Guidance on Paycheck Protection Program (PPP) Loans


In the midst of COVID-19, the federal government has passed the CARES ACT, which allows for PPP loans.  The loans are intended to provide cash-flow assistance and maintain your current payroll needs as a small business, keeping your employees at the same level of work and pay as before.


  • You must have been in operation on February 15, 2020.
  • You have fewer than 500 employees.
  • You are an S-Corp, C-Corp, LLC, Sole Proprietorship, or Independent Contractor, or Non-profit.
  • You have been economically affected or that economic uncertainty make the loan necessary.
  • You can receive an SBA Economic Injury Disaster Loan as well, but funds must be separate.

How Much Can I Get?

  • You will receive 2.5x the amount of your average monthly payroll costs, with the average calculated over the past 12 months.
  • Payroll costs include compensation, payment for vacation/sick leave, allowances for dismissals or separations, payments for group health care benefits (including insurance premiums), payment of retirement benefits, and payment of state/local tax assessed.

How Can I Use the Loan Proceeds?

  • You can use the loan proceeds on payroll costs (as defined above), rent, utilities, interest on mortgage obligation or other debt obligations.

How Much Can Be Forgiven?

  • Forgiveness is equal to any payroll costs (as defined above), plus rent, utilities, and interest payments, used in the first 8-week period of receiving the loan.
  • The remaining amount of the loan will need to be paid off in a maximum of 10 years (but more likely within 2 years for most lenders), at an interest rate under 4%, with zero loan fees and zero prepayment fee.
  • However, the principal and interest will continue to be deferred for up to 12 months after disbursement of the loan, so your first payment will be delayed for up to 12 months.
  • You will have to apply for the forgiveness through your PPP lender, and include necessary documentation to prove the 8 weeks of forgivable payments.

How Will This Affect My 2020 Returns?

  • You will not have to pay taxes on the amount of debt forgiven by the loan, usually issued as a 1099-C. The new law specifically states that forgiven PPP loans will not be considered forgiveness of debt income.

How Do I Apply?

  • Gather your payroll records for the past 12 months, then apply online at your local bank.
  • It is recommended that you try to work with your current business banker, as many banks are limiting PPE loan applications to current customers only.
  • It is also recommended that you open a special checking account just for these loan proceeds, so it makes it easy to document transactions for forgiveness applications.
  • Lastly, it is recommended that the bank you choose to apply through is an SBA Preferred Lending Partner, as this will help with your application being processed faster.

Need Help Applying? AZ Southwest CPA Services is here to help you through the process, or answer any questions you may have.