The CARES Act is emergency legislation that provides up to $2.2 trillion of economic stimulus to provide aid for individuals and businesses impacted by the COVID-19 pandemic.
Take the quick checkup quiz below to see if you may qualify for relief under the CARES Act's Paycheck Protection Program and to access lending resources in your area.
Frequently Asked Questions
What is the CARES Act?
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was introduced into the Senate on March 19, 2020, passed Congress on March 25, 2020, and was subsequently signed into law by President Donald Trump on March 27, 2020.
The CARES Act is a sweeping piece of legislation that includes, among other things, provisions related to health and welfare, fringe benefits, direct payments and tax relief.
What is the Paycheck Protection Program?
The most relevant section in the CARES Act as it relates to small business relief is the Paycheck Protection Program (“PPP”). The PPP may provide an avenue for small businesses to access capital earmarked for payroll and operating expenses over an eight-week period without having an obligation to repay. The PPP makes significant amendments to the SBA’s 7(a) loan program in order to provide up to $349 billion in fiscal relief for small businesses to help them make payroll, cover healthcare benefits, make mortgage and rent payments and service existing debt. PPP loans will be made by participating lenders between February 15, 2020 and June 30, 2020. Many small businesses may find the PPP a very appealing option to weather the storm due to the following factors:
- Extensive loan forgiveness provisions,
- Mandated low interest rates,
- No personal guarantee requirements,
- No collateral requirements, and
- Lower underwriting standards.
For lenders, PPP loans will be an attractive option because the are 100% guaranteed by the U.S. Small Business Administration (“SBA”). Lenders may rely solely on certifications of the borrower in order to determine borrower eligibility without having to consider ability to repay.
Who is Eligible to Apply for a PPP loan?
Any business entity with fewer than 500 employees is eligible to apply. To the extent a business has more than 500 employees, there are carveouts based on existing provisions under the SBA and on an industry-based basis. Certain businesses and person are automatically ineligible for relief, including those engaged in illegal activities, those with certain equity owners convicted of a felony within the past five years and those who have defaulted on a prior SBA loan. Loans under the PPP will be made by commercial lenders who will be able to more accurately convey whether your business is eligible.
How Large of a Loan May I Apply For and at What Interest Rate?
The maximum loan amount under the PPP is the lesser of $10 million and 2.5x the business’s average monthly payroll costs. Monthly payroll costs includes salaries (up to $100,000 per employee), wages, commissions, cash tips, payments for leave, severance, group health care benefits, retirement benefits, or state or local taxes assessed on employee compensation. Interest rates for PPP loans are capped at 4% per statute, but the final rules promulgated by the SBA indicate PPP loans will be granted at a 1% rate.
Is a PPP Loan Forgivable?
Yes! Loan recipients may apply for and receive loan forgiveness for all or a portion of a PPP loan, including accrued interest. Subject to certain exceptions, the amount of forgiveness is capped at the amount actually paid and documented by the business for payroll, mortgage interest, rent and utilities for the first eight weeks after receiving the loan. This means you may be able to structure your loan for eight weeks of payroll coverage without ever having to actually pay it back.
Am I Required to Post Collateral or Provide a Personal Guarantee? What Information Will I Need to Provide?
No! SBA 7(a) loans typically require a personal guarantee and collateral, but those requirements are waived under the PPP. You will be required to submit documentation verifying your average payroll costs, such as payroll processor records, payroll tax filings or bank records.
Where can I apply?
You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Please take our quick Checkup quiz above to view a list of SBA lenders in your area or visit www.sba.gov directly.
I am a Venture Capital- or Private Equity-Backed Business. Am I still Eligible for Assistance?
You may be! PPP loans are only available (generally speaking) to businesses with 500 or fewer employees. The issue with venture capital- or private equity-backed businesses is that the employee count needs to include all full-time employees, part-time employees and employees of affiliates. If your venture capital or private equity sponsor counts as an “affiliate”, then it is possible all of the companies in the sponsor’s portfolio will be aggregated for purposes of determining employee count. This is a facts and circumstances analysis, but, in general, to the extent that your investor has majority control, the ability to control day-to-day operations of your business or has veto rights on the board of directors, it may qualify them as an affiliate and thus you would run the risk of being ineligible for aid. That said, your lender will be heavily involved in making this determination, and we have a list of those lenders for you which can be found at the end of our checkup quiz.