COVID19 Update: The CARES Act

A Brief Overview of Key Provisions for Small Businesses

While large and small businesses are both suffering from the effects of the COVID-19 pandemic, small businesses generally lack the resources to outlast what is likely to be a long-term impact on their business operations. On Friday, March 27, the largest economic stimulus package in American history, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was signed into law, allocating $2.1 trillion in aid to individuals and businesses. The CARES Act contains may provisions that are designated to provide much-needed aid to small businesses. The following is a brief guide on several key provisions that are applicable to small and mid-size employers:

Paycheck Protection Program (PPP)

The Paycheck Protection Program, which consists of $350 billion in government-backed loans to businesses, is perhaps the most helpful CARES Act provision to provide effective assistance to small businesses. Eligible companies can apply to borrow up to 2.5 times their average monthly payroll costs to cover payrolls through June 2020.


All businesses – including 501(c)(3) organizations, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees that were fully operational on February 15, 2020 with employees on payroll are eligible to apply.The 500-employee limit includes employees of all statuses, including full-time, part-time, and others. Some businesses exceeding the 500-employee limit in the accommodations and food service business may be eligible if they meet certain applicable SBA employee-based sized standards for those industries. Businesses operating as a franchisee and receiving SBA assistance may also be eligible.

Amount of Funding

Loans can be for an amount up to 2.5 times the employer’s average monthly payroll costs, capped at $100,000 on an annualized basis for each employee and at $10 million total. Part-time employees and contractors are included in the calculation, but compensation above $100,000 in any individual employee’s wages, compensation for any non-U.S. employee, or payment of sick or family leave that are covered by the Families First Coronavirus Response Act (FFCRA) are excluded.

This loan has a maturity of 2 years and an interest rate of 1%. Payments will be deferred for six months, but not for more than a year, and prepayment penalties are prohibited.

Usage of Funds

At least 75% of the loan proceeds should be used for employee payroll costs, including benefits. Payroll costs include salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee), and employee benefits which include costs for vacation, parental, family, medical, or sick leave, insurance premiums, retirement benefit payments, and state and local taxes on compensation. It should be noted that the CARES Act expressly excludes qualified sick and family leaves wages for which credit can be claimed under the FFCRA.

The remaining 25% can be used for non-payroll costs, including rent, interest on the mortgage obligations, and utility payments. All non-payroll obligations must arise from leases, mortgages, and service contracts that were in force before February 15, 2020.


A business that uses the loan funds for paying qualifying payroll costs, most mortgage interest, rent or utility payments over the eight week period after the loan is made can get the loan funds forgiven, so long as the business maintains their employee and compensation levels during that same period. The amount forgiven may be reduced if the business reduces the number of full-time employees or reduces wages for employees earning $100,000 or less by more than 25%. If the business reduced employee numbers or wages between February 15, 2020 and April 26, 2020, the business has until June 30, 2020 to reinstate these numbers to previous year’s levels to maintain eligibility for loan forgiveness.

Application Process

Currently, applications can be made through any existing SBA lender (a list is provided on the SBA website) or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.

The application period for loans through existing SBA lenders opened on April 3, 2020 for small businesses and sole proprietorships. The application period for independent contractors and self-employed individuals will open on April 10, 2020. Regulated lenders other than existing SBA lenders will be available to make these loans on a rolling basis. The loans will be distributed on first-come, first-serve basis, so it is imperative to apply as soon as practicable. The program is available until June 30, 2020. The application for can be accessed online.

Applicants will not be asked if they were denied credit previously. Additionally, lenders will not require a personal guarantee or collateral for the loan.

Updated Business Tax Provisions

Employee Retention Credit

Employers whose operations have been either fully or partially suspended by government restrictions, or whose gross receipts have declined by more than 50% when compared to the same quarter in 2019, may receive a 50% payroll tax credit of up to $10,000 of wages paid to an eligible employee between March 12, 2020 and December 31, 2020. Qualified wages include actual compensation to the employee as well as eligible healthcare costs. For employers with 100 or fewer employees, all employee wages for full-time employees are eligible for the credit regardless of whether any employees were actually furloughed.

Deferred Payment of Employer Payroll Taxes

The CARES Act provides tax credit advances for paid sick and FMLA leave to alleviate cash flow concerns created by employers who had to bear up-front cost for providing paid leave. It also provides penalty relief for employers who do not deposit employer-side Social Security taxes in anticipation of receiving the paid leave tax credit. Please check out IRS’s website with FAQs related to the tax credits.

Amendments to the Family First Coronavirus Response Act (FFCRA)

The CARES Act made several amendments to the Family First Coronavirus Response Act (FFCRA), which provides additional relief to individuals and businesses. The FFCRA provides reimbursements to American private employers with fewer than 500 employees with tax credits for the cost of providing employees with COVID-19-related paid sick leave. Small businesses with fewer than 50 employees can seek an exemption from the requirement to provide leave by showing that the leave requirement would jeopardize the viability of the business. For more information regarding FFCRA, the U.S. Department of Labor has extensive resources, including helpful fact sheets, FAQs, and posters for employees on their website.

SBA Economic Injury Disaster Loan (EIDL) Program Expansion

The CARES Act also offers additional financial support to businesses experiencing reduced revenue by expanding the Economic Injury Disaster Loan (EIDL) Program, which provides low-interest disaster loans. Businesses can also receive a $10,000 advance on the loan, allowing businesses to obtain immediate working capital. One thing to note – although businesses can apply and obtain loans through both the Paycheck Protection Program and the EIDL Program, the loan funds received must be used to pay for different expenses. Businesses can apply online.

Additional Resources

The Small Business Administration (SBA) has information regarding all COVID-19 related programs that SBA is providing, including the Paycheck Protection Program, Economic Injury Disaster Loans and Emergency Grants, and Small Business Debt Relief.

The Department of the Treasury has information regarding the Paycheck Protection Program and other tax provisions meant to help employers.

The U.S. Senate Committee on Small Business and Entrepreneurship has also assembled a very comprehensive CARES Act guide for small business owners.

This is a quickly changing area and we have provided our best understanding and interpretation as of April 6, 2020. Please check helpful government websites above for the most up-to-date information. As always, we are here to provide assistance as we all navigate this unprecedented situation together.