SBA 7A “Paycheck Protection Loans” and Economic Injury Disaster Loans Frequently Asked Questions

Published March 27, 2020

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April 24, 2020 Update:

On April 24, 2020 the SBA clarified some issues that were outstanding form the original bill and subsequent guidance.

Hedge Funds and Private Equity Firms

The guidance clarified that Hedge funds and private equity firms are generally ineligible to receive a PPP loan. But the guidance also clarified that portfolio companies owned by these entities could be eligible as long as they other wise qualified. The guidance went on to say that the borrowers should carefully review the required certification stating that “current economic uncertainly make this loan necessary to support the ongoing operations of the Applicant.”

Other Eligible Business

Other eligible business that are covered in the guidance include hospitals owned by governmental entities (as long as less than 50% of their revenue comes from state or local governmental sources; and businesses that receive revenue from legal gaming; businesses owned by ESOP’s. However, businesses presently involved in bankruptcy proceedings are not eligible.

If a business has already received a PPP loan prior to the issuance of this guidance and now finds themselves outside the eligibility rules, they may repay the loan in full by Jay 7, 2020 with no consequence.

For more information on these loans, please contact your MCM relationship manager.

April 23, 2020 Update:

On April 23, 2020, the SBA clarified the rules related to Schedule C self employment businesses. Partners are not covered by this guidance as they are treated as part of the partnership filing which was outlined in earlier guidance.

Schedule C Self-Employment Businesses

The SBA clarified that Schedule C businesses who were in business on February 15, 2020 may apply for and receive a loan based on their 2019 Schedule C net profit and use this amount to determine the average monthly net profit times 2.5. If they have employees, they may add to this self employment amount, 2.5 times the average monthly 2019 amount paid to employees in gross compensation plus the employer’s payments for health benefits, retirement benefits and state unemployment insurance. Any amount received under the EIDL Program will be added to this calculated amount. If you were not in business during 2019 and will file a Schedule C for 2020, additional guidance will be forthcoming.

Schedule C Self-Employment Loan Forgiveness Calculations

The amount of the loan forgiveness for Schedule C self employed business owners will mirror the calculations for other businesses for the actual costs incurred and paid related to the employees of the business but for the self-employed period, his or her income for the eight week period will be the average of actual Schedule C 2019 earnings. That self employed individual’s benefits will not be included in the amount forgiven. The 2019 Schedule C will be the required documentation for the forgiven portion.

For more information on these loans, please contact your MCM relationship manager.

April 14, 2020 Update:

On April 14, 2020 the SBA released an additional Interim Final rule that provides guidance on several key areas of uncertainty around the Paycheck Protection Program (PPP).

Self-Employed General Active Partners

The guidance clarified that self-employment income of general active partners may be reported as payroll cost up to $100,000 annualized, on the application filed by the partnership.  MCM had previously taken the position that partners would be included as part of payroll costs so this guidance does not reflect a change from our previous recommendations.  Partnerships are eligible for PPP loans under the Act, and the SBA has determined that limiting a partnership and its partners (or LLC filing taxes as a partnership) to one PPP loan is necessary to help ensure that as many eligible borrowers as possible obtain PPP loans. Since the partner income is considered a part of payroll costs, it appears that benefits including health insurance and retirement benefits will be treated similarly to other employees.  This is not specifically addressed in the guidance. If you are a partnership and you have already filed for the SBA 7A Paycheck Protection Program without including your General Active Partners, please contact your MCM relationship manager immediately to consult regarding your options.

Self – Employed Individuals Reporting on Sch C

The guidance made some significant clarifications and changes to the provisions related to these individuals.  In general, the earnings of the self employed individual reported on a Schedule C for tax purposes will be eligible for the loan and for forgiveness but additional limitations apply.  They will not be able to obtain a loan for their own portion of health insurance or retirement plan contributions.  And the amount that they will be able to claim for forgiveness will be based on the actual 2019 net income from self employment up to the $100,000 maximum with no relation to amounts earned or paid during the eight-week period of the loan.

Other Interesting Statements Contained in the Guidance – Potentially Applicable to All Applicants

The guidance contained language that indicates that utility payments may include gasoline for a company-owned automobile as part of transportation.  We have been waiting for further definition and this statement only gives us a glimpse into what may or may not be included.

