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CARES Act Part II: The Paycheck Protection Program Explained

paycheck protection program documents HFG Trust

A significant benefit included in the CARES Act for small business owners is the Paycheck Protection Program (PPP), a partially forgivable loan program offered through the Small Business Administration (SBA). The Paycheck Protection Program is designed to provide a direct incentive for small businesses to keep their workers on the payroll by providing loans of up to $10 million for payroll and certain other expenses. If all employees are kept on payroll for eight weeks, the SBA will forgive the portion of the loan used for payroll, rent, mortgage interest, or utilities—meaning up to 100 percent of the loan is forgivable. Businesses, including eligible non-profits, veterans’ organizations, tribal concerns, sole proprietorship, self-employed individuals, and independent contractors described in the Small Business Act, with 500 or fewer employees may apply. Click here for a great summary from the US Chamber of Commerce. 

Under the Paycheck Protection Program, lenders like Community First Bank will be able to issue SBA 7(a) Small Business Loans up to a maximum of the lesser of $10 million, or 2.5 times the average monthly payroll costs. The proceeds of such loans may be used to pay a variety of costs, including:

  • Payroll
  • Group health insurance premiums and other healthcare costs
  • Salaries and/or commissions
  • Rent
  • Mortgage interest (excluding amounts pre-paid)
  • Utilities
  • Other business interest incurred prior to February 15, 2020

It almost seems too good to be true, but yes, there is a slight catch. In order for the loan amount to be forgiven, the business must maintain the same number of employees (equivalents) in the 8 weeks following the date of origination of the loan as it did from either February 15, 2019 through June 30, 2019, or from January 1, 2020 through February 29, 2020. If this requirement is not met, the amount eligible for forgiveness will be reduced. As I write this, additional reductions in the amount to be forgiven will be incurred if employees with under $100,000 of compensation have their compensation cut by more than 25% as compared to the most recent quarter. (Please note, this percentage may change upon release of specific guidelines from the SBA.)

If you didn’t think this benefit was good enough, it gets even better! Any debt forgiven pursuant to this provision will not be included in your taxable income for the year. Additionally, the maximum interest for a loan made under this program is 4%. For many small businesses, the ability to borrow up to $10 million at no more than 4%, over a term of up to 10 years*, is a pretty significant ‘win’ in and of itself!

Finally, payments for loans made under the Paycheck Protection Program will be deferred for a period of no less than six months and no longer than one year. Additional guidance will be provided to lenders within 30 days of enactment to further elaborate on the 6- to 12-month deferment period*.

Our team at Community First Bank and HFG Trust will be working diligently to keep our clients and community informed as our lenders and processors prepare for the high demand anticipated for this program. If you have any questions, I encourage you to reach out to me or one of our branches for more information.

Forrest Alexander

*Information contained within this article is based on information available as of April 1, 2020, and is subject to change upon the release of guidelines from the Small Business Administration.

HFG Trust: Not FDIC Insured. Not Bank Guaranteed. May lose value.

Community First Bank NMLS# 409021, Member FDIC


This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. Community First Bank, HFG Trust, and HFG Advisors have no duty or obligation to update the information contained herein. Further, Community First Bank, HFG Trust, and HFG Advisors make no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is potential profit there is possibility of loss. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services, banking services, or an offer to sell or solicit and securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Community First Bank, HFG Trust, and HFG Advisors believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, included the information contained herein, may not be copied, reproduced, republished, or posted in any form without the prior written consent of Community First Bank and/or HFG Trust and/or HFG Advisors. HFG Advisors, Inc, is a wholly owned subsidiary of HFG Trust, LLC. HFG Trust, LLC is a Washington state-registered Trust company and wholly owned subsidiary of Community First Bank.