Small Business Relief in the CARES Act

The Senate has approved a nearly $2 trillion legislative package, its third emergency supplemental bill in response to the coronavirus outbreak, known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Among its many provisions, the bill provides significant further relief for small businesses. We have provided a top-level summary of pertinent provisions to our clients. However, the purpose of this article is to focus on the specific provisions within the CARES Act which provide for significant relief for small businesses, who make up the bulk of our clients.

The CARES act has earmarked $349 billion for Small Business Administration (SBA) loan guarantees, subsidies and additional funding. The SBA Administrator has been tasked with carrying out these provisions with 15 days of the enactment of the bill. These provisions come in addition to the first coronavirus emergency funding bill (the Coronavirus Preparedness and Response Supplemental Appropriations Act—H.R. 6074, signed into law on March 6, 2020) $7 billion in low-cost loans to affected small businesses through economic injury disaster loans (EIDLs).

We hope this information can help small businesses better understand some of the financial assistance available to them.

7(a) Paycheck Protection Program

The 7(a) loan program is the SBA’s primary method for providing financial assistance to small businesses. The CARES Act will increase the maximum 7(a) loan amount to $10 million and will expand allowable uses of 7(a) loans to include payroll costs, costs related to group healthcare benefits during periods of paid sick, medical, or family leave, and insurance premiums, as well as employee salaries, mortgage interest payments, rent, utilities and interest on other debt obligations.

For the purposes of the CARES Act, payroll costs include: (1) salary/wages/commission, (2) payment of cash tip (or equivalent), (3) payment for vacation, parental, family, medical or sick leave, (4) allowance for dismissal or separation, (5) payment required for group health care benefits, (6) payment of any retirement benefit and (7) payment of State or local tax assessed on employee compensation. Full-time and part-time employees both count.

Loan amounts will total the lesser of: (1) $10 million or (2) 2.5 times an applicant’s average total monthly payments for payroll costs incurred during the one-year period before the date on which the loan is made, plus the outstanding amount of any 7(a) loan, made available between January 31, 2020, and when a covered loan is made available, that is to be refinanced under a covered loan. Loan amounts for seasonal employers and other applicants that were not in business during the period between February 15, 2019, and June 30, 2019, will be determined using a modified version of the above formula.

Under the CARES Act, the covered loan period for this program will begin on February 15, 2020, and end on June 30, 2020. The CARES Act has also increased eligibility, so that it now includes small businesses, 501(c)(3) nonprofit organizations, 501(c)(19) veteran organizations, tribal businesses with fewer than 500 employees, sole proprietors, independent contractors, self-employed individuals, and businesses in the hospitality and restaurant industries with more than one physical location and no more than 500 employees per physical location. For the purpose of determining whether a business, nonprofit, veterans organization or tribal business employs no more than 500 employees, the term “employee” includes individuals employed on a full-time, part-time or other basis.

The legislation gives approved lenders the delegated authority to make and approve loans. In evaluating a borrower’s eligibility, a lender must consider: whether a business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or paid independent contractors. Borrowers will be required to make good faith certifications that the uncertainty of current economic conditions makes the loan request necessary to support ongoing operations. Borrowers must pledge to use funds to retain workers, maintain payroll and pay other debt obligations. A borrower must also certify that it does not have an application pending for a loan for the same purpose and duplicative of amounts applied for or received under a covered loan, nor has it received such a loan between February 15, 2020, and December 31, 2020.


  • A borrower that receives a 7(a) loan for employee salaries, payroll support, mortgage payments and/or other debt obligations will not be able to receive an SBA economic injury disaster loan (EIDL) for the same purpose.
  • Interest rates are capped at four percent.
  • Both borrower and lender fees for 7(a) loans will be waived.
  • The “credit elsewhere” test and personal guarantee and collateral requirements will be waived during the covered period.
  • Lenders are required to provide complete deferment of 7(a) loan payments for not less than six months and not more than one year, including payment of principal, interest and fees. SBA is required to disseminate guidance on the deferment process within 30 days.
  • Existing 7(a) loans made between January 31, 2020, and the date on which covered loans are made available may be refinanced as part of a covered loan.

Loan Forgiveness

Perhaps one of the most touted features of the CARES Act provisions regarding SBA 7(a) loans is the availability of loan forgiveness. However, borrowers are cautioned to understand the details of the loan forgiveness provisions, as they are specifically tailored.

The CARES Act provides that borrowers will be eligible for loan forgiveness in an amount equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on the following terms:

  • Payroll costs.
  • Interest payment on any mortgage incurred prior to February 15, 2020.
  • Payment of rent on any lease in force prior to February 15, 2020.
  • Payment on any utility for which service began before February 15, 2020.
  • The amount forgiven will be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of their prior year compensation.
  • To incentivize employers to rehire employees already laid off due to the coronavirus, borrowers that rehire workers previously laid off will not be penalized for having reduced payroll at the beginning of the period.

Emergency EIDL Grants

The CARES Act further establishes an emergency grant to allow an eligible entity that has applied for an EIDL loan due to the coronavirus to request an advance on that loan of no more than $10,000, which the SBA must distribute within three days. Applicants will not be required to repay such an advance payment, even if subsequently denied an EIDL loan.

Eligible entities include startups, tribal businesses, cooperatives and ESOPs with fewer than 500 employees, and any individual operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020, to December 31, 2020).

Final Thoughts

While we hope this summary is helpful, the CARES Act contains further provisions and details, including (but not limited to) financial awards for entrepreneurial development, State Trade Expansion Program (STEP) Grants, grants to the Minority Business Centers, and subsidies for certain loan payments (such as existing 7(a) loans, 504 and micro loan products — but excluding Paycheck Protection Program loans). Our firm is ready and standing-by to help our clients navigate this new regulatory and legislative territory.


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