See FAQ for additional information related to the above by clicking here.

April 5, 2020 Update:

On Saturday, April 4, 2020, the American Institute of CPAs (AICPA) issued further guidance on the Payroll Calculation needed to apply for the Paycheck Protection Program, currently available through the Small Business Administration (SBA). MCM CPAs & Advisors had previously recommended that clients NOT reduce payroll by the employee share of FICA and Medicare. The AICPA with guidance from the SBA is agreeing with our prior recommendation. However, if you did reduce your payroll by these amounts and you have already filed for the SBA 7A Paycheck Protection Program, please contact your MCM relationship manager immediately to consult regarding your options.

Click HERE to read AICPA’s guidance on calculating payroll cost for the SBA 7A “Paycheck Protection” Loan Program. 

There will likely be more updates and changes and we anticipate more clarifications that could go either way in adding to or subtracting from our calculations. Please look for other important updates from MCM COVID-19 Solutions Group.

April 3, 2020 Update:

We are continuing to update this document with the most recent information that has been communicated to us from the Department of Treasury and the SBA. Several of these changes clarify some of the information we knew was unclear in the initial bill. Some of the guidance, however, still leaves various matters unclear or even contrary to what was in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. We will continue to do our best to make sense of all the information that is being provided. Please reach out to your MCM relationship contact for additional insight if you have questions.

Major updates to Payroll Protection Loan Program:

  • The interest rate was changed on April 1, 2020 to 0.5% on Payroll Protection Loans. It was changed again on April 2, 2020 to a 1.0% interest rate.
  • The term of the loans were originally up to 12 years on Payroll Protection Loans; however, they are now 2 years.
  • The calculations themselves of the “payroll costs” are still evolving, with some items being eliminated and some being added. It is very important that you get accurate information on what your bank is requesting, but if that differs from what is included on our website or your other professionals’ websites, please contact us or your other professional.
  • The banks are struggling today to get this information transmitted if they are even able to do so. Many of them are not able to transmit at this time. Some of you may be concerned about that. As many of us know, this is an evolving process and we are all doing our best to ensure you have the information you need on these programs.

Updates to Emergency Injury Disaster Loan Programs

  • We are hearing of various clients applying for the loans but no additional information is available.
  • The SBA has announced that they will be limiting the Emergency Advance to the lesser of $10,000 or $1,000 per employee.


To ease the financial burden the COVID-19 pandemic has caused, Congress and the SBA have initiated two primary loan programs to help small businesses. These are federally backed loan programs with the potential for deferred payments and relatively low interest rates—the SBA 7A “Paycheck Protection Loans” and the SBA Economic Injury Disaster Loans.

For an introduction to these loans, please read  How to Make Sense of the SBA Loan Opportunities.

The MCM COVID-19 Solutions Group has answered your frequently asked questions regarding these loan programs. See below for the SBA 7A “Paycheck Protection Loans” frequently asked questions.

Click here to jump down to the SBA Economic Injury Disaster Loans Frequently Asked Questions

The CARES Act SBA 7A “Paycheck Protection Loans”
Frequently Asked Questions

In a move designed to keep small businesses afloat, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) SBA (Small Business Administration) introduced “Paycheck Protection Loans” which will provide businesses with fewer than 500 employees — including sole proprietors and nonprofits—access to nearly $350 billion in loans under Section 7 of the Small Business Act during the “covered period,” which runs from February 15, 2020 through June 30, 2020. The loans are fully guaranteed by the federal government through December 1, 2020.

Who is Eligible?

  • Small businesses – generally defined as less than 500 employees
  • Sole proprietors, independent contractors, self-employed individuals (as defined in Congress’s last COVID-19 bill, the Families First ACT)
  • Nonprofit organizations – at this point 501(c)3 only
  • Veteran organizations
  • Hospitality and Dining Industries Special Eligibility Rule: Hospitality and dining businesses are eligible to receive a loan if the business has more than one physical location, employs less than 500 employees per location, and is assigned to the “accommodation and food services” sector (Sector 72) under the North American Industry Classification System (NAICS).

How much can be borrowed?

