Andrew Wan, CPA, CFE, is the leader of our Emerging Markets and Small to Medium Sized Business Practice Groups. He is an expert in IT auditing services and compliance issues for a wide range of companies.

UPDATED: 4-9-2020



What type of entities are allowed for Paycheck Protection Program (PPP) Loans?

These loans apply to small businesses that were in operations on February 15, 2020. According to the CARES ACT, “Small Business Concerns, any business concerns, nonprofit organizations [501(c)(3)], veterans organization [501(c)(19)], or Tribal business concern described in section 31(b)(2)(C) [of the Small Business Act] shall be eligible to receive a covered loan if the business concern, nonprofit organization, veterans organization, or Tribal business concern employs not more than the greater of— ‘‘(I) 500 employees; or ‘(II) if applicable, the size standard in number of employees established by the Administration for the industry in which the business concern, nonprofit organization, veterans organization, or Tribal business concern operates.”

In other words, the following businesses would qualify:

  • Generally, businesses with fewer than 500 employees
  • Small businesses as defined by the Small Business Administration (SBA) Size Standards at 13 C.F.R. 121.201.
  • 501(c)(3) nonprofits, 501(c)(19) veteran’s organization, and Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees.
  • Hotels, motels, restaurants, and franchises with fewer than 500 employees at each physical location without regard to affiliation under 13 C.F.R. 121.103.
  • Businesses that receive financial assistance from Small Business Investment Act Companies licensed under the Small Business Investment Act of 1958 without regard to affiliation under 13 C.F.R. 121.10.
  • Sole proprietors and independent contractors.

Small businesses in the hospitality and food industry with more than one location could also be eligible if their individual locations employ less than 500 workers.

However, certain businesses will not be eligible due to the exclusions provided by 13 C.F.R. 121.110 and described further in SBA’s Standard Operating Procedures (SOP) 50 10. These businesses may include but are not limited to:

  • Financial businesses primarily engaged in the business of lending, such as banks, finance companies, and factors (pawn shops, although engaged in lending, may qualify in some circumstances)
  • Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except Eligible Passive Companies under § 120.111)
  • Life insurance companies
  • Businesses located in a foreign country (businesses in the U.S. owned by aliens may qualify)
  • Pyramid sale distribution plans
  • Businesses deriving more than one-third of gross annual revenue from legal gambling activities
  • Businesses engaged in any illegal activity
  • Businesses which restrict patronage (e.g. men’s and women’s health clubs, etc.)

What if my business owns or are owned by a Company that has multiple small businesses, do I have to combine all those businesses to determine if I am over 500 employees?

The answer is yes. SBA issued a clarification on affiliation rules on April 3, 2020. In order to determine if an entity has less than 500 employees to be eligible for PPP, the businesses must aggregate all of their affiliates’ employees to determine if they qualify. Guidance can be found here. It mentions 4 tests that a company must complete to determine if they qualify as a small business. These tests includes the following:

Tests 1: Affiliation based on ownership – “individual, concern, or entity that owns or has the power to control more than 50 percent of the concern’s voting equity”.

Test 2: Affiliation arising under stock options, convertible securities, and agreements to merge. – “SBA treats such options, convertible securities, and agreements as though the rights granted have been exercised” unless the probability of these rights are extremely remote. Agreements to open or continue negotiations towards the possibility of a merger or a sale of stock at some later date is not considered to be in effect, thus are excluded from this test.

Test 3: Affiliates based on management – If a CEO or President, board member that controls the board, or other individuals that has control of the entity also has control of another organization, those organizations which that individual has control are also considered as affiliates. “Affiliation also arises where a single individual, concern or entity controls the management of the applicant concern through a management agreement”

Test 4: Affiliation based on identify of interest – A close relative (defined by 13 CFR 120.10 as a spouse, a parent, a child or sibling, or the spouse of any such person), has identical or substantially identical business or economic interests (such as where the close relative operates a business in the same or similar industry in the same geographic areas).

