Small Business Loans Under the CARES Act

The widespread outbreak of the COVID-19 virus has affected individuals and businesses globally and has touched every state within the United States. In an effort by Congress to help people and companies cope with the effects of the virus, the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) has been signed into law. A portion of the CARES Act effectually expands the Small Business Act to incorporate the Paycheck Protection Program as well as alters the Act’s current language to be more liberal in the Small Business Administration’s (“SBA”) ability to lend.



  • A loan under CARES is available to small businesses and non-profits that were in business as of February 15, 2020. Specifically, an eligible business must have 500 employees or less. The SBA allows for exceptions for certain businesses or non-profits that have more than 500 employees.
  • Businesses with more than 500 employees but more than one office location are eligible if there are no more than 500 employees at each office location.
  • While a business is not eligible if it already has a loan or has a pending application for a loan under the SBA for COVID-19 relief, it may obtain a loan under CARES if it currently has a disaster relief loan for a different category of disaster.

Terms of the Loan

  • The maximum Loan Amount will depend on the business’s average payroll costs for the prior year and certain outstanding debt of the specific applicant, but will not exceed $10,000,000.00.
  • The interest rate will not exceed 4%.
  • Deferment options are available to borrowers for not less than 6 months and not more than 1 year.
  • Covered purposes: a loan may only be used for 1) payroll costs, 2) payment of interest on a mortgage obligation, 3) rent payments, 4) utility payments, and 5) interest payments on any other debt that was incurred before the covered period.
  • Loans made under CARES include the following waivers:
    • Personal guarantee
    • Collateral requirements
    • Obtain credit elsewhere requirement
    • Prepayment penalties and application fees on covered loans

Loan Forgiveness

  • To qualify for loan forgiveness, borrowers must use the loan money for the covered purposes within 2 months of receiving the loan.
  • The amount forgiven shall not exceed the principal amount of the loan. However, the amount of loan forgiveness will be proportionally reduced by:
    • The reduction in the number of full time employees, and
    • The reduction in the total salary or wages of any employee making $100,000.00 annually or less if the reduction is more than 25% of that employee’s salary.
  • An exception is made for businesses who reduced their workforce or salaries between February 15, 2020 and 30 days after the enactment of the CARES Act and re-hire employees or restore all reduced salaries or wages by June 30, 2020.
  • If there is a remaining balance on the loan after loan forgiveness, the remaining balance shall continue to be guaranteed by the SBA and the covered loan shall have a maximum maturity of 10 years from the date of the application for the loan.