In the wake of COVID-19, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which includes a Payroll Protection Program (PPP). The PPP initially granted over $300 billion in loans to small businesses before running out of funding. The PPP was refunded on April 24, 2020, but with the additional funding came additional guidance from the Small Business Administration (SBA), which is tasked with distributing these funds. One attractive characteristic of the PPP loans is that the funds can be forgiven in full, so long as certain conditions are fulfilled. If your business is like a significant number of others affected by COVID-19, you may have already applied for and received, or are awaiting funding of a PPP loan. Regardless of the stage you are in, you should be aware of the conditions that must be fulfilled for the PPP loan to be forgiven and take careful note of what is required.

Is my business eligible for a PPP loan?

The threshold question for any business which is thinking of applying for, has already applied for, and/or has already received a PPP loan is whether the business is actually eligible for the loan. The SBA issued guidance on April 23, 2020, which clarified the criteria for business recipients of the PPP loans (which guidance appears to apply with equal force to a business which has already received PPP funds and to a business which receives PPP funds in the future). This clarification came after many large businesses received PPP loans, which are intended for small businesses only. All recipients, regardless of when funds were received, should ensure they still fit the criteria for the PPP loan (it should be noted that SBA’s “guidance” is subject to continuing changes and clarifications).

When applying for the PPP loan, businesses must certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” This certification must be made in good faith. The SBA’s latest guidance, however, has clarified that this certification must be made in good faith and must take into account the company’s current activity and its ability to access other sources of liquidity to support the business which will not be significantly detrimental to the company. Many key terms within the newly-issued guidance are not further defined, creating a great deal of uncertainty for many small businesses which have already obtained (and spent) PPP funds. These additional considerations likely will eliminate public companies and those companies backed by private equity from being eligible. All businesses who are currently applying or have already applied and/or received PPP loans should evaluate whether their certification is still made in good faith, taking these new considerations into account.

The SBA is allowing those businesses who may now question their eligibility for the PPP loan to return any and all PPP loan amounts they have received without any penalty. These funds must be returned by May 7, 2020.

What can I use the PPP loan for?

Once you have confirmed you can make the above certification in good faith and have received your PPP loan, you must ensure you are spending the funds on the appropriate expenses. The expenses that are eligible for forgiveness are: payroll expenses, interest payments on a mortgage, rent payments, and utility payments for electricity, gas, water, transportation, telephone, or internet.

Most payroll expenses are eligible for loan forgiveness, including salary, wages, or other compensation, payments for various types of leave (vacation, sick leave, etc.), separation payments, health care insurance premiums, retirement benefits, and state or local taxes. Those payroll expenses which are not eligible for forgiveness include payments to an independent contractor, cash compensation exceeding the annual equivalent of $100,000 per employee, the employer’s share of federal payroll taxes, and certain leave wages that are eligible for tax credit under the Families First Coronavirus Response Act.

Those additional expenses which are eligible for forgiveness must all stem from accounts or obligations which were in existence on February 15, 2020. These expenses can only be forgiven up to an amount equal to 25 percent of the total PPP loan amount. The remainder of the expenses must be used on the above payroll expenses in order for the full amount of the loan to be forgiven, and the expenses must be paid within 8 weeks of the company’s receipt of the funds.

What are the terms of repayment on the unforgiven PPP loan amount?

In the event your business does not qualify for total forgiveness of the PPP loan, due to a failure to follow PPP rules on use of the funds, decreasing the number of full time equivalent employees during the specified period, lowering wages for certain employees, or for failing to meet other program requirements, you should be aware of the repayment terms of the PPP loan. These loans have a maturity date which is two years from the date of disbursement, will accrue no interest in the first six months, will thereafter accrue interest at the rate of one percent per annum, and may be prepaid with no penalty.


The PPP loans have been a much needed lifeline for many businesses. With the new standards, though, all recipients should reassess their certification is made in good faith, and if so, should ensure they are properly utilizing the loan proceeds. If you have questions with respect to the PPP loans, including questions relating to eligibility and appropriate use of the funds, please contact the NavBat team for further guidance.