What if I am a non-profit that is affiliated with another non-profit mainly based on our faith?

SBA specifies in its clarification on April 3, 2020 that the “relationship of a faith-based organization to another organization is not considered an affiliation with the other organization if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.”

Do independent contractors count as employees?

No, independent contractors will have to file their own PPP loan.

Are non-profits eligible for these loans?

According to the CARES Act, Section 1102, PPP is available for non-profits which are 501(c)(3) and 501(c)(19). All other non-profits should look at Economic Injuries Disaster Loans (EIDL) loans which expands availability for all private non-profits (i.e. 501(c)(d), or (e)).

Can I apply for both PPP and EIDL at the same time?

Yes, however, the forgiveness of loans may be adjusted based on the amount of the awards. Additionally, qualified expenses cannot be used for the expenditure of both loans (no double dipping). If you already have an EIDL loan, you could refinance it into a PPP loan which helps maximize the amount that may be forgiven.

Are PPP loans first come first served?

Yes. There is also a limited amount of money so we encourage businesses to apply with their SBA lender soon.

What if I don’t qualify for PPP or EIDL, is there any additional relief?

The CARES Act (Sec. 4003) does discuss assistance for Mid-Size Loan Program. However, these type of loans are largely undefined at this time. Additionally, you may look to the Employee Retention Credit or Defer Payroll Taxes for additional relief.

Loan Information

How much can I borrow?

The maximum loan amount is the lesser of $10 million or 2.5 times of your monthly average payroll.

Are there fees associated with these loans?

The origination fees are paid by the government. Therefore, the applicant has no upfront fees associated with these loans.

How long are the deferments?

These loans are deferred for six months automatically following the date of disbursements of the loan. The Act does allow for these loans to be deferred up to a year but this is not the case of the loans that will be issued at this time.

Does the PPP cover the owner’s salaries?

Yes, but only up to the maximum of $100,000. Anything in excess of $100,000 is not covered by the loan.

I am a sole practitioner and only make withdrawals for my payment, how does PPP look at those type of salaries?

PPP considers wages, commissions, income, or net earnings of independent contractor or sole proprietors as payroll costs.

I have been seeing different interest rates. What is the true interest rate for these loans?

The Act sets at cap for these loans at 4%. However, during the time of its availability, it can vary significantly. The most current information based on the SBA’s clarification issued on April 2, 2020, the current market rate is 1%.

How long are the maturities for these loans?

The Act sets a maximum maturity of these loans of 10 years. However, during the time of its availability, these can also vary. The most current information based on the SBA’s clarification issued on April 2, 2020, the current maturity rate is 2 years.

Are there any prepayment penalties?

No. You can repay this loan at any time.

Allowable Use

What can I use the amount for?

Loan proceeds can be used for the following:

  • Payroll Cost
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
  • Employee salaries, commissions, or similar compensations
  • Payments of interest on any mortgage obligation
  • Rent (including rent under a lease agreement)
  • Utilities
  • Interest on any other debt obligations that were incurred before the covered period

Could I use it to pay for equipment purchases?

No, PPP is mainly designed for payroll purposes. However, if equipment is rented, it would consider that to be part of rent.

Is there a problem if I utilize most of the loan for non-payroll costs?

According to the list of items above, you can use the loan for other non-payroll cost listed above. However, SBA has stated that if non-payroll related cost is greater than 25% of the loan amount provided, the amount of forgiveness may be reduced.

Collateral Needed

Is collateral needed for these loans?

There are no personal guarantees or collateral necessary for these loans.

Forgiveness Availability

How much would I be forgiven?

The amount of loan forgiven can be up to the full principal amount and interest. The amount forgiven is dependent on the following:

  • Amount used within 8 weeks from the origination of the loan for allowable expenses (see above on Allowable Use for more information)
  • Maintain headcount and employee compensation (employees that make less than $100,000 cannot be decreased by more than 25%).

