COVID-19: Small Business CARES Act
The “Keeping American Workers Paid and Employed
Act” is a $349 billion relief program for small businesses.
Part 1- Small Business Provisions of the CARES Act
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act), a historic $2 trillion stimulus package
that offers relief to businesses affected by the COVID-19 pandemic. The bill
includes the "Keeping American Workers Paid and Employed Act," a $349
billion relief program for small businesses. Available through the Small
Business Administration (SBA), the bill provides partially forgivable loans
to small business for certain operating expenses and to ensure payment to
workers during the shutdown of businesses due to the coronavirus.
What is available for small businesses under the CARES Act?
Paycheck Protection Program (PPP) loans
Economic Injury Disaster Loans (EIDL), with an option for businesses to refinance unrelated COVID-19 EIDLs into a PPP
Small Business Tax Credit
Paycheck Protection Program Loan
How long do I have to apply for a loan under this program?
The covered loan period begins on February 15, 2020, and ends on June 30,
What is the maximum loan amount I can receive and what can I use it for?
The maximum loan amount is $10 million through December 31, 2020. The loan
amount formula is determined based on payroll costs incurred by your
The loan may be used for payroll support (salaries), paid sick or medical
leave, insurance premiums and certain operating costs such as a mortgage,
rent, and utility payments.
What are the eligibility requirements for the loan?
Must be a small business, 501(c)(3), 501 (c)(19) veteran's organization,
or tribal business described in 31(b)(2)(C), including sole proprietors,
independent contractors, and other self-employed individuals.
Must employ no more than 500 employees or the applicable size standards
for the industry as provided by the SBA, if higher.
The Act waives SBA "affiliation" rules for the Accommodation and Food
Services industry, such that businesses within this sector qualify for new
loans so long as they do not employ more than 500 workers at any given
Borrower must make a good-faith certification that the loan is necessary
due to the uncertainty of the current economic conditions caused by COVID-19
and will use the funds to retain workers, maintain payroll, and pay lease
and utility bills. Borrower must also certify that it is not receiving
duplicative funds for the same uses from another SBA program.
Does my small business have to pay back the loan?
Borrowers are eligible for loan forgiveness equal to the amount spent by
the borrower during an 8-week period after the origination date of the loan
payroll costs (eligible payroll costs may not exceed $100,000 per
interest payment on mortgage incurred prior to February 15, 2020;
payments for a lease in force prior to February 15, 2020; and
payment on any utility for which service began prior to February 15,
Amounts forgiven may not exceed the principal amount of the loan.
Additional wages paid to tipped workers are forgivable.
Any portion of a loan not used for forgiveness purposes is subject to
payback. Remaining loan balances will have a maturity of not more than 10
years, and the guarantee for that portion of the loan will remain intact.
Borrowers can opt for complete deferment of loan payments for at least six
months but no more than a year.
The maximum interest rate is set at 4%.
Borrowers will not be charged prepayment fees.
Canceled indebtedness resulting from the forgiveness provisions will not
be included in the borrower's taxable income.
What if I already decreased my workforce?
The amount forgiven will be reduced proportionally by any reduction in
employees retained compared to the prior year and reduced by the reduction
in pay of any employee beyond 25% of their prior year compensation.
Borrowers that re-hire workers previously laid off will not be penalized
for having a reduced payroll at the beginning of the period.
What else should I know about the loan?
Loans will be registered using the taxpayer identification number (TIN)
within 15 days.
Borrower and lender fees are waived for participating in the program.
The Act waives the “credit elsewhere” test as well as the collateral and
personal guarantee requirements under this program.
Economic Injury Disaster Loans and Grants
Economic Injury Disaster Loans and grants are available through the SBA to
provide relief from economic injury caused directly by a disaster including
the COVID-19 pandemic. Loans are available for up to $2 million. The EIDL
application will require standard business information as generally required
in loan applications.
What are the eligibility requirements?
Must be a small business or private non-profit organization in the United
States or territories that has sustained economic injury and located in a
disaster-declared county or contiguous county.
The CARES Act has extended eligibility to include tribal businesses,
cooperatives, and ESOPs with fewer than 500 employees or any individual
operating as a sole proprietor or an independent contractor during the
covered period (January 31, 2020 to December 31, 2020).
Private non-profits are also eligible for both grants and EIDLs.
During the covered period, EIDL loans are based solely on an applicant's
credit score or an appropriate alternative method for determining
applicant's ability to repay.
Borrower must certify that the business meets the eligibility
What if I had a loan application related to COVID-19 before the CARES Act?
For COVID-19 related loans before December 31, 2020, the SBA will waive
any personal guarantee on advances and loans below $200,000, the requirement
that an applicant needs to have been in business for the one-year period
before the disaster, and the credit elsewhere requirement.
Can I get an advance on the loan while my loan application is processed?
Yes, the CARES Act establishes an Emergency Grant to allow an eligible
entity who has applied for an EIDL loan due to COVID-19 to request an
advance on that loan.
Advances may not exceed $10,000.
The SBA will verify that your business meets the eligibility requirements.
SBA must distribute your advance within 3 days.
Even if your EIDL loan is denied, you will not be required to repay any
You may use your advance payment for paid sick leave to employees,
maintaining payroll, meeting increased costs to obtain materials, making
mortgage or rent payments, and repaying obligations that cannot be met due
to revenue losses.
What are some of the loan terms?
The interest rate is 3.75% for small businesses. The interest rate for
non-profits is 2.75%.
The SBA offers loans with long-term repayments up to a maximum of 30
Additional terms are determined on a case-by-case basis, based on the
borrower's ability to repay.
Apply here for an EIDL loan or
Small Business Tax Credit
The CARES Act also provides a refundable payroll tax credit for 50% of
employer payroll expenditures during the COVID-19 crisis.
What businesses are eligible for the tax credit?
Employers whose operations have been fully or partially suspended due to
the restrictions on commerce, travel, or group meetings.
Employers who have experienced a greater than 50% reduction in quarterly
receipts, measured on a year-over-year basis.
What expenditures are eligible for the credit?
Wages of workers who have been furloughed or face reduced hours as a
result of the employer's economic hardship or closure.
Employers with less than 100 workers, all employee wages are eligible
regardless of furlough status.
Wages and compensation, including health benefits for the first $10,000
paid by the employer to an eligible employee.
What are some restrictions of the tax credit?
Credit is not available to businesses receiving relief through the
Paycheck Protection Program.
Credit is available through December 31, 2020.
Is there any other relief regarding payroll?
Yes, businesses may delay payment of certain employer payroll taxes
through the end of 2020 that include the employer portion of FICA taxes,
employer and employee representative portion of Railroad Retirement taxes
and half of the Self-Employed Contributions Act tax liability.
All deferred amounts in 2020 will be due in two equal installments, with
one payment due at the end of 2021 and the second due at the end of 2022.
Deferral is not available to businesses participating in the Paycheck
Sacks Tierney has qualified attorneys to answer your questions about
these provisions and to help guide your business if you wish to apply for
and obtain any of the assistance available through the CARES Act.