Coronavirus Aid, Relief, and Economic Security Act


The CARES Act created the Paycheck Protection Program and expanded the Economic Injury Disaster Loan program to help struggling small businesses maintain their employees during the COVID-19 crisis. Businesses that maintain their employees and payrolls are eligible for loan forgiveness. Guidance for this newly enacted law is being issued daily and is difficult to understand. Here’s a breakdown of the most recent details of the programs.


Paycheck Protection Program Loans

  • What: Loans that are 100% federally backed through the Small Business Administration for small businesses that keep staff employed until June 30, 2020.
  • Effective Date: February 15, 2020 – June 30, 2020
  • Eligible Business: Any business, sole proprietor, or nonprofit that has 500 employees or less. (unless the applicable industry has a higher size standard under SBA rules)
  • Maximum Loan Amount: The lesser of:
  1. $10,000,000.00; or
  2. 2.5 times the average of the total monthly payroll costs incurred for the one-year period before the date of the loan.
  • Collateral Requirements: None
  • 6 Month Deferment: There is a complete deferment of principal and fees for 6 months. (interest will accrue)
  • Usage of Proceeds: The loan may be used for payroll costs, continuation of group health insurance, employee salaries, rent, utilities, and other debt requirements.
  • Excluded Usage of Proceeds: Employee compensation in excess of an annual $100,000 per year (prorated for the 8-week covered period), employee compensation for employees that reside outside of the United States, certain federal taxes, and any sick and family leave compensation for which a credit is allowed under the Families First Act is excluded.
  • Maximum Maturity of Loan: 10 years (The U.S. Department of Treasury has put the maturity of the loan currently at 2 years.)
  • Maximum Interest Rate: May not exceed 4% (The U.S. Department of Treasury has put the interest rate currently at 0.5%)
  • Borrowers may only use the Paycheck Protection Program Loan or the Economic Injury Disaster Loan (EIDL), but cannot use both unless funds are used for different expenses.


Loan Forgiveness of Paycheck Protection Program Loans

  • What: Paycheck protection loans are eligible for forgiveness, up to 100% of the principal amount of the loan.
  • Amount Forgiven: The total costs incurred and paid during the 8-week period following the origination of the loan.
  • Costs Incurred: The total of:
  1. payroll costs; (75% of amount forgiven)
  2. payment of interest on any covered mortgage obligation;
  3. payment on any covered rent obligation; and
  4. utility payments.
  • Taxes: Forgiveness amount may be excluded from gross income.
  • Expected Forgiveness Amount: Lenders report to the Small Business Administration an “expected forgiveness amount” based on documentation provided by the loan recipient.
  • Documentation Required:
  1. verification of the number of full-time employees on payroll and pay rates;
  2. verification of payments on covered mortgage obligations, lease obligations, and utility obligations;
  3. certification from a representative of the eligible recipient authorized to make such certifications that the documentation is accurate, and the amount of forgiveness requested; and
  4. other necessary documentation requested by the Small Business Administration.
  • Reduction of Forgiveness: Forgiveness amounts are reduced for a reduction in employees or employee compensation (for employees that earn less than $100,000) during the 8-week period following the origination of the loan.
  • Any reduction in employees or to employee compensation before April 26, 2020 is not counted against the forgiveness amount if the business rehires the same number of employees or returns the compensation to the applicable rate by June 30, 2020.


Emergency EIDL (Economic Injury Disaster Loan) Grants


  • What: An expansion of the SBA’s Disaster Loan Program.
  • Effective Date: January 31, 2020 – December 31, 2020
  • Eligible Entity: Any business, sole proprietorship, cooperative, ESOP, or tribal small business that has 500 employees or less is eligible.
  • Approval: Based on credit score
  • Owner’s Personal Guarantee: Not required unless above $200,000
  • Emergency Grant: Applicants may request a $10,000 grant to maintain payroll. Grants are paid within 3 days. Grants do not have to be repaid even if the loan application is denied.
  • Usage of Proceeds: Funds may be used for:
  1. providing paid sick leave to employees unable to work due to the direct effect of COVID-19;
  2. maintaining payroll to retain employees during business disruptions or substantial slowdowns;
  3. meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
  4. making rent or mortgage payments; and
  5. repaying obligations that cannot be met due to revenue losses.
  • Borrowers may only use the Paycheck Protection Program Loan or the Economic Injury Disaster Loan (EIDL), but cannot use both unless funds are used for different expenses.