CARES Act: The Ultimate Guide to Applying for a Small Business Loan and Other Financial Relief Options


Are you a small business owner feeling the pinch of the Coronavirus (COVID-19) pandemic? Have no fear, the newly passed Coronavirus Aid, Relief, and Economic Security Act (CARES) provides emergency financial relief for small to mid-sized businesses in the United States, to help business owners keep employees on their payroll.

This federal relief package allocates nearly $350 billion in emergency aid for businesses through a small business loan program called the Paycheck Protection Program. This program is separate from existing federal loan programs, including existing Small Business Administration (SBA) disaster relief loans which you may also decide to pursue.

Paycheck Protection Program

What is it about? 

The Paycheck Protection Program is a loan forgiveness program (available through June 30, 2020) designed to provide a direct incentive for small businesses to keep workers on their payroll.

For small business owners who participate, loans obtained through this program will be fully forgiven if (1) all employees are kept on the payroll for 8 weeks and (2) the money is used for payroll costs, rent, mortgage interest, or utilities (at least 75% of the forgiven amount must have been used for payroll). As an additional incentive, loan payments will be deferred for six months. No collateral or personal guarantees are required to obtain a loan.

According to the SBA, loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness is reduced if full-time headcount declines, or if salaries and wages decrease.

Please note: PPP loans are not grants, instead they are loans—the majority of which can be forgiven if used for payroll costs as outlined above.

Who is Eligible?

Any small business with less than 500 employees (including sole proprietorships, independent contractors, self-employed persons, private non-profits, and 501(c)(19) veteran’s organizations) affected by the coronavirus pandemic can apply.

Maximum Loan Amount

The maximum loan amount available to a borrower under PPP will be the lesser of (1) $10 million or (2) 2.5x the average total monthly payments for payroll costs, whichever is less.

How to Determine Payroll Costs

  • Small Businesses will use their previous 12-month payroll costs to determine average monthly payroll cost.
  • Sole proprietors or independent contractors will use the sum of payments that is a wage, commission, income, net earnings from self-employment, or similar and that is not more than $100,000 in 1 year.
  • If the business is determined to be a seasonal employer by the administrator, the average total monthly payments for payroll shall be for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, beginning March 1, 2019 and ending June 30, 2019.
  • Businesses not in operation in 2019 will use average monthly payroll from January 1, 2020 – February 29, 2020.

What costs can I include in payroll?

  • Salary, wages, commission, or similar compensation;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for dismissal or separation;
  • Payment for group health care benefits, including insurance premiums;
  • Payment of any retirement benefit; and
  • Payment of State or Local tax accessed on the compensation of employees.

PPP Fast Facts:

  • Payment Protection Program loans may have a principal loan amount of up to $10 million subject to some limitations
  • Loans may have a term of up to 10 years and bear interest at a rate of no more than 4% per annum
  • Loans can be prepaid without penalty
  • Loans have a maturity of 2 years and interest rate of .5%
  • Small businesses with less than 500 employees qualify

How to Apply for Payment Protection Program

The Small Business Administration (SBA) has a network of at least 1,800 approved lenders that process small business loans. To apply for the Payment Protection Program, business owners should contact their banker immediately. Each bank will receive instructions from the SBA and administer the loan process. Lenders are scheduled to begin processing Payment Protection Program loan applications as soon as April 3, 2020.

You should also evaluate other loans that are available to you with your banker. It is expected that most borrowers will be able to apply for the Payment Protection Program online through their financial institution by April 3, 2020. The SBA has released a preliminary application form which may be accessed here and provided to your lender.

To read more about PPP click here.

SBA Economic Injury Disaster Loans (Separate from PPP)

As an alternative, you may apply for a COVID-19 SBA Economic Injury Disaster Loan which is essentially a loan advance of up to $10,000 that does not need to be repaid.

Who is eligible?

Small business owners in all U.S. states, Washington D.C. and territories are eligible to apply for an Economic Injury Disaster loan advance of up to $10,000. Disaster Loans are designed to provide temporary relief to businesses for loss of revenue. Funds are released within three days of a successful application.

How to Apply?

Small business owners can apply for a COVID-19 Economic Injury Disaster loan directly on the SBA website here.

For more details about SBA Economic Injury Disaster Loans click here.

Existing SBA Loan Programs

Aside from the Paycheck Protection Program and the Economic Injury Disaster Loan Program, the Small Business Administration has several existing loan programs that may benefit you during this crisis. As previously stated, to take advantage of any of these loan programs, you should contact your banker as soon as possible. You can check whether your financial institution is an SBA approved lender here.

SBA Express Bridge Loans

The SBA Bridge Loan Pilot Program allows small business who have a current business relationship with an SBA Express Lender, the ability to obtain up to $25,000 in loans with less paperwork involved. These loans are designed to provide emergency relief to small business as a result of temporary loss of revenue. These loans are typically used to bridge the gap while applying for an SBA Economic Injury Disaster loan. Businesses that are in urgent need of cash and are awaiting a decision/disbursement of an Economic Injury Disaster Loan should consider this option with their banker. Find an Express Bridge Loan lender here.

The 7(a) loan program: Under this program, SBA lending partners can issue loans of up to $5,000,000 for eligible small businesses in the U.S. and its territories. Use of proceeds includes working capital, expansion/renovation, new construction, purchase of land or buildings, refinancing debt, starting a business etc.

The Express Loan program: This program provides loans of up to $350,000 for no more than 7 years with an option to revolve. Approvals or denials are provided within a 36-hour period. The same use of proceeds described above applies to this program.

Community Advantage Loan Pilot program: This program allows mission-based lenders to assist small business in underserved markets with a maximum loan size of $250,000. The same use of proceeds described above also applies to this program.

504 Loan program: This loan program is designed to foster economic development and job creation and/or retention. The eligible use of proceeds is limited to the acquisition or eligible refinance of fixed assets.

Microloan program: This program involves making loans through nonprofit lending organizations to underserved markets. Authorized use of loan proceeds includes working capital, supplies, machinery & equipment, and fixtures (does not include real estate). The maximum loan amount is $50,000 with the average loan size of $14,000.

For more information about these programs click here.

Other Relief

SBA Debt Relief for New and Current (7)(a) SBA Loans

As yet another alternative, small business owners can obtain debt relief during this crisis under the SBA Debt Relief program. Under this program the SBA pays (1) the principal and interest of new (7)(a) loans issued prior to September 27, 2020 and (2) the principal and interest of current (7)(a) small business loans for a period of six months under this program.

No matter which option you choose, the first step is to speak with your banker to discuss your financial position and the needs for your business. We wish you the very best, and look forward to overcoming this difficult time together.