CARES Act Relief for Small Businesses

March 31, 2020

On Friday, March 27th, the President signed the much anticipated $2 Trillion COVID-19 stimulus package, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. Although the CARES Act is vast in scope, of immediate importance to small business owners, sole proprietors, independent contractors and charitable organizations are the availability of forgivable loans for small businesses, emergency grants and debt relief for businesses with existing SBA loans.




$350 Billion has been made available via the Paycheck Protection Program (PPP), a 100% federally guaranteed loan program for employers that maintain their payrolls during the COVID-19 crisis.


Businesses that maintain their payroll during this crisis will be entitled to the forgiveness of that portion of the loan used to cover payroll expense, mortgage interest, rent and utilities. The PPP is retroactive to February 15, 2020 in order to enable employers to bring employees that have already been laid off back onto their payrolls.


Eligible businesses and entities include: 


• Businesses with fewer than 500 employees 

• Non-Profits, 501(c)(3) and 501(c)(19)

• Sole Proprietors

• Independent Contractors

• Eligible Self Employed Individuals


Loan Amounts


If you were in business between February 15, 2019 and June 30, 2019 you may borrow up to 2.5 times your average monthly payroll cost during that period up to a maximum of $10 million.


If you were not in business between February 15, 2019 and June 30, 2019 you may borrow up to 2.5 times your average monthly payroll cost between January 1, 2020 and February 29, 2020.

For purposes of this calculation, payroll expense includes employee compensation, payment for vacation and leave, severance benefits, payments for group health care benefits, payment of retirement benefits and payment of state and local taxes assessed on employee compensation.


Use of Loan Proceeds


Loan proceeds may be used to cover payroll expenses as set forth above, costs related to the continuation of group healthcare benefits during periods of paid leave, salaries, commissions and similar compensation, payment of interest on mortgages obligations (not including pre-payment or payment of principal), rent, utilities and interest on debt incurred before February 15, 2020.


Key Features


PPP loans differ from typical SBA loans in a number of material ways:


• No Personal Guarantees 

• No Collateral

• No Requirement to demonstrate that the business cannot obtain credit from other sources


Borrowers will be required to certify that the loan is necessary due to current economic conditions and that the funds will be used to retain employees and cover other approved expenses.


Loan Applications


Loans will be available through SBA approved banks, credit unions and other qualified lenders. It is expected that the SBA will issue guidance with respect to the application process shortly.


Loan Forgiveness & Interest


PPP loan recipients may apply for loan forgiveness through their lender. To be eligible for forgiveness, you must be able to provide:


• Documentation verifying the number of employees and pay rates including IRS payroll tax filings, State income and payroll tax filings and unemployment insurance filings;

• Documentation verifying payments on covered mortgage obligations, lease obligations and utilities; and

• Certification that the documentation is true and that the amount to be forgiven was used in accordance with PPP guidelines.


Loan amounts not forgiven will be treated as an ongoing loan with a maximum term of ten years and a maximum interest rate of 4%. Principal and interest will be deferred for six months to one year after disbursement of the loan.




These grants provide an emergency advance of up to $10,000 to small business and non-profits impacted by COVID-19. Under this program, funds will be disbursed within three days of the submission of an application for an SBA Economic Injury Disaster Loan (EIDL).


To obtain the advance, apply for EIDL and then request the advance. The advance does not need to be repaid and may be used to cover payroll expenses, sick leave pay, meet increased production costs due to supply chain disruptions or pay other debts including rent and mortgage payments.


EIDLs and emergency grants are available to businesses with fewer than 500 employees, sole proprietors with or without employees, independent contractors, co-ops and employee owned businesses and charitable organizations with exemptions under 501(c), (d) or (e) of the Internal Revenue Code. Applicants must have been in operation as of January 31, 2020.


EIDLs and emergency grants are retroactive to January 31, 2020 and will be available through December 31, 2020. Businesses that apply for an EIDL may also apply for a forgivable PPP loan. If you receive both, you cannot use your EIDL for the same purpose as your Paycheck Protection Program loan.


You may apply for an EIDL directly through the SBA by clicking here.




The Small Business Debt Relief Program is intended to provide relief for small businesses with (non-disaster) SBA Loans including 7(a) Loans. Under this program, the SBA will cover all loan payments on SBA loans for six months. This relief will also be available to borrowers who take out (non-disaster) SBA Loans for the next six months.


Before you make any decisions with respect to which program or programs are right for your business or if you require assistance with respect to the application process of any component of the CARES Act or other COVID-19 related legislation, please contact a member of our Financial ServicesBusiness or Employment Law practice groups.