On March 27, the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law.  The CARES Act significantly amends the longstanding Small Business Act by expanding the accessibility and the amount of funds available to small businesses.  Prior to the CARES Act, the Small Business Administration (SBA) offered loans generally through two avenues including Small Business Loan Programs and Disaster Loan Programs.  The CARES Act expands the offerings within both of these programs with the intent to help cover operating costs incurred and retain employees during the covered period (February 15, 2020 through June 30, 2020).  The following are some key highlights of the expansion to each program offered under the Act:

Expansion of the Small Business Loan Program – Paycheck Protection Program (PPP)

Loan Forgiveness

The most notable and impactful benefit provided to small businesses who receive loans under the PPP program is the potential to have the loans, or a portion thereof, forgiven and excluded from gross income.  The amount eligible for forgiveness is limited to eligible costs incurred during the covered period for payroll, mortgage interest, rent, and utilities.  However, this amount available for forgiveness can be reduced for either reductions in employees or in wages calculated as follows:

  • Reduction in employees – amount available for forgiveness multiplied by the average number of FTEs per month during the eight week period from the date loan is originated divided by the average number of FTEs during February 15, 2019 through June 30, 2019.
  • Reduction in wages – loan proceeds spent on eligible expenses reduced by the amount of any reduction in total salary or wages of any employee during the covered period that is in excess of 25% of the employee’s salary/wages during the employee’s most recent full quarter of employment before the covered period.  Certain limitations apply for employees with annualized compensation in excess of $100,000.

Employers who rehire employees or make up for wage reductions by June 30, 2020 can offset reductions in debt forgiveness.  Borrowers seeking forgiveness of amounts must submit to lender documentation to support FTE payroll and rates, covered costs/payments (mortgage, rent, utilities).


Eligible entities for the new programs include any business, nonprofit organization, veteran’s organization or Tribal business operating on February 15, 2020 employing not more than 500 employees (including both full-time and part-time employees) subject to exceptions for certain industries (hospitality and food service industries).   These loans require no fees, personal guarantee or collateral but do require the borrower provide a good faith certification that:

  • Uncertain economic conditions require a loan to support ongoing operations;
  • Funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments;
  • The applicant does not have any other application pending under this program for the same purpose; and
  • From February 15, 2020 until December 31, 2020, the applicant has not received duplicative amounts under this program.

Loan Terms

The maximum loan amount available under the act is the lesser of $10,000,000 or 2.5 times the average monthly payroll costs incurred in the one-year period before the loan is extended. The maximum term is 10 years at 4%

Permissible Uses of Loan Funds

In addition to uses already approved under the SBA’s Business Loan Program, loan funds may be used for:

  • Payroll costs subject to certain limitations including compensation of individuals in excess of $100,000;
  • Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Salaries, commissions, or similar compensations;
  • Payments of interest on mortgage obligations;
  • Rent/lease agreement payments;
  • Utilities; and
  • Interest on any other debt obligations incurred before the covered period.

Payment Deferral

The CARES Act provides that businesses that have a pending or approved loan application under this program are qualify for complete payment deferment relief (principal, interest, and fees) for six months to one year.

Expansion of the Disaster Loan Program – Economic Impact Disaster Loan (EIDL)

In addition to the expansion of the SBA’s Business Loan Program described above, the CARES Act expands the SBA’s Disaster Loan Program including types of businesses and entities that are eligible, elimination of certain requirements for personal guarantees, period of time required to be in business and availability of credit elsewhere.  Entities applying for loans under the Disaster Loan Program in response to COVID-19 may, during the covered period, request an emergency advance from the Administrator of up to $10,000, which does not have to be repaid, even if the loan application is later denied.  The covered period for this program is January 31, 2020 through December 31, 2020.  The Administrator is charged with verifying an applicant’s eligibility by accepting a “self-certification.” Advances are to be awarded within three days of an application and must be used for approved purposes.

Coordination with other Business Provisions of the CARES Act

Please note that if an employer is receiving a Small Business Interruption Loan under the Small Business Act they are NOT eligible for the Employee Retention Tax Credit now available under the CARES Act.  Please click here to view our article which more fully describes the Employee Retention Tax Credit as well as many other provisions under the CARES Act.

The highlights mentioned above are not an all-inclusive summary.  There are many provisions of the Act not described above.  We will provide additional information in the days and weeks ahead.  Should you have any questions, please call our office at 541-687-1170.