SBA Assistance Under the CARES Act: Paycheck Protection Program

Note: The SBA issued new guidance as recently as April 3, 2020.  Find our most recent article on this program here – Understanding the SBA Guidance Issued Yesterday: Banks Start Accepting SBA Loan Applications Under the CARES Act.


  • Coverage period: February 15, 2020 through December 31, 2020
  • Businesses who employ less than 500 employees are eligible to receive a loan under section 7(a) of the Small Business Act
  • The total appropriation for this section is almost $350B
  • Key loan requirement is the need to maintain average full time employees during covered period (2/15/20 – 6/30/20) that is not less than average monthly full time employees during 1 year prior to loan

The third phase of the economic stimulus bill, also knows as the CARES Act, allows Businesses who employ less than 500 employees to receive a loan under section 7(a) of the Small Business Act – this includes any business concern, private nonprofit organization, or public non profit organization (as long as the nonprofit organizations are not receiving medicaid expenditures).  An addition made to previous versions, this version also includes sole proprietors, independent contractors and eligible self-employed individuals.  For obvious reasons, loans for small businesses under the CARES Act might be on of the most anticipated pieces of legislation.

There is now a waiver of the affiliation rules under SBA for employers with a NAICS code starting with 72 (Accommodation and Food Services), certain businesses operating as a franchise that is assigned a franchise identifier code by the SBA, and businesses that receive financial assistance from a company licensed under Section 301 of the Small Business Investment Act of 1958.

The maximum loan amount under the CARES Act is the lesser of:

  • the average total monthly payments for payroll costs incurred over the 1 year period prior to the loan (for seasonal businesses, the average monthly payments will be computed over a 12-week period starting 2/15/19 OR from 3/1/19 – 6/30/19, as selected by the applicant) (for a business that was not in operation during 2/15/19 – 6/30/19, average monthly payroll costs should be determined from 1/1/20 – 2/29/20), multiplied by 2.5 (for a 2.5 month average total), PLUS
  • the outstanding amount of a loan under SBA Section 7(b)(2) (Economic Disaster Relief Loans) that was made during the period beginning 1/31/20 through the date covered loans are made available to be refinanced under the covered loan, OR
  • $10,000,000

Payroll costs include:

  • salaries/wages/commission/other similar compensation
  • payment of cash tip or equivalent
  • payment for vacation, parental, family, medical or sick leave
  • allowance for dismissal or separation (severance)
  • payment required for the provisions of group health care benefits, including insurance premiums
  • payment of any retirement benefit
  • payment of state or local tax assessed on the comp of employees
  • sum of payments of any comp to a sole proprietor or independent contractor that is a wage, commission, or similar comp and is not in excess of $100k per year prorated

Payroll costs shall NOT include:

  • compensation of any individual employee in excess of $100k annual salary
  • taxes imposed or withheld under chapters 21, 22, 24 of IRC
  • any comp of employees who’s principal residence is outside of United States
  • qualified sick leave or qualified family leave for which a credit is allowed under section 7001/7003 of Families First Coronavirus Response Act (Phase 2).

What can loans under section 7(a) be used for?

  • payroll support (including paid sick, medical, family leave and costs related to group health care benefits during leave periods),
  • employee salaries,
  • mortgage/debt interest payments,
  • rent, and utilities.

Can your company receive a loan under the CARES Act Section 7(a) and under existing Section 7(b)(2) of Small Business Act (disaster loans)?

If a borrower receives assistance under existing section 7(b)(2) of Small Business Act (disaster loans), the borrower cannot receive a loan under 7(a) for the same purpose (i.e. they can’t also request 7(b)(2) loan for payroll support), however they can receive a 7(b)(2) loan for other allowable expenses (rent, utilities, interest, etc).

Loan requirements & details:

Recipients of these loans are required to maintain average full time employees during covered period (2/15/20 – 6/30/20) that is not less than average monthly full time employees during 1 year prior to loan.  We predict this will be a highly regulated area.  If you comply, SBA loan fees will be waived.  These loans will have no collateral or personal guarantee requirements for the companies.

Other Key Factors:

  • SBA guarantee is increased to 100% for 7(a) loans.
  • Lenders of loans under 7(a) will have to provide complete payment deferment relief for borrowers for a period of not less than 6 months and not more than 1 year (more guidance to come on this within 30 days after passing of act).
  • Maximum maturity of loan after the deferment is 10 years. Maximum interest rate is 4%.
  • There is loan forgiveness eligibility, which you can read more about at this link.  

Application process:

We advise all of our clients to be in constant communication with their bank.  Let them know your situation, and be proactive.

  • Each company will have to go through application processes, but each lender should only consider whether a company was in operation on 2/15/20 and had employees/independent contractors to whom salaries and payroll taxes were paid in determining whether a company is eligible for a 7(a) loan.
  • Applicants will have to certify to various items as part of application process. The requirement that a company will have to show that they are not able to obtain credit elsewhere in order to be eligible for SBA loans will NOT apply to these loans.
  • The Small Business Act allows for ‘express’ loans, which are supposed to have SBA response to application within 36 hours. The original ‘express’ loan maximum was $350,000 but is increased to $1,000,000 from 3/1/20 through 12/31/20 under CARES Act. ‘Express’ loans are only 50% guaranteed by SBA.

The total appropriation for this section is almost $350B.

Existing Small Business Act Section 7(a) can be found here.

If you have any questions on how section 7(a) of the CARES Act could benefit your business, please reach out to me at [email protected], or any member of out COVID-19 Task Force at [email protected].