You can borrow the lesser of:

  • The average monthly “payroll costs” for the 1-year period ending on the date the loan was made (an alternative calculation is available for seasonal employers) multiplied by 2.5; see guidance for self-employed individuals for additional details.
  • Plus the outstanding amount of a loan made under the SBA’s Economic Injury Disaster Loan Program between January 31, 2020 and the date on which such loan may be refinanced as part of this new program; or
  • $10 million.

What are the Requirements for use of funds?

  • The loan is needed to continue operations during the COVID-19 emergency;
  • Funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments;
  • The applicant does not have any other application pending under this program for the same purpose; and
  • From February 15, 2020 until December 31, 2020, the applicant has not received duplicative amounts under this program.

What is included in Payroll Costs?

  • Wages, commissions, salary, or similar compensation to an employee,
  • Compensation of a sole proprietor or independent contractor that is self-employment income with additional limitations,
  • Compensation paid to active general partners in a partnership or LLC taxed as a partnership,
  • Payment of a cash tip or equivalent,
  • Payment for vacation, parental, family, medical or sick leave, (excludes qualified sick and family leave wages for which a credit is allowed under FFCRA)
  • Allowance for dismissal or separation,
  • Payment for group health care benefits, including premiums, (see limitation for Sch C owners)
  • Payment of any retirement benefits (see limitation for Sch C owns), and
  • Payment of state or local tax assessed on the compensation of employees.

What is not included in payroll costs?

  • The compensation of any individual employee or partner in excess of annual compensation of $100,000,
  • Employer share of payroll taxes (with exception of state unemployment),
  • Any compensation of an employee whose principal place of residence is outside the U.S., or
  • Any qualified sick leave or family medical leave for which a credit is allowed under the new Coronavirus Relief Act passed last week.

What are the terms on these loans?

  • The loans will have a maximum maturity of 10 years and an interest rate not to exceed 4%. Per SBA, maturity is 2 years and interest is set at 1%.
  • Proceeds may be used to cover payroll, mortgage payments, rent, utilities, and any other debt service requirements.
  • The standard fees imposed under Section 7 of the Small Business Act are waived, and no personal guarantee is required by the business owner.

Is it possible to defer payments under the loan?

An additional provision in the CARES Act provides for possible deferment of repayment of the loans for a period of at least six months, but not to exceed a year.

How do the Loan Forgiveness Provisions of Paycheck Protection Loans work?

A separate section of the CARES Act calls for a portion of the aforementioned paycheck protection loans to be forgiven on a tax-free basis.

Who Qualifies for Loan Forgiveness?

To seek forgiveness, a borrower must submit to the lender an application that includes documentation verifying the number of employees and pay rates, and cancelled checks showing mortgage, rent, or utility payments for the 8-week period starting with the date of the loan.

How much can be forgiven?

The amount to be forgiven is the sum of the following payments made by the borrower during the 8-week period beginning on the date of the loan which is defined to be the day the lender makes the first disbursement to the borrower (see reductions/limitations below):

  • Payroll costs (as defined in the Payroll Costs section above)
  • Mortgage interest
  • Rent for leases in effect prior to February 15, 2020
  • Certain utility payments

Per the SBA, due to likely high subscription, not more than 25% of the forgiven amount may be non-payroll costs.

What can the forgiveness be potentially reduced by?

There is a provision that reduces the amount that may be forgiven if the employer either:

  • Reduces its workforce during the 8-week covered period when compared to other prescribed periods in either 2019 or 2020, or
  • Reduces the salary or wages paid to an employee who had earned less than $100,000 in annualized salary by more than 25% during the covered period.

This reduction can be avoided, however, if the employer rehires or increases the employee’s pay within an allotted time period.

Do I have to include in income the amount of forgiveness?

Forgiveness amounts that would otherwise be includible in gross income, for federal income tax purposes, are excluded.

How do I apply?

These SBA loans are typically applied for through an SBA lender. The SBA is currently working through details to allow more lenders to be able to provide these loans. Check with your existing financial institution or reach out to us and we can assist connecting you with an SBA lender.

  • Items needed to apply: The SBA has created the 2438 Payroll Protection Program Application Form which includes eligibility and certification of the borrower. The banks will be requiring documentation to support the numbers on the form. Each bank may require slightly different documentation.

When can I apply?

