CARES Act Paycheck Protection Loan Eligibility Explained

Fox Rothschild LLP

Fox Rothschild LLP

The Paycheck Protection Program, included in the passage of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), is an effort to get much-needed relief to America’s small businesses. It is modeled on the Small Business Administration’s existing 7(a) loan program and will provide forgivable loans of up to $10 million.

By design, the Paycheck Protection Program is essentially several sets of rules that regulate who is eligible to receive a loan, how the funds may be used, how to qualify for forgiveness and how the maximum loan amount is determined. In this article, we discuss strictly the eligibility requirements.


The first and most important question a business may have at this time, is: Do I qualify?

The CARES Act expands the normal eligibility requirements for an SBA loan. In addition to small businesses with 500 or fewer employees, the Paycheck Protection Program is open to certain nonprofits, including 501(c)(3) organizations, veterans organizations and tribal businesses with fewer than 500 employees may also be eligible.

Sole proprietors, independent contractors and self-employed individuals are also eligible to seek a Paycheck Protection Program loan. Additionally, businesses that fall within the North American Industry Classification System (NAICS Code) 72, which applies to accommodations and food services, are also eligible if they employ 500 or fewer people per physical location.

Eligible self-employed individuals, independent contractors or sole proprietorships seeking a loan will be required to submit documentation such as payroll tax filings reported to the IRS, 1099-Forms and income and expenses of the sole proprietorship.

To qualify, an otherwise eligible recipient must also make a good-faith certification that:

  • the uncertainty of the current economic conditions makes the loan necessary to support the ongoing operations of the recipient
  • the funds will be used to retain workers and maintain payroll or to make mortgage payments, lease payments and utility payments
  • the recipient does not have an application pending for a loan for the same purpose and duplicative of amounts applied for or received
  • during the period February 15, 2020 through December 31, 2020, the recipient has not received (and will not receive) amounts under this the Paycheck Protection Program Loan for the same purpose and duplicative of the amount applied for

Once eligibility is determined, the CARES Act provides guidelines regarding how much money can be borrowed, how to use the loan proceeds, and for possible forgiveness of the loan amount (if the proceeds are used in the enumerated ways).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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