03-31-2020 12:27 PM By Colin

CARES Act Cliff Notes

Congress has approved a bill known as the CARES Act to provide $349bn in guaranteed loans to small businesses. Here is a link to the bill (known as HR 748) which has been passed into law. There are several programs available to small businesses, here is a brief summary of the notable ones:


(Disclaimer: The following is our interpretation of the CARES Act and should not be considered legal advice. Consult with your advisors prior to making a business decision.)


Economic Injury Disaster Loan (EIDL)

  • Apply directly with SBA (no bank involvement)
  • Eligibility
    • Less than 500 employees
    • In business prior to Jan 31, 2020
  • Loan amount up to $2m
  • No personal guarantees for amounts less than $200,000
  • Approval by SBA can be based solely on applicant’s credit score
  • Advances – Can receive $10,000 emergency cash advance with forgiveness if used for payroll, increased costs from supply chain disruption (i.e. inventory), mortgage interest, or rents.


Paycheck Protection Program (Section 1102)

  • Apply through SBA lending partner (check with your local banker)
  • Covered Period is defined as Feb 15, 2020 to June 30, 2020
  • Eligibility
    • Less than 500 employees
    • Sole proprietors, independent contractors, and self-employed included
    • Extra relief for Accommodations and Food Services (NAICS Code 72)
    • In business prior to Feb 15, 2020
  • Loan Amount – Maximum loan amount is lesser of:
    • 2.5 x the average total monthly payments for payroll costs incurred during the 1-year period before the date on which the loan is made
    • 2.5 x the average total monthly payments for payroll costs incurred during the period beginning on January 1, 2020 and ending on February 29, 2020
    • $10,000,000
  • Use of proceeds – Allowed uses of the loan:
    • Payroll including salaries, commissions, or similar compensation
    • Rent
    • Utilities
    • Interest on any debt incurred before the covered period (Feb 15-June 30, 2020)
    • Payments of interest on any mortgage obligations (not principal)
    • Group healthcare benefits
  • Deferral of payments for at least 6 months but not more than 12 months (not just interest, the entire payment)
  • Loan Forgiveness – qualify if funds used to keep “normal” employee levels for 8 weeks following loan origination; must apply for forgiveness with proper documentation; forgivable amount is formula-driven
  • Amounts not forgiven have a maximum maturity of 10 years from the date applied for loan forgiveness, interest rates of no more than 4%, and no personal guarantees and no collateral required


Employer Payroll Tax Deferral (Section 2302)

  • Ability to defer employer portion of Federal payroll taxes
  • 50% owed by Dec 31, 2021
  • Remaining amount owed by Dec 31, 2022


Employee Retention Credit for Employers Subject to Closure (Section 2301)

  • If your business was forced to close due to COVID-19, then you are eligible for a credit to employment taxes
  • Limited to 50% of qualified wages
  • Eligibility limited to businesses with “significant decline in gross receipts” in calendar Q1 2020 – defined as 50% of sales from the same quarter in the prior year
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