SBA Loans Under the CARES Act

Posted April 3, 2020

Last updated July 9, 2020

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27, 2020.  Title I (“Keeping American Workers Paid & Employed Act”) addresses two types of loans available to small businesses, both of which greatly expand SBA loan eligibility.  The SBA has issued several Interim Final Rules, with the most recent published in the Federal Register on June 26, in connection with the Paycheck Protection Loan Program described below.  The SBA has provided additional guidance to address borrower and lender questions through its Frequently Asked Questions (“FAQs”), which are updated periodically.  Borrowers and lenders may rely on the guidance provided in the FAQs.  The FAQs can be accessed at–faq-lenders-borrowers

Congress passed the Paycheck Protection Program Flexibility Act (PPPFA) on June 3, 2020, which the President signed into law on June 5.   The PPPFA provides more flexibility for borrowers under the Paycheck Protection Program discussed below and makes it easier for such borrowers to qualify for loan forgiveness for a greater portion of their loans.  The PPP loans section below (most notably the “Forgiveness” section) has been updated to reflect the provisions of the PPPFA.  The changes to the CARES Act made by the PPPFA are retroactively applicable as if they were included in the original CARES Act, except for the change to the term of the loan (see “Term” below).

A brief summary of each of the two types of loans is provided below.

Paycheck Protection Program under Section 7(a) of the Small Business Act- to help employers maintain payroll to prevent job loss & small business failure; 100% federally guaranteed; $670 billion made available for loans; for more information go to

  • Eligibility: in addition to small business concerns, any business concern, nonprofit organization, veterans organization, or Tribal business concern with not more than 500 employees, including sole proprietors, non-profits, and eligible self-employed individuals; eligible companies must have been in operation on February 15, 2020 and have had employees for whom it paid salaries & payroll taxes or paid independent contractors as of such date; the borrower must certify in good faith that the loan request is necessary, taking into account their business activity and their ability to access other sources of liquidity; any borrower that received a loan for less than $2 million will be deemed to have made the required certification in good faith; SBA will review all loans made in excess of $2 million (see “forgiveness” below)
  • Application: small businesses and sole proprietorships could apply beginning Friday, April 3; independent contractors and self-employed individualscould apply beginning Friday, April 10; apply directly with SBA-approved lender by August 8, 2020 (the president signed a new law on July 4 extending the deadline, which had previously been June 30); the Department of Treasury has authorized FDIC-insured banks and credit unions, certain Farm Credit System institutions, and certain other depository or non-depository financing providers to provide loans in addition to already approved SBA lenders; applicants are advised to contact all lending institutions with whom they do business to gauge such institution’s readiness to provide application and process the loan; applicant may apply with only one bank, however; all lender & borrower fees are waived
  • Coverage Period: February 15, 2020 to December 31,
  • Loan Amount: Maximum amount of loan is the lesser of $10 million or 2.5 times the average monthly payroll costs based upon the prior year’s payroll
  • Interest Rate: 1% fixed
  • Permitted Uses for Loan:
  1. Payroll Costs (including costs related to healthcare benefits and premiums, payments for vacations and sick, family and medical leave (to the extent a credit is not allowed under the Families First Coronavirus Response Act), salaries (salaries of over $100,000/year are capped at $100,000), wages, commissions, tips and similar compensations, state and local taxes on compensation (NOT available for federal employment taxes imposed or withheld from 2/15/2020-6/30/2020, including FICA, Railroad Retirement Act taxes and income taxes required to be withheld from employees);
  2. interest payments on mortgage obligations;
  3. rent (lease must have been in force as of February 15, 2020);
  4. utilities for which service began prior to February 15, 2020
  • Forgiveness: amounts spent during the Covered Period (the period beginning on the date of origination of a covered loan and ending the earlier of (A) the 24-week period beginning with the origination date or (B) December 31, 2020, unless such borrower shall elect to keep the Covered Period at 8 weeks, as the Act initially provided) on rent, payroll costs, mortgage interest & utilities may be forgiven; 60% of the qualified spending must consist of Payroll Costs, including payments to furloughed employees and bonuses or hazard pay to employees during the Covered Period, not to exceed $100,000 cap (no more than 40% of amount forgiven may be for non-payroll costs); amount forgiven may be reduced if the borrower reduces the number of full-time employees or salaries and wages during the Covered Period; borrowers may seek forgiveness for payroll costs for the applicable covered period beginning on either:  (i) the date of disbursement of the loan (i.e., the start of the Covered Period) or (ii) the first day of the first payroll cycle in the Covered Period; amount forgiven reduced in proportion to reduction in number of employees & reduction in total salary or wages of employee in excess of 25% (excluding employees with salaries greater than $100,000);  reduction penalty does not apply to the extent the borrower restores their workforce count and salaries/wages by December 31 , 2020 during the period from February 15, 2020 to December 31, 2020 the amount of loan forgiveness shall be determined without regard to a reduction in the number of full-time equivalent employees if the borrower is (A) unable to rehire an individual who was employee on or before February 15, 2020, (B) able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020 or (C) able to demonstrate an inability to return to the same level of business activity as the business was operating at prior to February 15, 2020); must apply to lender for forgiveness and include documents verifying the number of full-time equivalent employees and pay rates, along with payments on eligible mortgage, lease and utility obligations; borrower may apply for forgiveness any time on or before the maturity date of the loan (including before the end of the Covered Period) if the borrower has used all of the loan proceeds for which it is requesting forgiveness; must apply within 10 months after the end of the Covered Period; lender must make decision on loan forgiveness within 60 days and then issue such decision to SBA; amount forgiven may not exceed the principal of the loan; amount forgiven is not included in gross income; SBA will review all loans in excess of $2 million following submission of the borrower’s loan forgiveness application; if SBA determines that the borrower lacked an adequate basis for the required certification, SBA will seek repayment of the outstanding loan balance and will inform the lender that the borrower is not eligible for loan forgiveness; if the borrower repays the loan, SBA will not pursue administrative enforcement; SBA will be issuing further guidance on loan forgiveness
  • Term: to the extent not forgiven, 2 years if the loan was originated before June 5; 5 years if the loan was originated June 5 or later; lenders and borrowers may mutually modify the 2-year term of existing PPP loans
  • Deferral: deferral period begins on loan date and ends on the date that the SBA remits the amount of forgiveness to the lender; if borrower does not apply for forgiveness within 10 months after the last day of the Covered Period, the deferral period ends on that date
  • Guarantees/Collateral: no personal guarantee or collateral required
  • The PPPFA provides that borrowers may now defer 50% of the employer’s share of payroll taxes until 2021 and the remaining 50% until 2022

