The Coronavirus Aid, Relief, and Economic Securities Act Provides Help for Small Businesses

March 31, 2020
The Coronavirus Aid, Relief, and Economic Securities Act Provides Help for Small Businesses

The President recently signed into effect the Coronavirus Aid, Relief, and Economic Security Act (CARES Act): “To provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.” Notably, the Act provides much needed loans to small businesses suffering from the economic impacts of COVID-19.

With respect to small businesses, The CARES Act:

 1.                  Establishes a program for forgivable loans; and

 2.                  Provides additional funding for grants and technical assistance.

The Small Business Administration (SBA), under the CARES Act, will oversee the “Paycheck Protection Program,” which will distribute $350 billion to small businesses that can be forgiven if the companies meet certain requirements.

According to the SBA, “The Paycheck Protection Program is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses. If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable.” The loans under the Paycheck Protection Program will be available to companies with 500 or fewer employees.

1.      Small Business Interruption Loans Available Under the CARES Act

The SBA is the agency charged with administering the loan program for small businesses under the CARES Act. The details of the loan program are explained below:

Covered Period

o   Beginning March 1, 2020 and ending on December 31, 2020.

·         General

o   During the covered period, any business which employs not more than 500 employees shall be eligible to receive a loan made under section 7(a) of the Small Business Act (15 U.S.C. 636(a)).    

·         Maximum Loan Amount

o   The Maximum loan shall be the lesser of:

§  The product obtained by multiplying:

·         The average total monthly payments by the applicant for payroll, mortgage payments, rent payments, and payments on any other debt obligations incurred during the 1-year period before the date on which the loan is made,[1] by

·         4; or

§  $10,000,000.

·         Allowable Uses of Program Loans

o   Payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave;

o   Employee salaries;

o   Mortgage payments;

o   Rent;

o   Utilities; and

o   “Any other debt obligations” that were incurred before March 1, 2020.

·         Fee waiver for 7(a) Loans

o   The SBA will not collect any fees associated with the small business loans under the CARES Act “to the maximum extent possible.”

·         Loan Forgiveness

o   An employer who receives a loan under the CARES Act shall be eligible for forgiveness of the loan in an amount equal to the cost of maintaining payroll continuity during the covered period.[2]

 2.      Other Assistance Available to Small Businesses

·         Economic Injury Disaster Loans and Loan Advance

o   The SBA’s Economic Injury Disaster Loan program provides small businesses with loans of up to $2 million to help overcome temporary loss of revenue due to the COVID-19 pandemic. Funds are available within three days of a successful application, and this loan advance will not have to be repaid.



           Small businesses are faced with unique financial challenges in light of the COVID-19 pandemic. The CARES Act is a direct response to the needs of small businesses and helps employers survive this crisis through forgivable loans.

[1] Except that, in the case of an applicant that is seasonal employer, as determined by the Administrator, the average total monthly payments for payroll shall be for the period beginning March 1, 2019 and ending June 30, 2019.

[2] The total amount of loan forgiveness is subject to certain limitations.