The CARES Act Provides Businesses With Relief

Mon, 06/29/20
By: Linda Balok

Last week Congress passed the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which was signed into law Friday, March 27, 2020.

Among the extensive programs and economic incentives included in the legislation is the Paycheck Protection Program, which may benefit your business. The Paycheck Protection Program is an emergency loan program providing funding to cover your business’ payroll, debt service, utility, and rent costs incurred after the date of your SBA loan originated during February 15, 2020 through June 30, 2020 (the “covered period”).


While administered through the Small Business Administration, businesses eligible for the Paycheck Protection Program have been expanded to include any business concern with no more than 500 employees and includes, among others, sole proprietors, non-profits, independent contractors, and certain self-employed individuals. Full and part-time employees are counted toward the employee total. However, if your business is classified under NAICS in Sector 72 “Accommodation and Food Services,” the 500 employee maximum is applied per location.

Typical SBA rules do not apply: No personal or business collateral is required. Loans are non-recourse. Franchise and affiliate rules may not apply in certain circumstances. SBA loan fees are waived.

Costs covered

Generally, this program will fund emergency loans of up 2.5 times average monthly eligible payroll to a loan maximum of $10 million. The rate of interest charged is 1%. Repayment can be deferred for at least six months and, under certain circumstances, up to a year.

Loan forgiveness

So long as the funds are used for the restricted purposes, the emergency loans may be forgiven with no tax consequences to the business. The amounts forgiven will be reduced, however, by reductions in its employees or salary/wage decreases during the covered period and by a cap of 25% on eligible payments attributable to non-payroll costs.

Please see the table below for more detail. For more information contact Linda Balok at or call (707) 526-4200 x.125. 

Coronavirus Aid, Relief, and Economic Security Act – CARES Act

Total Funding


Total Funds Allocated


Covered Period

February 15, 2020 – June 30, 2020


Key Provisions



Small Business Administration


Administered by Banks approved for the

Small Business Administration 7(a)

Loan program

Paycheck Protection Program. In an attempt to avoid mass unemployment, the bill includes funding for small businesses to cover payroll, debt service, rent, and utilities for up to eight weeks, the “covered period”.

Implemented through modifications to the Small Business Loan program providing loans to small businesses.  Unlike under most SBA lending guidelines:

  • No personal or business collateral is required
  • No personal guaranties are required
  • Access to credit elsewhere does not make the business ineligible
  • Available to any business concern with no more than 500 employees
    • The 500 employee maximum is applied per location for businesses classified under NAICS in Sector 72 “Accommodation and Food Services”
    • Available to non-profits, veterans organizations, tribal organizations, and to self-employed individuals.  Self-employed individual means an individual who is considered self-employed under FFCRA (i.e., an individual who regularly carries on any trade or business within the meaning of section 1402 of Revenue Code)

Loan Eligibility: 2.5x the average monthly costs of business payroll, rent, debt service, and utilities, up to a maximum of $10,000,000.00.

Payroll is defined as any employee compensation that is a salary, wage, commission, or other similar payment, including, payment of cash tip or equivalent; payment for vacation, parental, family, medical, or sick leave (excluding FFCRA paid sick leave where a business receives a credit); allowance for dismissal or separation; payment required for the provisions of group health care benefits, including insurance premiums; payment of any retirement benefit; or state or local tax assessed on the compensation of employees

Restrictions on highly compensated employees. No employee being paid with funds received through the Paycheck Protection Program may receive compensation of more than $100,000 annually as prorated for the covered period.

Debt service means interest on any debt (mortgage or other debt) incurred in the ordinary course of business that was incurred before February 15, 2020 (payment does not include any prepayment or paydown of principal on the mortgage/debt obligation).


  • Evidence of business’ payroll, debt service, rent, and utility payments over the previous 12-month period.
  • If you are a seasonal employer, the monthly average payroll cost be a 12-week period beginning either February 15, 2019 or March 1, 2019 and ending June 30, 2019.
  • If your business did not exist before June 30, 2019, the SBA will look at your costs in January and February 2020.

Loan Forgiveness and Taxability:

If you use the loan as required for payroll, rent, debt service, and utilities the loan will be forgiven provided current employment levels and salaries are maintained.  The amount of loan forgiveness, which can be up to 100%, is reduced by a proportional amount when the employer: (1) terminates the employment of employees; and/or (2) decreases employee salaries during the “covered period.”  In addition, employees who earn wages or salaries that exceed $100,000 may be excluded from the calculation of loan forgiveness.

Importantly, loan forgiveness under the Paycheck Protection Plan is not considered taxable income on the basis of discharge of indebtedness.

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