The CARES Act: What you need to know as a business owner

Last Friday, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act providing $2.2 trillion of fiscal stimulus to help the U.S. weather through the economic damage caused by the COVID-19 pandemic.

There are a number of provisions in the CARES Act specifically designed to help small business owners.

Paycheck Protection Program - The program is administered by the Small Business Administration (SBA) under its Section 7(a) lending program and generally targets businesses, nonprofits, tribal businesses, and veterans organizations with 500 employees or less. While the specifics regarding the administration of the program are under development, the program provides federally insured, partially forgivable loans that can be used to cover short-term operating expenses during the economic crisis. The maximum loan size is equivalent to 250 percent of the employer’s average monthly payroll costs (e.g., roughly 10 weeks of payroll expenses) or $10 million, whichever is less. Payroll costs are defined broadly to include wages, salaries, retirement contributions, healthcare benefits, covered leave, and other expenses. 

The program includes a number of beneficial features for borrowers, including six months to one year of deferred repayment, fee waivers, and streamlined application requirements. Most importantly, borrowers are eligible for loan forgiveness equivalent to the sum spent on covered expenses during the eight-week period after the loan is originated. Those covered expenses include the bulk of a typical business’s fixed operating costs: payroll, rent, utilities, and mortgage interest obligations. The forgivable nature of these loans in effect turns them into grants, meaning that qualifying businesses will not see a significant increase in their debt burden. But to qualify for forgiveness, employers must maintain their pre-crisis level of full-time equivalent employees, or else face a reduction in forgiveness proportional to the reduction in headcount. Since many businesses have already been forced to make staffing reductions in response to vanishing customers and lost revenues, the legislation includes a clause that allows them to qualify for loan forgiveness if they have re-hired back to pre-crisis levels by June 30, 2020.

Congress made the terms generous and the barriers to entry low so that resources would be made available as quickly as possible to needy businesses. Borrowers do not need to demonstrate actual economic harm in order to qualify. Instead, they simply need to make a series of good faith certifications, principally that current economic conditions necessitate the loan to support ongoing business operations, and that the funds will be used to maintain payroll and address other covered expenses.

The application process for these loans will be driven by local banks.  The Treasury Department expects most FDIC-insured banks to be able to make these loans, and the SBA is in the process of providing banking guidelines.  They hope to have this process ready by the end of this week, but it will likely take an additional week for local banks to begin processing applications. To apply for Paycheck Protection Program loans, contact your bank.  Even if they cannot currently process these loans, many banks will have sign up lists for businesses to be notified when the bank is ready to process loan applications.

For FAQs and detailed information on the plan, follow this link to  U.S. Senate Committee on Small Business and Entrepreneurship.

Other tips:

  • If you are interested in exploring either the Paycheck Protection Program, we recommend that you reach out to your bank now to 1) confirm they are an SBA approved bank and 2) start the process as it is expected that demand may exceed available funds.
  • If you receive funds under the Paycheck Protection Program, we recommend that you open a new bank account to deposit the loan into. This will help to document distributions and provide a clean audit trail when you apply for forgiveness on the loan.
  • Note that this program is different than the SBA Economic Injury Disaster Loan (EIDL) which is also available to business owners in disaster declared areas. Business owners can apply for both the PPP and the EIDL as applicable. Below is a summary of the key differences between these two programs:


Paycheck Protection Program (PPP)

Economic Injury Disaster Loan (EIDL)


Payroll expenses, employee salaries, mortgage Interests, rent and utilities

Payroll, fixed debts, accounts payable and other expenses that cannot be paid due to disaster impact

 Maximum Loan Amount

 Lesser of $10M or 2.5X average monthly payroll costs

 Up to $2M, dependent on the applicant’s demonstrated economic injury and ability to repay

 Interest Rate

 Annual percentage rate, fixed 1%

 Annual percentage rate, 3.75%

 Personal Guarantee Required?


 No for loans up to $200,000, otherwise yes.


 No, unless proceeds used for the non-permitted purpose


Amount/Loan Forgiveness

Up to 100% with approval

0% eligible for forgiveness


Through an SBA-approved bank/lender

Through the SBA


Employee Retention Credit  - The CARES Act grants eligible employers a credit against employment taxes equal to 50 percent of qualified wages paid to employees who are not working due to the employer's full or partial cessation of business or a significant decline in gross receipts. This is similar to the paid leave credits granted to employers under the Families First Coronavirus Response Act, with some changes to the requirements. Most significantly, neither the employee nor the employer have to be directly impacted by infection. The amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters. The provision contains several requirements defining qualified wages, qualified employees, and qualified employers. The credit applies to wages paid after March 12, 2020, and before January 1, 2021.

Payroll Tax Deferral  - In order to free up employers' cash flow and retain employees during times of quarantine or shutdown, the CARES Act defers the payment of payroll taxes. Payroll taxes due from the period beginning on the date of the enactment of the Act (signed the evening of March 27, 2020), and ending on December 31, 2020, are deferred. The entirety of payroll taxes incurred by employers, and 50 percent of payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022. 
Net Operating Losses  - The bill allows for a five-year carryback of net operating losses (NOLs) arising in 2018, 2019, or 2020 by a business. Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of the carryback.  In addition, net operating losses incurred in 2018, 2019 and 2020 will be fully deductible without the 80% limitation otherwise imposed by the Tax Cuts and Jobs Act of 2017.

Unemployment Benefits Expanded - The bill allows for self-employed, independent contractors and gig workers, who don’t usually qualify for unemployment benefits to receive an extra $600 per week and the benefit period has been extended by four months in addition to other state benefits. 

Qualified Improvement Property - Taxpayers can now immediately expense the cost of qualified improvement property.  While this was a fix to a wording issue in the Tax Cuts and Jobs Act of 2017, it allows business owners to file amended tax returns for 2018 and 2019, resulting in a potentially immediate tax refund. This may be especially helpful for businesses in the retail, restaurant and hospitality industries.

The Brightworth Business Exit & Transition Services Team (BETS) are standing by to assist you with navigating through the COVID-19 health crisis, achieving your exit objectives and maintaining your exit and transition timeline.


This information was derived from sources believed to be factual and reliable. It is being provided for informational purposes only and should not be construed as tax or legal advice. Please consult a tax or financial advisor with questions about your specific situation.