  • April 3, 2020 – Small businesses are able to begin applying
  • April 10, 2020 – independent contractors and self-employed individuals can apply for and receive loans

You will need to provide to your lender:

  • Completed application with amounts and information regarding ownership
  • Required documentation
  • Certification of your compliance with 7 key factors

When do I request loan forgiveness?

    • You will submit a request to your lender after the 8-week period
    • You will need to submit documentation that verifies your FTE’s, pay rates, and eligible mortgage, lease, and utility payments

  • Note: the deferral of the employer match of social security and medicare withholding is allowed up to the date the loan forgiveness is approved. These amounts are not included in “payroll costs” for purposes of payment or forgiveness. Click here to learn more.

The CARES Act SBA 7A “Paycheck Protection Loans”
Self-employment Frequently Asked Questions
This section was added on April 15, 2020

Can Self-employed Individuals apply for a PPP loan?

Yes – on April 14, 2020 the SBA has issued Additional Interim Final Rules related to self-employed individuals.

I have income from self-employment and file a Form 1040 Schedule C.  What are the requirements to apply for a PPP loan?

  • You must have been operating on February 15, 2020
  • You must have self-employment net income on Schedule C for 2019
  • Your principal place of residence is in the United States
  • You filed a schedule C for 2019
  • The SBA will be issuing additional guidance on self-employed individuals not operating in 2019.

How do I calculate the maximum amount I can borrow?

If you do not have any employees then you take the net profit from your 2019 Schedule C, not to exceed $100,000, divide by 12, and multiply by 2.5.  Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance of the EIDL loan, since it does not have to be repaid.

If you have employees, then you will add to the above gross amount of payroll paid to employees from 2019, not to exceed $100,000 per employee residing in the United States.  Add to that – employer paid health insurance benefits (reported on Sch C), retirement benefits for employees (reported on Sch C) plus state unemployment tax paid. Take this total divide by 12 and multiply by 2.5.

Add this amount for employees to the amount for the self-employed individual to calculate the maximum amount that can be borrowed.

What documents will the lender need in order to apply?

  • 2019 Schedule C
  • Copy of 2019 Form 941’s and payroll reports
  • Proof of employees on February 15, 2020
  • Proof the business was operating on February 15, 2020 – could consist of financial statements and bank statements

How can the funds be used by self-employed individuals?

  • Owner compensation replacement, based on 2019 net profit
  • Employee payroll costs, employee health care, employee retirement expenses and state unemployment taxes
  • Mortgage interest payments on any business mortgage real or personal property
  • Business rent payments on real or personal property
  • Business utility payments including “gas for your business vehicle”
  • Note – these items must be claimed or entitled to be claimed as a deduction on your 2019 Schedule C to be permissible use during the eight-week period following disbursement of the loan.
  • Interest payments on other business debt obligations that existed prior to February 15, 2020

How is the Forgiveness portion calculated?

In addition to the requirement that 75% of the funds be used for payroll costs (unclear as to whether owner compensation is included in payroll costs for this purpose) and no more than 25% on other qualifying expenses, the following expenses paid during the eight week period will be forgiven:

  • Employee payroll costs, employee health care, employee retirement expenses and state unemployment taxes
  • Owner compensation replacement-based on 2019 net profits limited to eight weeks (8/52) of 2019 net profit.
  • Mortgage interest payments on any business mortgage real or personal property to the extent that they are deductible on Sch C
  • Business rent payments to the extent that they are deductible on Sch C
  • Business utility payments to the extent that they are deductible on Sch C

SBA Economic Injury Disaster Loans
Frequently Asked Questions

The U.S. Small Business Administration (SBA) is offering federal disaster loans for small businesses and not-for-profit organizations who have suffered economically as a result of the coronavirus pandemic. The Economic Injury Disaster Loan is currently eligible for the January 31, 2020 – December 31, 2020 covered period.

Below, we have included answers to frequently asked questions, provided by the SBA, to explain the Economic Injury Disaster Loan program eligibility and application process.

Who can apply for an Economic Injury Disaster Loan?

