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CARES Act: Key Funding Provisions for Small and Midsized Businesses

by Jenn McCabe

There are numerous relief funding provisions for small and midsized businesses in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. To help business leaders focus their energies, we’ve created this practical, topline summary of the most commonly applicable items.

There are three main loan and credit provisions that most businesses may benefit from:

  • Paycheck Protection Program loans
  • Employee Retention Credits
  • Title IV Relief Funds (if the prior two programs don’t apply)

These programs are administered by the Department of the Treasury, in conjunction with the U.S. Small Business Administration (SBA) and most consumer banks. We anticipate that more clarity on the application and qualification process will be available by Friday, April 3. We are recommending that our clients spend time preparing their loan packages until then. (See our checklist for loan packages.)

These three new relief provisions do not replace the SBA Economic Injury Disaster Loans (EIDLs), but the CARES Act makes the EIDL process friendlier.

Note: We have separately addressed provisions for the deferral of employer Social Security tax and will not address it here. Also, this article covers the CARES Act, not the Families First Coronavirus Response Act (FFCRA), aka H.R. 6201, which provides mandatory leave provisions.


Paycheck Protection Program

To qualify for the $350 billion PPP, the employer must have fewer than 500 workers. See our guidance on calculating headcount, as this is more complex in some situations.

The intent is to help businesses keep people on payroll and off unemployment. This is a loan with an element of forgiveness when conditions are met. There is clear encouragement to rehire laid off or furloughed workers.

Common obstacles to borrowing are eliminated:

  • The funds are 100% federally guaranteed.
  • There is no requirement that a business pursue other sources of funds first.
  • There is no collateral required.
  • New businesses are eligible.
  • No loan payment is due for up to a year.
  • The loan is 10 years at 4% or less.

Amount you can borrow:

  • The lesser of 2.5 x average monthly payroll expense, using an average over the last 12 months or $10 million.
    • Wages over $100,000 are not included. If someone makes $125,000, only $100,000 counts.
    • Don’t double dip: any wage paid under other relief programs, such as FFCRA leave wages, doesn’t count.

What can be forgiven:

  • Payroll and operating expenses in the eight weeks immediately following the loan origination date, aka the date the money lands in your account.
    • This forgiven amount will be reduced if your headcount goes down versus the same period in the prior year or if salary goes down by more than 25% unless your staff headcount and salaries are restored by June 30.
    • Headcount methodology is “full-time equivalent” so time records will be crucial to maximizing the benefit.
    • Forgiveness may be reduced if an individual employee’s salary is reduced more than 25%.
    • Again, only up to $100,000 per head is included.

Note: You will need to provide documentation, so plan to track uses of the funds!


Employee Retention Credits

This is intended to provide relief to businesses that were forced to completely or partially shut down (for example, bars and restaurants) or businesses that can show their revenue dropped by at least 50% in the comparable prior-year quarterly period.

  • You can get 50% of qualifying wages, not to exceed $10,000 in qualifying wages, per employee in the COVID-related period in 2020.
  • The credit is applied to employment taxes and may not exceed total employment taxes that quarter.

What are qualifying wages?

  • If the employer has more than 100 staff, this only applies to wages paid to employees who were unable to work due to the suspension of business activities.
  • If the employer has 100 or fewer workers, it applies to all wages regardless of business suspension.

Relief Funds per Title IV, Economic Stabilization

This is a loan program the Treasury Secretary is ordered to create to benefit mid-sized businesses. The first loans are designated for airlines, air cargo companies and businesses that are important to national security. The remaining $450 billion is for businesses with 500 to 10,000 employees that have not gotten adequate help from other provisions of the CARES Act.

  • Interest rates are to be no more than 2%.
  • Businesses will need to certify work retention rates in the U.S. (not overseas).
  • No payment will be required for up to 6 months.
  • There will be caps on highly paid employee and owner/shareholder compensation until one year after the loan is paid off.

Have questions or need some help? Don’t hesitate to reach out to our experts. For the latest regulatory updates and other information on running your organization during disruption, visit our COVID-19 Resource Center.

March 31, 2020

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Jenn McCabe - Partner, Outsource HR - El Segundo CA | Armanino
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