If these requirements are not met, the amount of loan allowed for forgiveness may be reduced. The amount of reduction is still unclear and SBA is expected to provide more guidance regarding this.

How to Apply?

Who do I apply for these loans with?

Through an approved SBA Lender. A list of these lenders are at

These loans are available through June 30, 2020.

Which one should I apply for?

If cash flow is a concern and you have been impacted somehow by COVID-19, you are qualified for both. Just the application for both does not mean you have to accept the loans from both programs. Due to the expected demand for resources, organizations should look at all options.

When can I start applying for PPP loans?

Small businesses, non-profits, and sole proprietorships can apply for PPP loans beginning April 1, 2020. Independent contractors and self-employed individuals can apply beginning April 10.

What kind of information is needed?

The information mainly asks for your basic payroll statistic, including your average monthly payroll. An example of this form can be found here.–paycheck-protection-program-ppp-sample-application-form

Do I need an audit submitted of the information provided?

No, the CARES Act provision includes streamlining the application process, of which third-party attestation requirements are eliminated. Information requested are based on good faith self-certified information.

What qualifies for payroll cost?

According to the SBA clarification on April 2, 2020, payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

It should however, not include the following:

  • Compensation for employees that has a principal of residence outside of United States
  • Compensation of individuals that are in excess of an annual salary of $100,000, pro-rated as necessary
  • Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including employee’s and employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

What is included in my monthly average salary amount?

The SBA clarification issued on April 2, 2020 noted that the calculation is as follows:

Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.


Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.


Step 3: Calculate average monthly payroll costs (divide the amount from

Step 2 by 12).


Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.


Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).


The examples below illustrate this methodology.

  1. Example 1 – No employees make more than $100,000

Annual payroll: $120,000

Average monthly payroll: $10,000

Multiply by 2.5 = $25,000

Maximum loan amount is $25,000

  1. Example 2 – Some employees make more than $100,000

Annual payroll: $1,500,000

Subtract compensation amounts in excess of an annual salary of

$100,000: $1,200,000

Average monthly qualifying payroll: $100,000

Multiply by 2.5 = $250,000

Maximum loan amount is $250,000

iii. Example 3 – No employees make more than $100,000, outstanding EIDL loan of $10,000.

Annual payroll: $120,000

Average monthly payroll: $10,000

Multiply by 2.5 = $25,000

Add EIDL loan of $10,000 = $35,000

Maximum loan amount is $35,000

  1. Example 4 – Some employees make more than $100,000, outstanding

EIDL loan of $10,000

Annual payroll: $1,500,000

Subtract compensation amounts in excess of an annual salary of

$100,000: $1,200,000

Average monthly qualifying payroll: $100,000

Multiply by 2.5 = $250,000

Add EIDL loan of $10,000 = $260,000

Maximum loan amount is $260,000

What if my organization was not in existence for the past 12 months but existed before February 15, 2020? What period do I use to calculate my average monthly salary?

If an organization was not in business during the period beginning February 15, 2019 and ending on June 30, 2019, then you will take the average total monthly payments by the applicant for payroll costs incurred during the period beginning on January 1, 2020 and ending on February 29, 2020 multiplied by 2.5 to get your maximum loan amount. Adjustment may also need to be made based on EIDL loans outstanding similar to the calculation noted in Step 5 above.

What if I am a seasonal employer?

Seasonal employers, as determined by the Administrator, can use the 12-week period beginning February 15, 2019 or March 1, 2019 (whichever the organization best reflects their operations), to determine their average monthly payroll payments.

Limitations on other provisions?

Are there any provisions that I might lose as a result of this loan?

Yes, if this loan is obtained, an organization may not utilize the Employee Retention Tax Credits. Additionally, this loan may reduce the amount of loan available through the Economic Injury Disaster Loans program.