Ultimate guide to CARES Act relief options for small businesses and employers

Apr 6, 2020

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On March 17, President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law that contained $376 billion in relief for American workers and small businesses. These funds were allocated to several new temporary programs, most administered by the U.S. Small Business Administration. This guide will break down the different options available to you with the most up-to-date information we have on eligibility and how to apply for each program.

Disclaimer: Please do not rely solely on the information in this article to guide your decisions. Consult with an SBA Preferred Lender, your banker, CPA or other professional. The rules and guidelines for applications are still very fluid. This will be an evolving document that we update as application processes and results are reported. 

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Paycheck Protection Program (PPP)

The program is designed to allow small businesses to keep workers on payroll during the pandemic. The program is for any small business with less than 500 employees, including sole proprietorships, independent contractions, self-employed persons, private non-profit organizations or 501(c)(19) veterans organizations. This has become the most popular program because you have the high potential of all or the majority of the loan being forgiven.

Loans can be in the amount of up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount (i.e., 2.5 x 2019 average monthly payroll) up to a $10 million cap. Payroll costs are also capped at $100,000 annualized for each employee. That means if your average monthly total payroll is $100,000, your PPP loan could be up to $250,000.

There are a lot of questions centered on how to calculate average monthly payroll but there’s very little guidance. The American Institute of CPAs recommends using the gross payroll approach and including all federal taxes paid. 1099 employees were going to be counted toward average monthly payroll, but new interim guidance over the April 4 weekend from the SBA states, “independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.” For simple situations, I recommend you use your IRS forms 940 and 941 from 2019 and divide by 12 to determine your borrowing base.

You can use PPP money for payroll costs, including benefits. You may also use it for interest on mortgage obligations, incurred before Feb. 15, 2020, rent, under lease agreements in force before Feb. 15, 2020, and utilities, for which service began before Feb. 15, 2020. The Treasury Department defines payroll costs as:

  • salary, wages, commissions or tips
  • employee benefits including costs for vacation, parental, family, medical or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit
  • State and local taxes assessed on compensation
  • For a sole proprietor or independent contractor: wages, commissions, income or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

The amount you receive in the PPP will be forgiven as long as:

  • You use the money only for the above-allowed expenses and use 75% of the loan amount for payroll costs
  • You maintain your full-time employee headcount until June 30
  • You do not decrease wages or salaries more than 25% for any employee that made less than $100,000 annualized in 2019

You have until June 30, 2020, to restore your full-time employment and salary levels for any changes made between Feb. 15–April 26, 2020. The actual amount of your PPP loan that will be forgiven is still a bit murky. Several different government organizations have put out different FAQ documents that word the forgiveness criteria differently. Bankers that I have spoken with are continuing to ask for clarification. Loans have a 1% interest rate, payments are deferred six months (interest does accrue during deferment) and the loan is to be repaid in two years.

Different SBA-approved lenders are at different stages in preparedness to be able to accept and process these applications. The demand is incredible and there are already fears of allotted funds quickly running dry. Wells Fargo and BBVA Compass announced on April 6 they would not take any further PPP applications.

Our best advice is to contact your business banker and see if you can reserve your spot in line, or do your research and find a bank that is already processing applications. From what we’ve seen, the smaller banks and credit unions have been more agile and some seem to be ahead of the curve. Some banks require a previous business banking relationship in order to get you into the loan queue.

Economic Injury Disaster Loan Emergency Advance (EIDL)

The EIDL provides loans of up to $2 million with up to 30-year terms at 3.75% interest rates for small businesses and 2.75% for most private non-profits. Payments are deferred for 12 months but interest does accrue during deferment. No personal guarantee is required for loans of less than $200,000 and collateral is required for loans over $25,000.

You are eligible if you are a sole proprietorship, independent contractor, co-op or tribal small business with less than 500 employees. You apply for the loan directly on the SBA website but there is no way of tracking the progress of your application or following up. You can essentially use EIDL money for any requirements of the business with a few exclusions like dividends and bonuses, expansion of facilities or acquisitions or refinancing debt, among other things.

The part of the program with the most attention promises a one-time loan advance of up to $10,000 that will not have to be repaid. The grant of up to $10,000 is promised within three days of application approval — which so far is taking over a week. The amount given up to $10,000 is unclear and seemingly based on the number of employees a business has. Members of the TPG Small Biz Facebook group who applied starting March 30 report that as of April 6 they have received no funds.

Using the PPP and the EIDL

According to my reading and speaking to a few experts, you can apply for and use both programs as long as the funds are used for different purposes. The EIDL outside of the $10,000 advance is a loan that you must repay and you can use the funds for a far less restrictive number of purposes compared to the PPP. The only overlap between the two programs is if you also apply for the PPP, the $10,000 EIDL grant will count against the amount of the PPP that can be forgiven.

If I were looking for liquidity in my small business, I would apply for both programs. You can accept the PPP and be approved for the EIDL. You then have six months to accept the EIDL if you end up needing more cash, or you can just decline it. The limit seems to be the resources to get approved for either program and the funding for both programs. I would recommend going ahead and getting in line for funding on both just in case. Again, there hasn’t been published guidance on using both programs yet, so consult a professional and hopefully, there is something published soon.

