On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into law.  The CARES Act is a roughly $2 trillion package that includes significant expansions in small business lending, unemployment insurance, tax relief to individuals and employers, health care measures, $500 billion in economic stabilization funds and other measures aimed at combating the COVID-19 health care and economic crisis.  Below is a general summary of select provisions of the CARES Act relating to small businesses.

Paycheck Protection Program. The CARES Act establishes a new Paycheck Protection Program to let small businesses, nonprofits, and individuals seek loans through the Small Business Administration’s (“SBA”) 7(a) loan program. The CARES Act authorizes $349 billion in total 7(a) lending from Feb. 15 through June 30, instead of the current $30 billion authorization for fiscal 2020, and provides for the SBA to fully guarantee loans under the new program, compared with a 75% or 85% guarantee for standard 7(a) loans.

These loans would be available during the covered period for (i) any business, nonprofit, veterans group, or tribal business with 500 or fewer employees, or a number set by the SBA for the relevant industry, (ii) sole proprietors, independent contractors, and eligible self-employed workers, and (iii) hotel and food service chains with 500 or fewer employees per location.  Rules requiring recipients to pay certain fees, provide collateral, or be unable to obtain credit elsewhere are waived. SBA rules on company affiliates used to determine small business size would be waived for franchises, food or lodging companies with 500 or fewer employees, and businesses that get financial assistance from a small business investment company.

Loans to an eligible borrower under the new program cannot exceed the lesser of $10 million or 250% of the eligible borrower’s average monthly payroll costs, and will have interest rate that does not exceed four percent. The loans can be used to cover eligible payroll costs — including salaries, commissions, regular paid leave, and health-care benefits — as well as mortgage interest, rent and utility payments, but they cannot be used to compensate individual employees at an annual rate above $100,000, or to pay for emergency sick or family leave under the second coronavirus response package (Public Law 116-127). Lenders under this program are required to provide deferral of any payment of principal, interest or fees for at least six months and as long as one year.

Subject to certain limitations, recipients of these loans are eligible to have a portion of the loan forgiven, with the forgiven amount being equal to the sum of certain costs (relating to payroll, mortgage interest, rent, and utilities) for the 8-week period beginning on the date the loan was originated. The loan forgiveness amount may be subject to certain reductions based on the borrower’s reduction in its workforce or in salary or wage payments made to certain employees. The canceled debt is excluded from the borrower’s gross income for federal income tax purposes.

Disaster Loans. The CARES Act permanently expands the SBA’s disaster loan program to cover small entities affected by emergencies for which the president determines the federal government has primary responsibility, as President Trump did for the coronavirus outbreak. Further, the CARES Act provides $10 billion to expand the SBA’s disaster loan program through December 31, 2020, to cover businesses, cooperatives, employee stock ownership plans, and tribal businesses with 500 or fewer employees, as well as sole proprietors and independent contractors. The SBA is required to waive certain eligibility rules during the covered period for disaster loans made in response to COVID-19.

The CARES Act also authorizes the SBA to advance as much as $10,000 to disaster loan applicants within three days of receiving their applications. Recipients could use the advance funds to pay sick leave to employees affected by COVID-19, retain employees, address interrupted supply chains, make rent or mortgage payments, and repay debt. These advances do not have to be repaid (although if the applicant is approved for loan under section 7(a) of the Small Business Act, the advance amount reduces the loan forgiveness amount under the Payroll Protection Program).

SBA Express Loans. The CARES Act increases the maximum amount of an SBA 7(a) express loans, which have a 36-hour turnaround, to $1 million (up from $350,000) through the end of 2020.

Bankruptcy. The CARES Act allows businesses with as much as $7.5 million in debt to qualify for a streamlined Chapter 11 bankruptcy process, increasing the current debt limit of $2.73 million for eligible small businesses. For one year following the bill’s enactment, the CARES Act would temporarily exclude federal payments related to the coronavirus from income calculations under Chapter 11 bankruptcy proceedings. It also allows debtors experiencing hardship because of COVID-19 to modify existing bankruptcy reorganization plans.

This client alert is for informational purposes and is not legal advice. The COVID-19 crisis has created a very fluid situation, in which changes to the law or related guidance can occur on a daily basis. Please contact your legal advisor for assistance before acting in relation to the subject of this client alert.

For additional COVID-19 resources, please see COVID-19 Updates

Please reach out to members of the Gallagher Evelius & Jones COVID-19 Response Team: Aaron Pinegar, Brian Tucker, Steve Metzger, and David Kinkopf.


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Matthew W. Oakey




Matt Oakey is a member of Gallagher's Real Estate and Business Transactions Group.

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