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CARES Act: Guidance for Small Businesses

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By: Stephen Zaharias, William Reddington, Pierre Chabot and Kathleen Peahl.

March 29, 2020

The coronavirus pandemic has already wrought unprecedented economic harm to the American economy. In response, Congress passed – and President Trump signed into law – an unprecedented stimulus bill worth over $2 trillion. The “Coronavirus Aid, Relief, and Economic Security Act,” or “CARES Act,” at nearly 900 pages long, was designed to provide emergency relief to numerous sectors of the American economy. 

We will post additional white papers about the stimulus measures available to individuals, large corporations, non-profit entities, colleges and universities, hospitals and health systems, and others, but this initial installment will focus on one of the chief engines of the New Hampshire economy: small business. 

The CARES Act is designed to help small businesses by providing emergency grants, forgivable loans, and other benefits. This publication is merely a summary of certain aspects of the CARES Act pertaining to small businesses; it does not necessarily include all of the details and specifics found in the many hundreds of pages of legislative text, nor do we seek to predict the contents of the large volume of regulatory guidance that is forthcoming. If you have any specific questions, you should consult with counsel. Of course, the attorneys at Wadleigh, Starr & Peters, PLLC are here to address any questions or concerns that small business owners may have as they try to navigate the complexities of, and take advantage of the various forms of assistance offered through, the CARES Act.  

The CARES Act offers numerous opportunities for small businesses and other eligible organizations to obtain economic assistance through, e.g., forgivable loans, grants, tax credits, and payroll tax deferment. Various forms of economic relief are available to “small businesses,” which is to say those with fewer than 500 employees. There are more precise definitions of the entities eligible to take advantage of the CARES Act in the text of the Act itself, and further clarification as to which “small businesses” will qualify is expected to be included in the regulations to be issued by the Small Business Administration, but it is always recommended that you consult with counsel to determine if your business is eligible.

Forgivable Loans Pursuant to the Paycheck Protection Program

The first avenue of relief for small businesses is established in Section 1102 of the CARES Act, the Paycheck Protection Program. This Section allocates approximately $350 billion to the Small Business Administration (“SBA”) to provide eligible small businesses with loans of up to $10 million per business to help cover payroll costs, costs related to the continuation of group health care benefits, employee salaries and commissions, payments of interest on mortgage obligations, rent, and utilities.[1] The maximum amount of such a loan, which is capped at $10 million per business, is based on a formula tied to payroll costs of each employer.[2] Generally speaking, these loans are available to small businesses that were operational as of February 15, 2020 and had employees to whom the borrower paid salaries and for whom it paid payroll taxes.[3]

Loans made pursuant to the Paycheck Protection Program have a maximum maturity of 10 years and an interest rate that cannot exceed 4%.[4] Additionally, there is a payment deferment provision set forth in the CARES Act, which automatically defers payment of principal, interest and fees on such loans for a period of at least six months.[5]

One vital aspect of the loans offered pursuant to the Paycheck Protection Program is that the loans, or a portion thereof, may be forgiven. In particular, small businesses are eligible to have such loans forgiven to the extent that the business uses the loan to cover up to 8 weeks of payroll costs, interest payments on mortgages, rent and utilities, and to the extent that the business maintains its employee payroll for that period.[6]

However, the amount forgiven is subject to several limitations. For example, the amount forgiven may not exceed the principal of the loan.[7] Additionally, the amount of the loan subject to forgiveness will be reduced proportionately by the employer’s reduction in its number of employees and by any reduction in employee compensation beyond a 25% reduction (as compared to the previous quarter).[8] Thus, small businesses are incentivized to retain their employees at their current compensation levels. Moreover, in order to receive any forgiveness, various documentation is required to be provided to the lender.[9]

Importantly, the forgiveness of any part of these loans can be excluded from gross income under the CARES Act.[10] Additionally, standard fees imposed under Section 7 of the Small Business Act are waived, as is the requirement of a personal guarantee by the business owner.[11] The Paycheck Protection Program also attempts to reduce other regulatory hurdles, such as eliminating the requirement that the borrower attempt to obtain credit elsewhere.[12]

The Paycheck Protection Program affords small businesses a significant opportunity to obtain assistance in meeting the unprecedented economic challenges they are currently facing. It is important that business owners and stakeholders be proactive about securing this federal assistance, however, as it is by its nature limited and it is unclear that additional funds will be allocated to support these programs.   

Economic Injury Disaster Loans and Emergency Advances

In addition to the Paycheck Protection Program, the CARES Act also expands eligibility for disaster loans under Section 7(b) of the Small Business Act, while also providing certain emergency grants in the form of advanced payments under such loans. The CARES Act provides that “Economic Injury Disaster Loans” or “EIDLs” are subject to more inclusive terms covering a period from January 31, 2020 to December 31, 2020.[13] Small businesses are eligible for these loans.[14]

Additionally, when applying for such disaster loans, eligible entities (including small businesses) may seek certain advanced payments.[15] The EIDL advance is capped at $10,000, and the advance does not need to be repaid, even if the applicant is subsequently denied an EIDL.[16]  The advanced payment may be used in a variety of ways, including to cover paid sick leave to employees unable to work due to the direct effects of the coronavirus, to maintain payroll and retain employees, to meet increased costs to obtain materials, make rent or mortgage payments, and to repay obligations that cannot be met due to revenue loss.[17] However, note that if an entity received an advanced payment and another loan (such as a Paycheck Protection Loan), the advanced payment may reduce the forgiveness amount for any other loan received through the CARES Act.[18]

The CARES Act provides that, prior to any disbursement of an EIDL or related advanced payment, the requesting entity must self-certify that it is eligible for such loan and/or advanced payment. Additionally, the CARES Act has waived the personal guarantee requirement on advances and loans of $200,000 or less.[19] Also waived are the requirements that an applicant has been unable to obtain credit elsewhere and that the applicant must have been in business for one year prior to the disaster (so long as the applicant was in business as of January 31, 2020).[20] Moreover, the CARES Act allows lenders to approve applicants based solely on their credit score or by alternative appropriate methods to determine the applicant’s ability to pay.[21]

Thus, the provisions of the CARES Act pertaining to EIDLs could help provide some emergency and immediate relief to small businesses that are struggling right now due to the coronavirus outbreak. 