  • Small businesses with a maximum of 500 employees, including but not limited to restaurants, retailers, gift shops, motels and hotels, service-based companies, recreational facilities, charter boats, manufacturers, sports vendors, owners of rental property, travel agencies and wholesalers
  • Cooperatives with a maximum of 500 employees
  • ESOPs with a maximum of 500 employees
  • Most not-for-profit organizations, including but not limited to nursing homes, food kitchens, museums, educational facilities, senior citizen centers, childcare centers, playhouses, community centers, shelters, and rescue organizations
  • Tribal small business concerns

 This includes:

  • Businesses directly affected by the disaster
  • Businesses that offer services directly related to the businesses in the declaration
  • Other businesses indirectly related to the industry that are likely to be harmed by losses in their community

Note: Some agricultural enterprises, religious organizations, some charitable organizations, gambling concerns, real estate developers and casinos/racetracks are ineligible for an Economic Injury Disaster Loan.

What are the criteria for loan approval?

  • Credit history: Applicants must have a credit history deemed acceptable to SBA.
  • Repayment: SBA must determine that the applicant business has the ability to repay the loan.
  • Eligibility: The applicant business must have been operating on January 31, 2020. The CARES Act waives the normal “1 year in business” requirement.

How much can be borrowed?

  • Eligible entities may qualify to borrow up to $2 million.
  • Interest rates: 75% for small businesses, 2.75% for non-for-profit organizations, with terms up to 30 years and a fixed rate.

How can the loan be used?

  • Paying fixed debts.
  • Payroll and accounts payable.
  • Other bills that could have been paid if the disaster had not occurred.

Note: The loans cannot be used to replace lost sales, lost profits, or for expansion.

What are the collateral requirements?

  • Loans over $25,000 require collateral.
  • SBA takes real estate as collateral when it is available.
  • SBA will not decline a loan for lack of collateral but requires borrowers to pledge what is available.

How do I apply?

  • The free electronic application can be found through the SBA’s Disaster Assistance Program at
  • To apply, you will need the completed SBA loan application: SBA Form 5, IRS Form 4506T, Copies of the most recent Federal Income Tax Return, SBA Form 2202, and SBA Form 413.
  • Many issues have been reported with the application website. Be prepared for frustrations as you apply.

What changes did the recently enacted CARES Act make in the Economic Injury Disaster Loan program?

The CARES Act would deem all states and their subdivisions to have sufficient economic damage to small business concerns to qualify for assistance under this loan program (rather than the current state declaration and certification approach).

The CARES Act makes the following additional changes to the SBA Disaster Loan program during the covered period for loans made in response to COVID-19:

  • Waives rules related to personal guarantees on advances and loans of $200,000 or less for all applicants;
  • Waives the “1 year in business prior to the disaster” requirement (except the business must have been in operation on January 31, 2020);
  • Waives the requirement that an applicant be unable to find credit elsewhere; and
  • Allows lenders to approve applicants based solely on credit scores (no tax return submission required) or “alternative appropriate methods to determine an applicant’s ability to repay.”

What are the provisions related to emergency advances under the program?

Entities applying for loans under the Disaster Loan Program in response to COVID-19 may, during the covered period, request an emergency advance from the Administrator of up to $10,000, which does not have to be repaid, even if the loan application is later denied. The Administrator is charged with verifying an applicant’s eligibility by accepting a “self-certification.” Advances are to be awarded within three days of an application.  The SBA has subsequently put further restriction on this advance – limiting it to the lesser of $10,000 or $1,000 per employee.

How can Economic Injury Disaster Loan Program advances be used?

Advances may be used for purposes already authorized under the SBA Disaster Loan Program, including:

  • Providing sick leave to employees unable to work due to direct effect of COVID-19;
  • Maintaining payroll during business disruptions during slowdowns;
  • Meeting increased supply chain costs;
  • Making rent or mortgage payments; and
  • Repaying debts that cannot be paid due to lost revenue.

If an entity that receives an emergency advance transfers into, or is approved for, a loan under the SBA Business Loan Program (described in the section above), the advance amount will be reduced from any payroll cost forgiveness amounts.


We’re here to help.

For more information on these loans, contact and a member of MCM CPAs & Advisors COVID-19 Solutions Group will be in touch.


Nothing in this document should be construed as providing tax advice.  Please consult with your own professional tax advisor.  In addition, this document represents the information that we have up to the date the presentation was made and cannot be relied upon for additional updates beyond that date.

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