How to Apply for a Forgivable Small Business Loan: The CARES Act

Paycheck Protection Program

NOTE: The deadline to apply is June 30th, 2020.

The CARES Act includes the Paycheck Protection Program (PPP). This program offers $349 billion in Small Business Administration (SBA) loans for businesses with 500 or fewer employees.

SBA approves loans for small businesses based on a number of factors, including business collateral, personal guarantees by the borrowers, and the credit score of the company owners. PPP loans, however, have different requirements.

The federal government is providing loan guarantees to lenders, so that banks are not exposed to loan default risk.


Businesses of all types (corporations, sole proprietors), and professionals who work as independent contractors, can apply for PPP loans. Your business must have been operating as of February 14, 2020 to apply. Here are some other details:

  • Business with 500 or fewer employees can apply.
  • The owner must certify in the application that the uncertainty of economic conditions makes the loan necessary to continue operations during the pandemic.
Here are more details on the statements that you must certify:

What you must certify

  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
  • You have not and will not receive another loan under this program.
  • You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities.
  • All the information you provided in your application and in all supporting documents and forms is true and accurate.
  • You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS.
You can find more details regarding PPP loans in this fact sheet. Here are some details regarding the amount of your loan:

  • Eligible small businesses can borrow up to $10 million.
  • The maximum loan amount is based on the business’s average total monthly payroll costs for the prior 12 months, multiplied by 2.5.
  • The loan will cover payroll up to $100,000 per worker.
The loan program is designed to cover business costs for eight weeks. If you’re approved for a loan, your business must submit payroll data and other records to the lender during the eight-week period.

Use of loan proceeds

The loan proceeds must be used to fund payroll, rent or mortgage payments, interest on debt, and utility payments. Here are more details on the use of your loan proceeds:

  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020.

Payroll costs

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave (more sick leave details below); allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Sick leave

The CARES Act expressly excludes qualified sick and family leave wages that relate to the new refundable tax credit. If you’re using the tax credit, these wages are not included in the loan forgiveness total.

There is a separate law that offers a tax credit or these sick and family leave wages. Learn more about the FFCRA’s Paid Sick Leave Refundable Credit here, and consult with a tax accountant regarding the credit.

If you stay within loan requirements, the loan balance will be forgiven and does not to be repaid.

Loan forgiveness

The goal is to encourage business owners to keep all employees on staff and pay their salaries during the eight-week loan period. However, if you use the loan to pay expenses that are not within the loan requirements, those dollars will have to be repaid.

Requirements to request loan forgiveness

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.

  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

How can I request loan forgiveness?

You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations.

You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

Terms of the loan

Here are the terms for any portion of the loan that must be repaid:

  • You have up to two years repay the loan, and there are no prepayment penalties or fees if you repay the loan at a faster rate
  • Interest rate of 1%
  • First payment deferred for six months after approval
  • 100% guarantee by the SBA
  • No collateral or personal guarantees from borrowers
  • No borrower or lender fees payable to the SBA
Here are the steps to apply for a PPP loan.

How to apply

Step 1: Contact your bank, and ask the institution if they are participating as an SBA lender for the PPP program. If the bank is not participating, ask people in your business network for a referral to another lender. This SBA link allows you to search for lenders that are currently accepting PPP loan applications.  

*Many big banks are reporting that they have stopped taking new applications. There are many non-bank lenders available and borrowers have reported good luck with them. You can only accept one loan, but you can apply with multiple lenders to improve your chances.

Suggested Paycheck Protection Program Loan Servicers


Step 2: Complete the SBA’s Paycheck Protection Program sample application and submit the document to any SBA-approved lender. (The above lenders have an online version of this)

Step 3: Gather your records for the past 12 months, including payroll information, rent or mortgage costs, and utility expenses.

Take action now and get your application in as soon as possible.

The total dollar amount of loans available is limited, and you need to start the process to get your loan in the system. Use the benefits of the PPP loan program to fund your business during this financial crisis.

*As of April 27th new applications are being accepted, but with limited funding you should apply as soon as possible to secure a loan.

Ken Boyd


Ken Boyd

Ken spent over 15 years working as a Certified Public Accountant (CPA) and has authored several books on accounting, including ‘Cost Accounting For Dummies’. He blogs and provides video content at

This article is for informational purposes only and East West TCM Supply does not make any guarantees to its accuracy as each individual’s financial situation is unique. We recommend that you hire a certified public accountant or contact the Small Business Administration for guidance. We may get a referral fee to services or products linked to from this article.

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