By Kevin O’Connor

In reviewing the materials we’ve sent previously, we thought it might be helpful to focus a bit on three concepts, all of which are vital to understanding the Paycheck Protection Program (PPP) process under the Coronavirus Aid, Relief and Economic Security (CARES) Act. They are:

  • Max Loan Amount
  • Permissible Uses
  • Forgivable Uses

Each of these concepts serves a different purpose under the PPP paradigm. Let’s take them in order:

Max Loan Amount

This is the maximum amount an employer may apply for. It is determined by finding the average monthly “Payroll Costs” of the employer (using either the 2019 calendar year or the 12-month period immediately prior to the application’s submission) then multiplying that amount by 2.5.

Permissible Uses

Those uses of the loan proceeds permitted (not necessarily forgiven) under the statute are considered permissible uses. Those are the following, if incurred and paid during the “covered period” of Feb. 15, 2020 and June 30, 2020:

  • Payroll Costs
  • Costs related to continuation of health benefits and insurance premiums during periods of paid sick, medical or family leave
  • Employee salaries, commissions or similar compensation (Note: While these amounts would appear to be included in (1) above, the term Payroll Costs limits compensation to $100,000 per year per employee; listing these items separately would seem to indicate that payments of compensation in excess of the $100,000 cap would be a permissible use of loan proceeds but would NOT qualify for forgiveness)
  • Payments of interest on any mortgage obligation
  • Rent (including rent under a lease agreement); the parenthetical seems to indicate that lease payments on personal property would be a permissible use
  • Utilities
  • Interest on any other debt obligations incurred before Feb. 15, 2020

This broad category defines the limits of the permitted use of loan proceeds. Using proceeds for any other purpose may result in personal liability to the owner/shareholder/member responsible, and fraudulent misuse could subject a borrower to criminal action.

Forgivable Uses

This covers expenditures of the loan proceeds made during the “covered period,” and (just to keep things simple) the definition of “covered period” for forgiveness (and only such purpose) is “the eight week period beginning on the date of the origination of the Loan.” These uses are:

  • Payroll costs
  • Payments of interest on any covered mortgage obligation
  • Payments on any covered rent obligation meaning rent under a leasing agreement in force before Feb. 15, 2020
  • Payments of “covered utility” payments for a service for the distribution of electricity, gas, water, transportation, telephone or internet access for which service began before Feb. 15, 2020.

By keeping these three concepts separate in analyzing a business’s PPP possibilities, you will better be able to make sense of the often confusing provisions of the CARES Act.

If you have any questions or would like to discuss further, please reach out to Kevin O’Connor at or 216.736.7213.