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

The CARES Act also provides certain employers with eligibility for an employee retention credit against payroll taxes.[22] The amount of such a credit would equal up to 50% of the qualified wages paid during the covered time (these provisions apply only to wages paid after March 12, 2020 and before January 1, 2021), up to $10,000 per employee.[23]

To qualify for the credit, the employer must have carried on a trade or business during 2020, and (1) in any calendar quarter, have had its business fully or partially suspended due to orders from an appropriate governmental authority as a result of the coronavirus, or (2) had a significant decline in gross receipts of at least 50% percent, as compared to the gross receipts of the same quarter in 2019.[24] Additionally, the amount of wages eligible for the credit depends upon the number of employees of the business, with different rules in place depending upon whether there are more or less than 100 employees.[25]

            Employers who receive Paycheck Protection loans may not be eligible for a retention credit.[26] You should consult with counsel and/or your accounting adviser to determine which form or forms of relief make the most sense for your business.

Delay of Payment of Employer Payroll Tax

Small businesses may also be entitled to a deferral of payroll taxes for 2020, spreading the payment out over the following two years.[27] This payroll tax deferment covers payroll taxes owed between the date of enactment of the CARES Act and January 1, 2021.[28] Eligible employers will have until December 31, 2021 to pay 50% of their 2020 payroll taxes, and until December 31, 2022 to pay the remaining 2020 payroll taxes.[29] Such deferrals are not available to businesses that receive Paycheck Protection loans and obtain forgiveness for same, again highlighting the importance of careful planning in the appropriate ways to seek relief for your small business under the CARES Act.[30]

Loan Subsidies, Grants, and Miscellaneous Provisions

There are other forms of relief provided by the CARES Act, which small business owners will surely want to investigate. 

For example, the CARES Act provides some loan payment subsidies for eligible borrowers on certain loans guaranteed by the SBA.[31] These benefits relate to loans under Section 7(a) of the Small Business Act other than those new loans created by the CARES Act. In other words, this relief is targeted towards existing loans through the SBA. The CARES Act provides for the SBA to pay up to six months of principal, interest and fees on qualifying loans.[32] The CARES Act also encourages lenders to provide payment deferments where appropriate.[33]

The CARES Act further provides grants to those who provide education, training, and advice to covered small businesses with respect to, among other topics, applying for federal resources as a result of the coronavirus, helping to prevent the coronavirus, and mitigating the economic effects of the coronavirus or other pandemics.[34]

Additionally, the CARES Act includes several tax-related relief efforts that are geared towards helping businesses. These provisions include modifications to the net operating loss rules, modifications to the interest limitation rules, and more.[35] A qualified tax attorney or certified public accountant can help a small business navigate these complex provisions. 

Seek Counsel for Your Small Business

This publication is meant to serve as a summary of the more significant aspects of the CARES Act, as it relates to small businesses. It is not intended to provide a comprehensive explanation of the CARES Act (or any part of it), nor does it constitute legal advice. 

This publication also does not account for any of the regulatory guidance on the CARES Act that is likely forthcoming within the next 14-30 days. Nonetheless, the attorneys at Wadleigh, Starr & Peters, PLLC are keeping a watchful eye on anticipated action by the SBA or other agencies in the upcoming weeks, especially as those requirements impact small businesses. We are also here to address any other questions or concerns that you may have about the impact of the coronavirus on your business, the CARES Act, or the assistance that the CARES Act may provide. 


[1] Sec. 1102.  

[2] Sec. 1102(a)(2)(E).

[3] Sec. 1102(a)(2)(F)(ii)(II).

[4] Sec. 1102(a)(2)(K)-(L).

[5] Sec. 1102(a)(2)(M).

[6] Sec. 1106.

[7] Sec. 1106(d)(1).

[8] Sec. 1106(d)(2)-(3).

[9] Sec. 1106(e).

[10] Sec. 1106(i).

[11] Sec. 1102(a)(2)(H)-(J).

[12] Sec. 1102(a)(2)(I)

[13] Sec. 1110.

[14] Sec. 1110(b); see 15 U.S.C. § 632(b)(2).

[15] Sec. 1110(e).

[16] Sec. 1110(e)(5).

[17] Sec. 1110(e)(4).

[18] Sec. 1110(e)(6).

[19] Sec. 1110(c)(1).

[20] Sec. 1110(c)(2)-(3).

[21] Sec. 1110(d).

[22] Sec. 2301.

[23] Sec. 2301(a), (b)(1).

[24] Sec. 2301(c)(2)(A)-(B).

[25] Sec. 2301(c)(3)(A).

[26] Sec. 2301(j).

[27] Sec. 2302.

[28] Sec. 2302(d)(2).

[29] Sec. 2302(a)(1)-(d)(3).

[30] Sec. 2302(a)(3).

[31] Sec. 1112.

[32] Sec. 1112(c).

[33] Sec. 1112(b).

[34] Sec. 1103(b).

[35] Sec. 2303; Sec. 2306.