Economic Injury Disaster Loan Program under Section 7(b) of the Small Business Act (“EIDL” Program)- existing program but expanded by CARES Act with $10 billion of additional funding for emergency grants, expansion of entities eligible for such loans and waivers of certain requirements; for more information go to

  • Eligibility: in addition to already eligible small business concerns, private nonprofit  organizations, and small agricultural cooperatives, sole proprietors, independent contractors, and any cooperative, ESOP or tribal small business with 500 or fewer employees; must have suffered “substantial economic injury” from COVID-19; usual EIDL requirement that borrower must demonstrate it is unable to obtain credit elsewhere is waived
  • Application: through the SBA website at:
  • Coverage Period: January 31, 2020 to December 31, 2020
  • Loan Amount: based upon company’s actual economic injury as determined by the SBA up to $2 million
  • Interest Rate: 3.75% fixed rate for small businesses; 2.75% for nonprofits
  • Permitted Uses for Loan: payroll, to cover increased costs due to supply chain interruption, rent and mortgage payments, obligations that cannot be met due to revenue loss
  • Term: up to 30 years
  • Grants: any entity applying for such a loan may request an advance of up to $10,000 to pay allowable working capital needs; the advance is to be paid by the SBA within 3 days of administrator’s receipt of application, subject to verification that entity is eligible under program; is not required to be repaid, even if the application for the loan is denied (but amount of advance must be deducted from any loan forgiveness amounts under a Paycheck Protection Program Loan)
  • Guarantees: no personal guarantees required for loans up to $200,000; SBA must make determination that applicant has ability to repay the loan; can be based solely upon applicant’s credit score (submission of tax returns not required)

Companies may obtain loans under both programs but cannot cover the same costs with both loans; may also apply for other SBA financial assistance as long as there is no duplication in the uses of funds

In addition to availability of the loans discussed above, the CARES Act allocates an additional $17 billion to subsidize certain existing loans guaranteed by the Small Business Administration under Section 7(a) of the Small Business Act; the Administration will pay principal, interest and fees on such loans for a period of six months and is encouraging lenders to provide payment deferments and extend maturity dates.

For more information on how to apply for assistance, visit the U.S. Chamber of Commerce website at