Understanding the C.A.R.E.S Act
The C.A.R.E.S Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law on March 27. This act included $349 billion in funding for small businesses. This money quickly was distributed to small businesses in need and ran out. On April 21 Congress passed a second  COVID-19 stimulus plan that included $320 billion to replenish the Paycheck Protection Plan. Small businesses like yours are the backbone of our national economy and employ millions of people.  Our hope is to provide you with up-to-date information on this act as well as helpful resources giving you the ability to take full-advantage of the services and benefits it provides to keep our economy moving and American’s employed.


Paycheck Protection Program

(see SBA website)

The CARES Act (Act) establishes the Paycheck Protection Program, an expansion of the Small Business Administration (SBA) 7(a) loan program, and authorizes $349 billion for the program. Importantly, the Act also increases the SBA guarantee percentage from 85% to 100%, and establishes a loan forgiveness program for Paycheck Protection Program loans. The loan period for this program ends June 30, 2020.

Small Business Eligibility. The Act establishes the program’s eligibility to include (i) companies with no more than 500 employees, and (ii) companies with no more than their applicable size standard under the SBA’s existing requirements based on their North American Industrial Classification System (NAICS) classifications, if higher. Use your Industry Code at the SBA website to see if you are considered a small business by the SBA: www.sba.gov/size-standards. Both full and part time employees are counted. For companies that fall into the classification for accommodations and food service (e.g., hotels, restaurants, taverns), the 500-employee maximum helpfully applies to each location. The Act also suspends the SBA affiliation rules for companies in the accommodation and food service classification (code 72). The Act also makes nonprofit organizations, veterans organizations and tribal business concerns eligible for Paycheck Protection Program loans if they meet the preceding requirements. Importantly, for purposes of the Paycheck Protection Program, eligible “nonprofit organizations” are limited to organizations exempt from federal income tax pursuant to section 501(c)(3) of the Internal Revenue Code, and “veterans organization” refers to a section 501(c)(19) organization.

Alternate Sources of Credit Rules. The Act suspends the SBA’s requirement that the company not have alternate sources of credit.

Maximum Loan Amount. The maximum loan amount is the lesser of (i) $10,000,000; or (ii) the average monthly payroll amount for the trailing 12 months (or, if not in business during the period from February 15, 2019 through June 20, 2019, then for the period from January 1, 2020 through February 29, 2020), times 2.5, plus the amount of any pre-existing emergency loan to be refinanced.

Use of Loan Proceeds. Loan proceeds may only be used for payroll, employer group health, interest on mortgage obligations, rent, utilities, and interest on other debt incurred before February 15, 2020.

Loan Terms. The interest rate is set at 4 percent. Collateral and guarantee requirements are waived. Repayment is deferred for at least 6 months, and up to 1 year, based on guidance to be issued by the SBA within 30 days after the date of enactment of the CARES Act. Loans made are nonrecourse, except to the extent that the proceeds are used for unpermitted purposes.

Underwriting. Loan underwriting is delegated to participating banks and financial institutions, without going through normal SBA channels. Underwriting is based on COVID-19 impact, not ability to repay.

Loan Forgiveness. Borrowers are eligible to have loan amounts forgiven to the extent that they are used to pay for payroll expenses, interest on covered mortgage obligations, covered rent obligations, and utilities, during the period ending June 30, 2020. For federal income tax purposes, any amount that would be included in such borrower’s gross income due to such loan forgiveness is excluded from gross income.

Emergency Economic Injury Disaster Loans and Grants

(check your eligibility)

Eligible Entities:

  • A business (including (i) a cooperative, (ii) an Employee Stock Ownership Plan (ESOP) or (iii) a tribal small businesses) with not more than 500 employees.
  • Any individual operating as a sole proprietor (with or without employees) or an independent contractor.
  • Private nonprofit organizations (the term is not defined for purposes of EIDL Loans, but elsewhere in the Act “nonprofit organization” is defined as 501(c)(3) tax-exempt organizations. It is unclear whether other types of nonprofit organizations are eligible, such as social welfare organizations, trade associations, etc.); and small agricultural cooperatives.

Requirements that are waived:

  • No personal guarantees required on advances and loans below $200,000.
  • Applicants do not have to have been in business for the 1-year period before the disaster (but need to be in operation on January 31, 2020).
  • Applicants do not have to show that they cannot obtain credit elsewhere.

Determination of ability to repay. The loan may be approved based solely on the credit score of the applicant (no tax returns required), or SBA may use alternative methods.

Emergency Grants

  • Any Eligible Entity that applies for an EIDL Loan can apply for a grant in an amount as requested by the applicant, but not to exceed $10,000.
  • Grant to be paid within 3 days after the SBA receives the EIDL application.
  • Applicant has to provide a self-certification form under the penalty of perjury that it is an Eligible Entity.
  • Can be used for any allowable purpose, including payroll, paid sick leaves, cost of materials, rent or mortgage, or other obligations that cannot be met.
  • The grant does not have to be repaid even if the EIDL Loan is denied.


(CARES Act for Individuals)

Title II of the CARES Act provides eligible individuals with a refundable credit against income tax in the amount of $1,200 ($2,400 for joint filers) plus $500 per child. The rebate is subject to a gradual phase out for adjusted gross income between $75,000 ($150,000 for joint filers, $112,500 for heads of household) and $99,000 ($198,000 for joint filers, $146,500 for heads of household) at which point the rebate is completely phased out.
The Act also waives the existing 10% early withdrawal penalty for coronavirus related distributions of up to $100,000 from qualified retirement accounts, and distributions are subject to income tax ratably over three years.</span
The Act increases the limit on loans from qualified employer plans – from $50,000 to $100,000.
The Act waives the minimum distribution requirement applicable for certain contribution plans and IRAs for calendar year 2020.
The Act increases the limitation on certain charitable cash contributions made in 2020, such that a taxpayer could effectively “zero out” their taxable income for the year by making “qualified contributions,” and even carry over to future years contributions made in excess of that amount. Contributions to supporting organizations, donor-advised funds and most private non-operating foundations are not eligible for these “super-deductible” contributions.
The Act increases the cap on deductions for certain charitable contributions of food inventory during 2020.
The Act provides employees with an exclusion from gross income for payments made by their employers to pay off their student loans (up to $5,250).

If you have any questions along the way, please contact us at: 888-509-5592