

· Hotels and Motels

· Casino Hotels

· Bed-and-Breakfast Inns

· All Other Traveler Accommodation

· RV Parks and Campgrounds

· Recreational and Vacation Camps

· Rooming and Boarding Houses, Dormitories, and Workers’ Camps

· Food Service Contractors

· Caterers

· Mobile Food Services

· Drinking Places (Alcoholic Beverages)

· Full-Service Restaurants

· Limited-Service Restaurants

· Cafeterias, Grill Buffets, and Buffets

· Snack and Non-Alcoholic Beverage Bars


Along with small business concerns, nonprofit organizations also are eligible to receive a covered loan. In general, 501(c)(3) and 501(c)(19) non-profits with 500 employees or fewer as most non-

profit SBA size standards are based on revenue, not employee number.


The CARES Act recommends that the SBA issue guidance to lenders to prioritize small businesses and entities in underserved and rural markets, including veterans and members of the military business concerns owned and controlled by socially and economically disadvantaged individuals, women and businesses in operation for less than 2 years.


A recipient of an SBA economic injury disaster relief loan made between January 31, 2020 and the date covered loans are available under the CARES Act, for a purpose other than paying payroll costs and other covered loan purposes described below, is still eligible for a covered loan.


Loans are available for the lesser of the average monthly payroll costs times 2 1/2 plus any Economic Injury Disaster loans (“EIDL”) received after January 31, 2020 that are refinanced under subsection 36 or $10 million. Average monthly payroll costs are calculated based on the one-year period prior to the loan disbursal date except for seasonal employers and employers not in business between February 15, 2019 and July 30, 2019.

In the case of seasonal employers, the employer may choose to calculate the average monthly payroll costs based on the 12-week period starting February 15, 2019 or the period starting March 1, 2019 through June 30, 2019.

In the case of new employers not in business between February 15, 2019 and July 30, 2019, the average monthly payroll costs is calculated based on the period beginning January 1, 2020 through February 29, 2020.

Payroll costs include: employee salary, wages and commissions; payment of cash tips; payment of vacation; parental, family, medical or sick-leave; allowance for dismissal or separation; payment required for group health benefits (including insurance premiums); payment of retirement benefits; or payment of state or local tax assessed on employee compensation; and sole proprietor income or independent contractor compensation not in excess of $100,000.

Payroll costs exclude: compensation of an individual person in excess of $100,000 (as prorated for the period); federal employment taxes imposed or withheld taxes; compensation to an employee whose principal residence is outside of the U.S.; qualified sick leave for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act; and qualified family leave wages for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act.


Loans are available for up to 10-year term (amortized) at 4% interest, with six months (and up to one year deferral of principal and interest payments. Notably, certain SBA requirements are waived. Loans are available with

· No personal guaranties of shareholders, members or partners

· No collateral

· No proving recipient cannot obtain funds elsewhere

· No SBA fees (may still have to pay lender processing fee)

· No prepayment fees


The CARES Act provides that proceeds of covered loans may be used for:

· Payroll costs;

· Continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums;

· Salaries or commissions or similar compensation;

· Interest on mortgage obligations;

· Rent;

· Utilities; and

· Interest on other outstanding debt.

The maximum loan amount is the lesser of the average total monthly payments by the applicant for payroll costs incurred during the one-year period before the date the loan is made multiplied by 2.5 and $10 million.


If an applicant was not in business from February 15, 2019 to June 30, 2019, the maximum loan amount is the lesser of the average total monthly payments by the applicant for payroll costs incurred from January 1, 2020 to February 29, 2020 multiplied by 2.5 and $10 million.


The forgiven amount will be equal to the amount actually paid for payroll costs, salaries, benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan. Additional wages paid to tipped employees under Section 3(m)(2)(A) of the Fair Labor Standard Acts may also be forgiven.

The forgiveness amount is subject to reduction if there is a workforce reduction or a reduction in the salary or wages of an employee.

