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CARES Act small business interruption loans

On March 27, 2020, Congress passed and President Trump signed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) a massive $2 trillion stimulus package to stabilize the U.S. economy during the coronavirus pandemic.  The CARES Act is poised to provide forgivable business interruption loans & individual aid relief to many citizens and struggling businesses.


Forgivable Small Business Interruption Loans

small business interruption loans


One key feature of the CARES Act will include $370 billion to provide bank loans to small and midsize businesses to protect against layoffs and continue employee payments known as “Paycheck Protection Loans”.  These loans are generally available to businesses with 500 or fewer employees, with some exceptions.  The loans will be backed by the Small Business Administration but is expected to contain less onerous application procedures in order to expedite the issuance of loans.  For example, the main underwriting factor will be proof of payroll costs.  

Treasury Secretary Steven Mnuchin recently stated: (via home.treasury.gov)

“Treasury and the Small Business Administration expect to have this program up and running by April 3rd so that businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day.  The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses.”

In addition, unlike typical SBA loans, there will be no personal guarantees, no use of assets as collateral, no fees and the interest rates will be capped at 4%.

The CARES Act contains loans that may be subject to forgiveness for employers that retain their employees or rehire those that were laid off.  Certain expenses such as payroll, rent payment, mortgage interest and utilities expended during an eight-week period from the loan’s origination date may be eligible for forgiveness and would essentially become grants to small businesses. However, loans to cover salaries of over $100,000 a year will not qualify for forgiveness, and businesses must demonstrate that they had not recently laid off employees, or a smaller amount of the loan would be subject to forgiveness.   To apply for forgiveness, the employer must submit to the lender an application that includes documentation verifying the number of employees, pay rates, and cancelled checks showing mortgage, rent, or utility payments.


Deferred Payroll Taxes

Some businesses may be eligible to defer payroll taxes so they can continue paying employees.  Employers could delay paying payroll taxes for 2020, then pay half in 2021 and the other half in 2022.  In order to receive this deferral option, employers must keep their employees employed through the COVID-19 crisis.  However, employers would not be eligible for the deferral option if they also receive Paycheck Protection Loans made available by the CARES Act.


Individual Benefits

The CARES Act will also provide single adults a payment from the government of $1,200; couples would receive $2,400 and parents would get $500 per child on top of their total. However, the benefit is subject to a gradual reduction for anyone making $75,000 or more and no benefit to those earning $99,000 or more. The foregoing thresholds will double for married couples.  Persons filing as head of household will get full payment if they earn $112,500 or less.

Qualifying income levels will be based on 2019 federal tax returns, if already filed, and otherwise on 2018 returns.


small business interruption loans


Santomassimo Davis LLP  is a premier firm for Outside General Counsel™ to mid-cap businesses.  The issues discussed in this article are typical of those that we handle for our client’s small businesses as we help them navigate the legal and regulatory matters affecting their businesses in New Jersey, New York and Pennsylvania. .

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