Small Business CARES Act

March 12, 2020 Steven M. Goldstein Candace D. French COVID-19

The “Keeping American Workers Paid and Employed Act” is a $349 billion relief program for small businesses.


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 loan
  • 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, 2020.

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 business.

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 location.

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 for:

  • payroll costs (eligible payroll costs may not exceed $100,000 per eligible employee);
  • 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, 2020.

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 requirements.

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 advance payments.

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 years.

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 advance.

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 Protection Program.

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.