COVID-19 Update: CARES Act


Hannis T. Bourgeois is closely monitoring the Coronavirus Aid, Relief, and Economic Security (CARES) Act as it makes its way through Congress and to the President.  When implemented, the $2 trillion stimulus package will provide an estimated $349 billion in loans to small businesses under section 7(a) of the Small Business Act, 15 U.S.C. 636(a).  There is a loan forgiveness provision that allows significant portions of the loans to be forgiven if used for certain purposes. 

Below is a summary of assistance programs available for small businesses.  The first is the Economic Injury Disaster Loan program which is currently available with an application process through the Small Business Administration (SBA).  The second is the program in the CARES Act which will become available through financial institutions when enacted. Small businesses that plan to apply for these loans should begin the process of gathering relevant information and discussing with their financial institution as funding is limited.

Economic Injury Disaster Loan

  • They are available to small businesses, small agricultural cooperatives, small aquaculture businesses and most private non-profits.
  • They are directly through the SBA, not through banks.
  • Applicants need to show they have suffered working capital losses due to the coronavirus disaster.
  • They offer working capital loans for payroll, accounts payable, and other bills that could have been paid had the disaster not occurred; could be used to pay fixed debts.
  • The SBA will do an internal test to determine eligibility, so applicants do not need to produce any bank documentation for their application.
  • 95% of the loans previously issued have been for $500,000 or less but can go up to $2 million. The SBA will determine the loan amount.
  • How to apply:

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

  • On March 25, 2020, the Senate approved the CARES Act.  It has to be approved by the House of Representatives and then signed by President Donald Trump
  • This is pending legislation subject to revision.
  • Qualified SBA lenders would be able to loan money directly to eligible customers
  • There will be limited funding.
  • Now is the time to call your qualified SBA lender and begin the process of gathering financial and tax records.
  • The Paycheck Protection Program will provide nearly $350 billion in loans and loan guarantees for the covered period of February 15, 2020 through June 30, 2020.
    • It will cover payroll costs (up to annual amounts of $100,000 per employee); continuation of group health care benefits; employee salaries, commissions, or similar compensation; mortgage payments; rent; utilities; and interest on any other debt obligations incurred before the covered period. 
    • It will extend eligibility to companies of 500 employees or less and 501(c)(3) nonprofits, veterans organizations, and tribal small business concerns. 
    • Sole-proprietors, independent contractors, and other self-employed individuals may also participate.
    • Loan Forgiveness is available up to the principal amount of the financing.
    • Loan forgiveness would be reduced for employers who lay-off workers or reduce employee compensation except where employers rehire workers or pay additional wages to tipped workers.
    • Loan forgiveness is available for payroll costs, mortgage interest, rent, and utility payments. 
    • Forgiven loan amounts will not be included as gross income.

The general formula is the lesser of the average total monthly payments for payroll costs during the 1-year period before the date the loan is made, multiplied by 2.5; or $10 million.