The CARES act and small business relief

The CARES act and small business relief

Author: Anthony Cimino
Read time:  5 minutes
Published date:  April 3, 2020
The US government has recently acted to provide financial support to small businesses. We hope this guide helps company leaders understand what this looks like and how to access the programs.

We know these are difficult times, but we wanted to make sure as many available measures are known to the small and medium sized businesses that may need them.

In response to COVID-19, the US government has acted to provide financial support to small businesses as well as companies in specifically impacted industries. We hope this guide helps company leaders understand what this looks like and how to access the programs.

What is the CARES act package for small businesses?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated approximately $377 billion to small businesses. 

The primary vehicle for assistance is the Paycheck Protection Program, which authorizes up to $349 billion in forgivable loans to eligible small businesses; the US Treasury Department circulated the following documents on the Paycheck Protection Program.

What is the Paycheck Protection Program (PPP)?  

The PPP offers loans up to $10 million for eligible businesses depending on certain conditions.  If the employer maintains its payroll, then portions of the loan used for covered payroll costs means that interest on mortgage obligations, rent, and utilities may be forgiven. Payroll costs are capped at $100,000 a year for each employee, and “due to likely high subscription, it is anticipated that not more than 25 percent of the forgiven amount may be for non-payroll costs.” 

What businesses are eligible for a PPP loan?

Small businesses with fewer than 500 employees are eligible for a PPP loan. Borrowers, with certain exceptions, will be subject to an affiliation standard, which expands the Small Business Administration’s (SBA) assessment to include entities who may have a controlling interest in the business applying for the PPP loan. The SBA recently issued guidance on how the affiliation standard applies. Under the proposal, the SBA establishes four tests to determine “control” and the resulting affiliation trigger; “any of the circumstances below is sufficient to establish affiliation.”    

  • Ownership:  An individual or entity “owns or has the power to control more than 50 percent of the concern’s voting equity.”

  • Securities and agreements to merge:  The SBA considers stock options, convertible securities, and agreements to merge to have a present effect on the power to control a concern.

  • Management: The CEO or other senior leaders also control the management of another concern, or an individual or entity controls the management of the applicant through a management agreement.

  • Identity of Interest: Close relatives (as defined by 13 CFR 120.10) “with identical or substantially, identical business or economic interests.” 

These tests still leave ambiguity around the affiliation standard and which small businesses are eligible for the PPP. This blog is not legal advice and should not be relied on as such. We strongly recommend that you consult with your attorneys to determine your eligibility. More information can be found here.

What are the loan terms for a PPP loan?

  • Maximum loan amount is up to two months of average monthly payroll costs from last year plus an additional 25%, up to $10 million. 

  • Payments are deferred for at least six months and up to 12 months.  

  • This loan has a maturity of 2 years and an interest rate of 1.0%.

  • Portions of the loan used on payroll interest, on covered mortgage, rent, or utility payments may be forgiven, but a reduction in employees or pay levels may reduce the portion of the loan that can be forgiven. 

  • Note: these terms are subject to change, so please reference the SBA’s site for the latest information.

How do you access the PPP?

  • Identify authorized lenders by visiting (The PPP loans are 100-percent federally guaranteed, but issued through approved private lenders). The Administration is seeking to increase the number of lenders to further streamline the process.

  • Gather required information (see below).

  • If eligible, apply as of April 3, 2020.

Materials needed to apply for a PPP loan:

An application can be found here, which will help you know which information to begin collecting. Some of the information you will need to gather includes:

  • Business legal name, address, TIN, average monthly payroll, number of jobs, purpose of the loan.

  • The applicant will also need to provide various certifications.

What are Economic Injury Disaster Loans (EIDL)?

Economic Injury Disaster Loans (EIDL) are low-interest fixed rate loans that can provide up to $2 million in assistance during an emergency. You can find more information at the SBA’s site.

What businesses are eligible for EIDLs?

Small businesses with fewer than 500 employees are eligible for EIDLs; same affiliation constraints as outlined above for the PPP program will apply here.

What are the terms for EIDLs?

  • EIDLs are lower interest loans of up to $2 million.

  • Principal and interest deferment are at the administrator’s discretion, and they are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.

  • Note: these terms are subject to change, so please reference the SBA’s site for the latest information.

How do you access an EIDL?

Contact information  

Navigating local, state, and federal assistance can be very difficult. We recommend that applicants be prepared to contact SBA officials as well as policymakers to ensure timely and accurate processing of requests.  

Small Business Administration local contacts

To follow up on a loan request, we recommend you contact the lender established under lender match, and follow-up with any SBA contacts provided as well as your local Small Business Development Centers and/or your Small Business District Office.

In addition, your local members of Congress can also be helpful during this time.

Importantly, we cannot guarantee access, funding, or success, but we hope this helps those companies that truly need the support. Remember that this situation is constantly evolving, so some of this information may change—we advise you visit the SBA’s site for the latest information and guidance. We will continue to update these resources as more information becomes available.  

DISCLOSURE: This communication is being sent on behalf of eShares, Inc. dba Carta, Inc.  Certain transactional fees may apply. This communication is not to be construed as legal, financial, accounting or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. 

Anthony Cimino leads public policy for Carta's Policy Team. He's spent his career in the public and private sectors working on financial services public policy.