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  • Writer's pictureWandro, Kanne, & Lalor, PC

CARES Act - Everything You Need to Know as a Small Business Owner Affected by COVID-19

Updated: Apr 3, 2020


On March 27, 2020, the CARES Act was signed into law providing needed stimulus and relief to Americans facing financial uncertainty related to the COVID-19 outbreak. One of the law’s central mechanisms for relief is targeted at assisting small businesses with operating capital through expanded funding and eligibility for loans through the Small Business Administration (“SBA”).



Small businesses with fewer than 500 employees, including self-employed business owners, sole proprietors, independent contractors, business in the food service and accommodations industries with fewer than 500 employees per location, may apply for SBA backed loans under Section 7(a) of the Small Business Act.

Businesses must have been in operation on February 15, 2020, and paid employee salaries and payroll taxes.

Businesses that receive an economic injury disaster loan for the same purpose are NOT eligible under the law.



Loans are available to cover payroll, health care costs, mortgage interest payments, rent, utilities and interest on pre-crisis debt obligations.

Loans are available for up to 2.5 times the average monthly payroll paid by the borrowing business during the year prior to the loan, not to exceed $10 million, at a maximum interest rate of 4%.

Loan origination fees and the “credit elsewhere” (i.e. could the business obtain funding from another source) are waived under the law.

SBA loans under this law are fully guaranteed by the Federal Government and lenders are not allowed to seek security through pledges of business collateral nor personal guarantees.

Loan forgiveness up to the total of payroll, interest on mortgages, rent, and utilities paid during the eight weeks following the loan origination (as long as it does not exceed the original loan about) will be available to the business. The loan forgiveness will be reduced based on reductions in full-time employment and where total payroll is reduced by greater than 25% from the period before the crisis. However, businesses that rehire employees will decrease that reduction.

Businesses must in good faith certify that the loan is needed to continue operations during the COVID-19 crisis; funds will be used to make payroll, mortgage, lease or utility payments; the business has no other application pending under the same program for the same purpose, no duplicate amounts have been received from February 15, 2020 until December 31, 2020.



Loans may be obtained directly through the SBA or by working with an SBA authorized private sector lender. SBA authorized private sector lenders are pre-approved to make loans under the law. Additional private sector lenders may be authorized by the Treasury Secretary.



Loans are to be made available now through June 30, 2020. Payments will not begin for at least 6 months from the loan but must begin at least 1 year from the date of the loan. Loan amounts existing after deduction of all applicable loan forgiveness will have a maturity date no later than 10 years from the date of application for loan forgiveness.




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This Wandro & Associates Update is intended to inform firm clients and friends about legal developments, including recent decisions of various courts and administrative bodies. Nothing in this Practice Update should be construed as legal advice or a legal opinion, and readers should not act upon the information contained in this Update without seeking the advice of legal counsel.

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