· The amount attributable to a workforce reduction will be equal to the initial forgiven amount multiplied by the quotient of average FTEs during the eight-week period divided by the average FTEs for the period from February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020, as determined by the recipient

· The amount attributable to a salary or wage reduction will be the amount of any salary or wage decrease in excess of 25 percent of the total salary or wages during the most recent full quarter such employee was employed before the eight-week period. Only employees who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in excess of $100,000 are included in this calculation.

Reductions in workforce, salaries and wages that occur from February 15, 2020 to April 26, 2020 will be disregarded for purposes of reducing the forgiveness amount so long as the reductions are eliminated by June 30, 2020.

Borrowers must apply for forgiveness with the lender servicing the loan. Lenders have 60 days to review and make a determination. Any portion of the loan that is forgiven will be excluded from gross income.

How do you get forgiveness on your PPP loan under CARES Act?

You must apply through your lender for forgiveness on your loan. In this application, you

must include:

· Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.

· Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.

· Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.

The amount of loan forgiveness will be reduced by multiplying (1) the forgivable costs by (2) the quotient obtained by dividing (a) the average number of full-time equivalent employees per month during the covered period by (b) at the election of the borrower, (i) the average number of full-time equivalent employees per month from February 15, 2019 to June 20, 2019 or (ii) the average number of full-time equivalent employees per month from January 1, 2020 to February 29, 2020.

The amount of loan forgiveness will also be reduced by the amount of any reduction in total salary or wages of any employee during the covered period that is in excess of 25 percent of the total salary or wages during the most recent full quarter during which the employee was employed before the covered period.

There are exceptions for these reductions if, during the period beginning on February 15, 2020 and ending 30 days after enactment of the Act, there is a reduction in the number of full-time equivalent employees or salary and the reduction is eliminated no later than June 30, 2020.

If a covered loan has a remaining balance after the forgiveness described above, it will have a maximum maturity of 10 years and an interest rate not exceeding 4 percent. Lenders must defer payments under the loan for at least six months and up to one year


For purposes of determining the maximum loan amount, “covered period” means and eight-week period from loan origination (estimated at May 1, 2020) through June 30, 2020.

WHAT CAN YOU DO NOW? Apply for an SBA 7a loan under the CARES Act through your SBA approved lender bank. Ask your bank if they are going to participate in this new SBA loan program.

To seek loan forgiveness, an eligible business must submit an application to a lender participating in the SBA 7(a) program that includes:

1. Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the applicable periods, including payroll tax filings; and state income, payroll, and unemployment insurance filings; and

2. Documentation verifying payments on mortgage obligations, lease obligations and utilities, including cancelled checks, payment receipts, transcripts of accounts, or other documents.

We recommend that you start gathering that documentation now, while the banks get ready to make these loans. The banks are waiting for the SBA to issue implementing regulations.

The SBA must issue regulations within 15 days of enactment of the CARES Act without regard to notice and comment requirements. Hence, it is possible that lenders could begin taking loan applications as soon as mid-April.


Eligible entities may file applications with an SBA-approved lender. Lenders have been delegated authority to make loans without SBA review. Eligible applicants will have been in operation on February 15, 2020 and will have paid employees and payroll taxes or independent contractors.

Applicants will need to certify that the loan is necessary and will be used to retain workers and pay eligible expenses. Applicants will further need to certify that no other application for a loan for the same purpose is pending and that the entity has not received any other loan for the same purposes through December 31, 2020.


In early March of 2020, Congress passed an $8.3 billion appropriations measure to combat the effects of the coronavirus pandemic, the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020.

The Act allows the SBA to provide up to $1 billion in loan subsidies for economic injury disaster loans. This funding enables the SBA to provide an estimated $7 billion in economic injury disaster loans.

Additionally, the Act provides the SBA $20 million to cover the cost of administering these loans. Small businesses in all U.S. states and territories are currently eligible to apply for an economic injury disaster loan due to COVID-19.

The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million. Affiliation rules have not been waived in connection with determining the eligibility of participants in the Economic Injury Disaster Loan program.

Sarah Smyth McIntosh of Smyth McIntosh PS and Law Manzanita is available to assist with any questions you may have regarding developments related to the COVID-19 outbreak.

