FAQS about the CARES Act

About the CARES Act:

SUMMARY: There are two key SBA small-business relief programs:

1) Paycheck Protection Program (PPP): up to $10m loan but is based on your payroll costs. The loan is forgivable if you meet certain milestones on maintaining your payroll); The PPP loan application will go live April 3rd, 2020 (you should prepare NOW; see below for more information)

2) Economic Injury Disaster Loan (EIDL) & Grants (you can receive a $10k cash advance within 3 days of applying for up to $2m of an Economic Injury Disaster Loan (EIDL)); according to the government, “the $10k advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.”

The EIDL application is live now.

You are allowed to do BOTH programs, but there are restrictions (see below). 

Where are the primary sources of this information?

Here is the 11-page government summary PDF and PPP website and EIDL portal (definitely cons

What are the major differences between the Payroll Protection Program Loan and the SBA Economic Injury Disaster Loans (EIDL)?  

The EILD is up to two million dollars and is the loan typically used for natural disasters that has been approved for businesses effected by the coronavirus pandemic. If you have a low payroll or need funds in excess of the amounts you qualify for under PPP, consider the EIDL loans, as they have low rates, longer repayment terms and can be used for more purposes than the PPP loans. However, they do not offer any form of loan forgiveness. But they do include a quick $10,000 grant to effected businesses that does no need to be repaid.

Paycheck Protection Program:

Under what terms will the loans be forgiven?

The loan amounts will be forgiven as long as the loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and employee and compensation levels are maintained.

How large can my loan be? Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. 

Let’s run a quick scenario on the facts above for a PPP Loan. Let’s say your total “payroll costs” over the prior 12-month period is $240,000. As a result, your monthly average payroll is $20,000. We then multiply $20,000 by 2.5 and get the maximum loan amount of $50,000.

How much of my loan will be forgiven? Using the example in the question above, let’s further assume that over the eight-week period after you receive the loan that you use $40,000 for payroll costs, $9,000 for rent and $4,000 on utilities. You would then have totally qualifying expenses for forgiveness of $53,000. Since you have qualifying expenses in excess of the loan amount, you would be eligible for forgiveness of the entire loan.

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. 
Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll:

Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Is there a cap on payroll costs per employee? Payroll costs are capped at $100,000 on an annualized basis for each employee. 

Can the loan be forgiven for non-payroll costs? In addition to payroll, the loan proceeds can be used to cover most mortgage interest, rent, and utility costs over the 8 week period after the loan is made. However, due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. 

When can I apply? Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.  Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Where can I apply? You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. The Department of Treasury will also be in charge of authorizing new lenders, including non- bank lenders, to help meet the needs of small business owners. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.

Who can apply? All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional detail). When obtaining the PPP loan, you need to certify that your business has been economically affected or that economic uncertainty make the loan necessary.

How much can I get? Up to $10 million dollars. But the amount each business gets is based on its payroll costs. The amount you qualify for is based on 2.5 times your average monthly payroll costs. Your monthly average payroll is calculated based on your prior 12 months of payroll costs. You take that average monthly payroll number and multiply it by 2.5. For example, if your monthly average payroll was $20,000, then you would qualify for a $50,000 PPP Loan.

What do I need to apply? You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for the application.

To prepare to apply, you should do the following:

Fill out the PPP form. On April 3rd, submit the form.

Have documentation proving revenue / expenses prior to February 15th, 2020. Gather your company EIN or TIN number, 2017 taxes, 2018 taxes, 2019 taxes (if not complete yet, 2019 Profit and loss broken down by month will work)

Lenders will request documents to verify full-time equivalent employees on payroll, dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, covered utilities for the eight week period starting when you get this loan.

Stay in contact with your local SBA office

Do I need to first look for other funds before applying to this program? No. The SBA is waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., we are waiving the Credit Elsewhere requirement). 

How long will this program last? Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan. 

How does the PPP loan coordinate with SBA’s existing loans? Do I Still Qualify If I Already Have an SBA Loan?

Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers. You can have more than one SBA loan — but only one PPP loan. You just can’t exceed the total SBA loan maximums when all loans are combined.

What can I use these loans for? You should use the proceeds from these loans on your:  Payroll costs, including benefits; Interest on mortgage obligations, incurred before February 15, 2020;  Rent, under lease agreements in force before February 15, 2020; and Utilities, for which service began before February 15, 2020. 

What counts as payroll costs? Payroll costs include:  Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);  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; and 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

What costs are not eligible for payroll? Employee/owner compensation over $100,000. Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code. Compensation of employees whose principal place of residence is outside of the U.S. Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act 

How can I request loan forgiveness? You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

Will the Business Get Forgiveness of Debt Income Via a 1099-C? In other words, will I have to pay taxes on the amount of debt forgiven on the loan? Nope. The new law specifically stated that forgiven PPP Loans will not be considered forgiveness of debt income.

What is my interest rate? 0.50% fixed rate. Half a percent. that’s right. It’s nearly an interest-free loan. The bill allowed for a maximum rate of 4 percent, but the guidance issued by the U.S. Treasury is stating that the maximum rate would be 0.5 percent. Your government is stepping up as they’re backstopping these loans for the banks. Now, this rate could certainly change, but under the law it cannot exceed 4 percent

When do I need to start paying interest on my loan? All payments are deferred for 6 months;however, interest will continue to accrue over this period.

