Permitted Uses of Loans

  • Payroll Costs; Includes (i.e., what was included in your loan amount calculation):
    • gross employee compensation (e.g., salary, wages, commissions, cash tips, etc.) up to annualized compensation of $100,000
    • paid Personal Time Off (i.e., vacation, sick days, etc.) (but note exclusion below)
    • severance payments
    • payment for group health benefits, including insurance premiums
    • retirement benefits
    • state and local payroll taxes
    • Excludes excess cash compensation above the $100,000 threshold; employer portion of federal payroll taxes; compensation to non-U.S. employees; and sick/family leave wages for which credit is allowed under the Families First Coronavirus Relief Act
  • Rent Payments – on leases dated before February 15, 2020
  • Utility Payments – on service agreements dated before February 15, 2020 (including telephone and cellphone service in business name)
  • Mortgage Interest Payments – on mortgage obligations incurred before February 15, 2020
  • Other Interest Payments – on other debt obligations incurred before February 15, 2020
  • Refinancing an SBA Economic Impact Disaster Loan (EIDL) – made between January 1 and April 3, 2020 if proceeds were used for payroll costs

Loan Forgiveness

Maximum Loan Forgiveness Amount

  • Capped at principal amount of the loan plus any accrued interest
  • Equal to the sum of the following payments incurred and paid within 8 weeks of loan funding

(See above for further detail on the following acceptable costs)

  • payroll costs (but note that period for actual payroll costs is limited to 56 days; contrast with 76 days used for loan amount calculation)
  • rent payments
  • utility payments
  • mortgage interest payments
  • No other permitted uses of loan proceeds are eligible for forgiveness


  • At least 75% of loan proceeds must be used for payroll costs
  • Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs
  • Any dollars spent more than 8 weeks after your loan is funded, even for these forgiveness-eligible expenses, will not be included in your forgiveness amount

Reductions in Loan Forgiveness

Reductions/Penalties – Maximum forgiveness amounts will be reduced:

  • Proportionately for reductions based on average full-time equivalent employees (FTEEs) per pay period during the 8-week forgiveness period divided by lesser of average FTEEs per pay period for February 15-June 30, 2019 OR January 1-February 29, 2020 (an FTEE is based on Affordable Care Act definition of 30 hours per week)
  • Dollar-for-dollar reduction for payroll reductions over 25% (compared to the prior completed quarter of employment—i.e., first quarter 2020) for workers making less than $100,000 annually

For any advance, up to $10,000, taken on an SBA EIDL.

Relief from Reductions for Payroll Adjustments Made by June 30, 2020 – Reduction rules will not apply if by June 30, 2020 you eliminate:

  • any reductions (compared to February 15, 2020) in the number of FTEEs made between February 15, 2020 and April 26, 2020; and/or any salary reductions (compared to February 15, 2020) made between February 15, 2020 and April 26, 2020 for 1 or more employees (with annualized compensation up to $100,000)

Loan Forgiveness Documentation and Certification are Expected to Be Required

  • Documents to verify FTEEs on payroll and their pay rates (via IRS payroll tax filings and state income, payroll, and unemployment filings)
  • Documents to verify other covered costs actually paid (e.g., canceled checks, receipts, or other documents verifying mortgage, rent, and utility payments)
  • Certification (by an authorized business representative) that the documentation is true and correct and that forgiveness amounts requested were used to retain employees and make other forgiveness-eligible payments

Lender to Determine Forgiveness within 60 Days of Borrower Certification

Additional SBA Rulemaking Is Possible Regarding Loan Forgiveness

  • Loan Terms
    • Term – 2 years
  • Interest Rate – 1%
  • Payment Deferral – No payments for 6 months after date of disbursement of loan
  • Terms Apply to Loan Amount That Is Not Forgiven

Lawrence Mandala

Randall Ray

This Munck Wilson Mandala, LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. This publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. This publication is sent to clients and friends of the Firm. The contents are intended for general information purposes only.