Sarah Smyth McIntosh regularly counsel clients on issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the her at directly at 360.352.0866 or sarah@smythmcintosh.com

© 2020 Smyth McIntosh PS

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

  • Sarah Smyth McIntosh

Senators Rubio and Collins are proposing a new law called the Continuing Small Business Recovery and Paycheck Protection Program Act (Where do they get these names?). Is the acronym going to be CSBR&PPP?

Although this proposed new law has not been passed by Congress yet, there is a high probability that it will be passed with bi-[artisan support.

Can you possibly borrow more under this new law?

New PPP loans will be allowed for past borrowers who meet the following criteria:

  1. The borrower must demonstrate that there has been at least a 50% reduction in gross receipts from January 1 to March 31st of 2020 or from April 1 through June 30th of 2020 as compared to gross receipts for the same period in 2019.

  2. The borrower must employ no more than 300 employees or meet an alternative size standard under SBA published guidelines

  3. The new loan cannot exceed $2,000,000 in most cases and cannot exceed $10,000,000 in the aggregate with other SBA loans approved in the last 90 days (including PPP loans)

Eligible entities must be businesses, certain non-profit entities, veterans organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors or small agricultural cooperatives

The loan amount for the second bite will be identical or almost identical to what the borrower received as an original PPP loan, based upon the most recent SBA regulations and pronouncements; however, the loan is capped at $2,000,000 rather than $10,000,000 and the combined loan amount cannot exceed $10,000,000 in the aggregate if another PPP loan was taken out within the last 90 days.

Therefore borrowers who already received large PPP loans in the first round may consider waiting until the 90 day period has passed to apply again.

Borrowers with loans under $150,000 will not be required to submit the previously issued application and may simply attest to a good faith effort to comply with the PPP loan requirements, but such attestation may be audited and reviewed by the SBA to ensure against fraud.

For loans between $150,000 and $2,000,000 borrowers will not be required to submit formerly required "lender documentation" but must certify the existence of the documentation and retain records and worksheets for 3 years after application for forgiveness is filed

The 8 to 24 week covered period during which a borrower has to spend sufficient amounts to receive forgiveness will now apply for a period of time selected by the borrower, which will start on the day after the borrower receives the funds and will end on the day selected by the borrower but no later than December 31, 2020.

Therefore a borrower can cut off the testing period before making a reduction in workforce which normally would have caused penalties to apply. As long as on the last day of the "covered period" the borrower is at its pre-February 15, 2020 level of employees than even if the borrower later reduces workforce, no penalties will apply.

The 60% test has been retained in this proposed new law. If 60% of the loan amount is NOT spent on payroll, group health insurance and pension contributions (collectively called "Payroll costs"), then the other "nonpayroll costs counted toward forgiveness will be limited so that a 60/40 proportion applies


$100,000 PPP Loan

Only $30,000 spent on payroll costs, then only $20,000 of other expenses will count toward forgiveness.

$30,000/0.6 = $50,000 - $30,000 = $20,000

The proposed new law will allow all past and future borrowers to use nonpayroll "forgivable expenses" besides just interest, lease payments and utilities allowed under the original CARES ACT, and include the following expenses regardless of whether they arise or have been increased as a result of COVID-19 virus and the economic crisis resulting therefrom:

1. Covered operations expenditures

2. Property damage costs

3. Covered supplier costs

4. Covered worker protection expenditures

Unfortunately, the costs to hire attorneys and CPAs to understand these rules are not a permitted expense. Also, the deductibility of the PPP forgivable expenses is not addressed in this proposed new law

  • Changing the forgiveness period for PPP loans from 8 weeks to 24 weeks

  • Extending the covered period for loans to December 31, 2020

  • Changing the restrictions limiting non-payroll expenses from 25% to 40%

  • Changing the loan maturity limit from 2 years to 5 years, and

  • Ensuring full access to payroll tax deferment

Full text of Paycheck Protection Program Flexibility Act of 2020 signed into law This past Friday June 5, 2020 is located at link below:

H.R.7010 - Paycheck Protection Program Flexibility Act of 2020

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