SBA Express Bridge Loans

Small businesses that need fast help can apply for a bridge loan of up to $25,000 to help while they apply and wait for long-term financing. To qualify, a business must have had an existing relationship with an SBA Express Lender before March 13, 2020. The funds will be received within 45 to 90 business days of an application. The loan carries a maximum interest of prime + 6.5% with a maximum term of seven years. This is a rather fee-heavy option with an application fee, annual service fee, upfront guaranteed fee and higher interest. At 45 to 90 days to receive funds (probably in a best-case scenario), it isn’t that quick. I would expect the use of this to be limited. These funds would be included toward the maximum as a part of any future EIDL the business takes.

SBA Debt Relief

The SBA will automatically pay the principal, interest and fees of current 7(a), 504 and microloans for six months. Also as mentioned in the above programs, the SBA will automatically pay the principal, interest and fees of new 7(a), 504, and microloans issued before Sept. 27, 2020. For current SBA Serviced Disaster (Home and Business) Loans, if your disaster loan was in “regular servicing” status on March 1, 2020, the SBA is providing automatic deferments through Dec. 31, 2020.

  • Interest will continue to accrue on loans.
  • 1201 monthly payment notices will continue to be mailed out, which will reflect the loan is deferred and no payment is due.
  • The deferment will NOT cancel any established Preauthorized Debit (PAD) or recurring payments on your loan.
  • Borrowers preferring to continue making regular payments during the deferment period may continue remitting payments during the deferment period. SBA will apply those payments normally as if there was no deferment.
  • After this automatic deferment period, borrowers will be required to resume making regular principal and interest payments.  Borrowers that canceled recurring payments will need to reestablish the recurring payment.

Employee Retention Credit

If your business has a 50% decline in gross receipts for a calendar quarter in 2020, you can qualify for the ERC. This is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before Jan. 1, 2021.

The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000 so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. Important note: An employer may not receive the Employee Retention Credit if the employer receives a Small Business Interruption Loan under the Paycheck Protection Program (PPP).

Families First Coronavirus Relief Act (FFCRA)

There are a lot of complex nuances and details in the Act, so what follows is an oversimplification. Be sure to talk to your CPA when it’s time to file taxes and claim your credits or if deciding to reduce your federal employment tax deposits.

Small and medium businesses with less than 500 employees can receive a dollar-for-dollar tax credit for paying up to 80 hours of sick leave per employee. Credits are provided when employees provide required paid sick leave and expanded family and medical leave for reasons related to COVID-19, from April 1–Dec. 31, 2020. Payroll companies have already set up an accounting code that makes it pain-free for customers to annotate employees are being paid under the FFCRA.

Small businesses under 50 employees may be exempt from providing paid sick leave and expanded family and medical leave if providing these qualified leave wages would jeopardize the viability of their businesses as a going concern. I don’t think this makes much of a difference since the employer would get their money back, so I assume all small businesses would provide it.


You may not want to hear it, but with the increased expansion of unemployment under the CARES Act, it may be best to let some of your employees go and rehire them or place them on furlough so they can keep benefits until business rebounds. The Act dramatically increases who is eligible for unemployment, gives an extra $600/week and extends eligibility by up to 13 weeks. Extended coverage now includes those who:

  • Have been diagnosed with COVID-19 or have symptoms of it and are seeking a diagnosis
  • Are living with someone who has been diagnosed with COVID-19
  • Are providing care for someone diagnosed with COVID-19
  • Are providing care for a child who can’t attend school because it is closed due to COVID-19
  • Are quarantined or have been advised to self-quarantine
  • Had to quit their job as a direct result of COVID-19
  • Individuals who are now the primary breadwinners because their head of household died from COVID-19

Important to note, if you are a 1099/independent contractor and your work has been impacted by COVID-19, or someone in your immediate family has, you may now be eligible for unemployment. Head to your state’s unemployment website to begin the process, and if you are even wavering I would go ahead and apply as systems are already backed up and likely to continue to get busier. Reports indicate you may see conflicting information on a state’s unemployment system because they have not yet been updated. If you think you are eligible under the CARES Act, push to make sure your case is reviewed correctly.

Bottom line

The banking world was given roughly five days to bring online the largest lending program perhaps in history. Unsurprisingly, the entire process is still unorganized and an evolving matter. There are likely going to be unanswered questions and many different scenarios not answered. Business owners need to decide on their strategy of PPP and/or EIDL versus unemployment and furlough along with the employee retention credit without even having full guidance and banks turning off applications to new small businesses. In other words, this is complex and time-sensitive.

All I can tell you is to apply now to everything you are eligible for and could use before more banks close off applications or funding is exhausted. You can figure it all out down the line. That’s a rather scary proposition given the already-difficult place we find ourselves in. But after countless hours studying this, that is the personal conclusion I have drawn.

We’ll do our best to keep this updated as we go and answer questions that you bring up. Again, this is a lot of information that is still developing with thousands of dollars on the line. Do not make decisions based on this article alone and consult a professional. We are having hourly conversations in the TPG Small Biz Facebook group that I encourage you to join and follow.


Featured image by Thomas Barwick/ Getty Images

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