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On Friday March 27, President Trump signed into law the CARES Act which makes new loans available to small businesses and non-profits. The programs described below are managed through the Small Business Administration, which will be issuing guidance in the coming days as to where and how you can apply for assistance.


The “Paycheck Protection Program” portion of the CARES Act makes loans of up to $10 million available to eligible small businesses, non-profits, veterans’ organizations, tribal concerns, and some independent contractors.

Who is Eligible for a Loan?

Businesses that were in operation prior to February 15, 2020, had employees for whom the business paid salaries and payroll taxes, and had not more than 500 employees (including affiliated entities) are eligible for a paycheck protection loan. Some exceptions to the 500 employee limit are available to businesses in the Accommodations and Food Services industries (NAIC Code 72), franchises that have been assigned a franchise identifier code by the Small Business Administration, and small businesses that receive financing through the Small Business Investment Company Program.

Businesses applying for a loan will need to certify to the bank that

  1. The uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the business;
  2. That the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments; and
  3. That the business does not have an application pending for a loan for the same purpose and duplicative of the amounts applied for and has not received a duplicative loan.

No personal guarantees or collateral are required to secure a loan under this program.

How Much Money Can I Get?

The maximum amount available to any one business is calculated using a formula based on 2.5 times the average monthly payroll costs of the business during a specified period. The maximum amount any one business is capped at $10 million.

What Can I Use the Loan Proceeds For?

  • The loan proceeds may be used to cover payroll costs (based on an annual salary of up to $100,000 for any individual employee);
  • payment of group health care premiums;
  • payment of state and local taxes assessed on employee compensation;
  •  rent
  • interest (only) on mortgage obligations;
  • utilities;
  • and interest on any other debt obligations that were incurred prior to February 15, 2020.

Can All or a Portion of the Loan be Forgiven?

Amounts paid during the 8 week period following issuance of the loan for payroll, rent, mortgage interest, and utilities are eligible to be forgiven – meaning those amounts do not have to be repaid. The amount of loan forgiveness can be reduced (by a formula) if the number of full-time equivalent employees employed goes down or salaries are reduced. The formula does not apply if by June 30 the business rehires full-time equivalent employees who were laid off between February 15, 2020 and April 26, 2020 or restores salaries that were reduced during that period.

The business will have to apply for forgiveness and show that funds were used to pay payroll, rent, etc. during the 8 week period following the disbursement of the loan.

Any remaining balance of the loan will be guaranteed by the SBA and have a term of no more than 10 years after the business applies for loan forgiveness. There is no pre-payment penalty for any early payment.

How and When Can I Apply for a Loan Under This Program?

It is not yet known how and where you can apply for a loan. The SBA is required to issue implementation regulations by the middle of April. These loans will be available only until June 30, 2020.


Small businesses are also eligible to apply for economic injury disaster loans under the existing SBA disaster loan programs. For new loans applied for in response to COVID-19, certain rules on personal guarantees and application rules are waived until December 31.

The CARES Act also created an emergency grant of up to $10,000 for business that are applying for an economic injury disaster loan which can be used for paying payroll, rent and mortgage, utilities, meeting increased costs to obtain materials due to interrupted supply chains and repaying obligations that cannot be met due to revenue losses.

If a business receives an economic injury disaster loan grant and subsequently receives a loan for payroll costs under the Paycheck Protection Program, the amount of the grant will be reduced from the loan forgiveness amount allowed under that program.



© Caulkins & Bruce PC, 2020. The information presented is for informational purposes only. You should not construe it as legal advice or a legal opinion on any specific fact or circumstances.

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