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  • Matt Crumpton, Esq.

How The CARES Act Gives Your Business Free Money - Overview (Part 1 of 3)

On March 25, H.R. 748 - The Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”) passed the Senate with a 96-0 vote. The bill is now pending in the House, where Speaker Pelosi and a bi-partisan majority have signaled they will attempt to pass it as quickly as possible. President Trump could sign it into law as soon as this weekend.

This blog is the first in a three-part series about the CARES Act (specifically, Title 1 – Keeping American Workers Paid and Employed Act). First, we’ll zoom out and look at the big picture of how the Act provides financial relief for your business in the form of payroll protection loans.

In part two, we’ll cover the details of the law, including a step-by-step process for how to get the loan and to have it forgiven. In part three, I will answer frequently asked questions. (Feel free to send questions to

Pretty Much Every Small Business Gets A Forgivable Loan for 2.5X Monthly Payroll

The CARES Act creates a new system where practically every American small business that has been in operation since February 15, 2020 can get two and a half months of payroll covered by the United States Treasury in the form of forgivable loans.

The CARES Act loans will be distributed through banks and fully backed by the Small Business Administration. There are no credit checks, liquidity/net worth requirements, or business plan reviews. The only requirements for businesses to receive a loan are payroll documentation and swearing to the government that certain statements about being negatively impacted by Coronavirus are true.

Everyone gets a loan if you meet the (rather low) legal standard. Better yet, there are no personal guaranties or collateral required.

Loans Are Forgivable Based On Business Expenditures Within The First 8 Weeks

Whether the loan is forgivable is partially determined by how the loan funds are spent in the first eight weeks after receiving the loan. This eight-week period is called the “Covered Period.” The entire two and a half months of payroll is treated as a forgivable loan (effectively a grant) if you spend all of the funds on payroll, rent, mortgage interest, or utilities.

To recap, the average monthly payroll is what determines the amount of the loan. Then, after the loan is issued, there are certain expense categories (payroll, rent, mortgage interest, utilities) that the money must be spent on within the first eight weeks for it to be forgiven. After the eight week period, the business must document the applicable expenses and apply to the bank for loan forgiveness.

Employees Must Stay On Payroll At About the Same Rate To Maximize Loan Forgiveness

There are two hurdles to potentially stop businesses from getting CARES Act payroll protection loans with no strings attached.

First, the business must maintain the same amount of full-time equivalents during the eight-week Covered Period as compared to the prior period (more on the exact timelines in part two). Second, the business must not decrease the pay of any specific employee by more than twenty-five percent.

To the extent a business commits either of these CARES Act no-nos, its loan forgiveness is reduced on a pro-rata basis and the remainder becomes a regular loan payable at 4% interest over a period to be set by the SBA (with a maximum of ten years).

Consider Employee Retention Tax Credit If Not Applying For Payroll Protection Loan

Most of the focus for small business owners has been on the payroll protection loans mentioned in the Keeping American Workers Paid and Employed Act. However, for businesses that are not eligible for payroll protection loans (also called business interruption loans), there is another provision in the Act which provides an employee retention tax credit for businesses that were ordered to completely or partially close or that suffered fifty percent year over year quarterly losses in gross receipts.

If eligible, the business gets up to five thousand dollars per employee as an employment tax credit or refund from the IRS for every quarter they are adversely affected by Coronavirus. Unfortunately, the Employee Retention Tax Credit is not available to businesses that take payroll protection loans. The most likely scenario for a business pursuing the Employee Retention Tax Credit would be that the business opened after February 15, 2020.

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