When is my loan due? In 2 years.


Do I need to pledge any collateral for these loans? No. No collateral is required. 

How can I refinance my EIDL into a PPP loan? If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum

Do I need to personally guarantee this loan? No. There is no personal guarantee requirement. ***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***


What do I need to certify? As part of your application, you need to certify in good faith that: 

Current economic uncertainty makes the loan necessary to support your ongoing operations.  

The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.  

You have not and will not receive another loan under this program.  

You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.  

Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.  

All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law. 

 You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

What should I do now? Jonathan Morris, President and CEO of Titan Bank, an SBA Preferred Lending Partner based in Texas recommends that, “It is important that you apply early on. There are 30 million small businesses in the U.S. and $350 billion allocated to the program. We expect funds may run out before everyone can receive a loan.. I’d suggest only applying to FDIC-insured bank for PPP loans. Many non-banks are taking applications, but in almost all cases they are simply trying to broker this information to banks in return for a fee.” 

What I’d suggest is that you gather your payroll records for the prior 12 months, check the sample loan app linked above and be ready to be amongst the first in line to get a PPP Loan. And by getting in line, we presume this will be with an application completed online, as most banks have limited in-branch capability right now. I’d recommend working with your current business bankers, if you have one, as they will have your business bank accounts and an established relationship. I have already seen notices from banks with increased questions and demand on these loans saying they are only working with existing customers first. If you don’t have a good business-banking relationship, consider small community banks who tend to specialize in SBA loans and are more eager to get local businesses as customers. Open a business checking and savings account there to show them you want to be a customer for the long haul. And finally, consider banks who are SBA Preferred Lending Partners, as they’ll be familiar with navigating the new SBA rules. Not all banks provide or have SBA loan expertise and the ones who do can usually move faster.  

Many business owners have learned the hard lessons of carrying too much debt. However, this isn’t just any debt. This is debt eligible for forgiveness by the government. It’s debt that will keep your employees on payroll, and it’s an effort by our federal government to ensure that small businesses and their employees can survive the coronavirus financially. So, step up and take advantage of this program while it’s there. We don’t know how long the coronavirus will impact our economy, small business and entrepreneurship, but what we can do is work hard, work smart and take advantage of programs like this that can give us all a better chance at bouncing back and staying open for business.

I run a production company and often hire gigs workers. Do I have to include them as part of my payroll? We are checking on this, but we believe that people who are 1099 employees need to apply on their own — if they are a contractor, they are technically running their own business. 

I just took an equity loan on my company for improvements and have money in the bank. Will this make a difference in getting a loan for payroll? No, as long as you can show that you’ve been impacted by the Coronavirus. Note that both of these loans are NOT to employ more staff, it’s to keep people in their jobs 

Are landlords able to apply for SBA grants and loans? If you have a business that is managing property and have employees and staff, you are eligible. If you are just a real estate speculation company, you are not eligible. 

Economic Injury Disaster Loans & Emergency Economic Injury Grants

These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments. 

Who is eligible for the EIDL? Those eligible are the following with 500 or fewer employees:

  • Sole proprietorships, with or without employees
  • Independent contractors
  • Cooperatives and employee-owned businesses
  • Tribal small businesses
  • Small business concerns and small agriculture cooperatives that meet the applicable size standard for SBA are also eligible, as well as most private non-profits of any size. 

Those eligible for an EIDL and who have been in operation since January 31, 2020, when the public health crisis was announced. 

My private nonprofit is a 501c3. Is it still eligible for an EIDL and a grant? Yes, if you are a private nonprofit with an effective ruling letter from the IRS, granting tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code of 1954, or if you can provide satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law. However, a recipient that is principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs, whether in a religious or secular setting, or primarily engaged in political or lobbying activities is not eligible to receive an EIDL. If you are uncertain whether you qualify, please consult with legal counsel to determine whether your organization meets program criteria. 

How long are Emergency Economic Injury Grants available?

January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive a grant. 

What are the interest rates for the EIDL? Interest rates are 3.75% for businesses and 2.75% for nonprofits, for loans up to $2 million, with payback periods of 15-30 years.

If I get an EIDL and/or an Emergency Economic Injury Grant, can I get a PPP loan? Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID- 19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April. 

How do I apply for an economic injury disaster loan? Answer: To apply for an EIDL online, please visit https://disasterloan.sba.gov/ela/. Your SBA District Office is an important resource when applying for SBA assistance. 

I am unfamiliar with the EIDL process, can anyone help me apply? Answer: Yes, SBA resource partners are available to help guide you through the EIDL application process. You can find the nearest Small Business Development Center (SBDC), Women’s Business Center, or SCORE mentorship chapter at https://www.sba.gov/local- assistance/find/. 

Sources: 

Payment Protection Program Information Sheet (click HERE)

Small Business Owners Guide to the Cares Act (click HERE)

Entrepreneur Magazine (click HERE)