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Emergency relief for small business under the CARES Act

On March 27, 2020, the US Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in response to the COVID-19 outbreak in the US. The CARES Act provided economic relief to individuals and businesses facing economic hardship due to the pandemic. On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA-21) was passed to provide $900 billion in a second round of COVID-related stimulus relief. On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) provided a third round of stimulus by extending and enhancing programs created under the CARES Act, and CAA-21, and by creating new programs. These programs provide financing, grants, and other financial assistance across a broad swath of the economy, including small businesses, restaurants, and shuttered venue operators.

This page highlights key provisions of the CARES Act and CAA 2021 most relevant to small businesses seeking emergency financial relief.

Available relief measures for small businesses

Paycheck Protection Program (PPP)

Economic Injury Disaster Loan (EIDL)

Main Street Lending

SBA Debt Relief

Employee Retention Credit

Payroll Tax Deferral

Targeted EIDL Advance

Paycheck Protection Program (PPP)

Designed to encourage small businesses to retain employees through the COVID-19 crisis.

  • PPP is an expansion of the Small Business Administration's (SBA) 7(a) loan program which typically has a limit of $5 million in SBA guaranteed loans. PPP initially provided up to $659 billion in forgivable loans to small businesses to cover payroll and certain other operational costs from February 15, 2020 through December 31, 2020.

    On December 27, 2020, CAA-21 expanded the PPP to provide additional forgivable loans for new borrowers (first draw loans) and allow a second round of loans for certain small businesses (second draw loans). The CAA-21 extended the PPP through March 31, 2021 and allocated an additional $284 billion for PPP loans.

    On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) provided a third round of stimulus by extending and enhancing programs created under the CARES Act and CAA-21, and by creating new programs. These programs provide financing, grants, and other financial assistance across a broad swath of the economy, including small businesses, restaurants, and shuttered venue operators.

    On March 30, 2021, the PPP Extension Act of 2021 was passed, extending the PPP until May 31, 2021.

    Maximum Loan:

    • First draw loans: Lesser of $10 million or 2.5x borrower's average monthly payroll during one-year period before date of loan. PPP sets a cap on salaries of $100,000.
    • Second draw loans: Lesser of $2 million or 2.5x borrower's average monthly payroll during either (i) the one-year period before the date of loan ; (ii) calendar year 2019; or (iii) for borrowers that are not self-employed, calendar year 2020. PPP sets a cap on salaries of $100,000.

    Debt Forgiveness: Up to 100% debt forgiveness if both:

    • 60% of the loan proceeds are used to cover payroll costs over the covered period. Borrowers may elect to choose a covered period for loan forgiveness that is between eight and 24 weeks from loan origination.
    • Employee and compensation levels are maintained.

    Not more than 40% of the forgiven amount may be for non-payroll costs (for example, mortgage interest, rent, and utilities; CAA-21 also added operational expenses, certain property damage costs, supplier costs, and worker protection expenses).

    Loan forgiveness will be reduced if the business:

    • Reduces its full-time employee headcount.
    • Decreases salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.

    Any loan amounts forgiven under the PPP will not be treated as taxable income (meaning, the amount will not be considered taxable cancellation of indebtedness income).

    To avoid a reduction in the loan forgiveness amount, businesses have until December 31, 2020 to restore their full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. For loans made on or after December 27, 2020, businesses have until the last day of the covered period to restore their full-time employment and salary levels.

  • First draw loan

    Businesses with 500 or fewer employees that were operational on February 15, 2020.

    Businesses include sole proprietors, independent contractors, non-profits, and certain self-employed individuals.

    Loan eligibility is not based on the ability to repay.

    Borrowers must make a good faith showing that the current economic uncertainty makes their loan request necessary to support their ongoing business operations.

    Second draw loan

    Businesses:

    • With 300 or fewer employees that were operational on February 15, 2020.
    • That have expended the full amount of their first PPP loan.
    • That can demonstrate at least a 25% reduction in gross receipts in the 1st, 2nd, 3rd, or 4th quarter of 2020 as compared to the same quarter in 2019.

    Businesses include sole proprietors, independent contractors, non-profits, and certain self-employed individuals.

    Loan eligibility is not based on the ability to repay.

    Borrowers must make a good faith showing that the current economic uncertainty makes their loan request necessary to support their ongoing business operations.

  • If receiving a PPP loan, qualified wages counted toward PPP loan forgiveness are ineligible for Employee Retention Credit.

    The business cannot use PPP funds for same expenses as other SBA loans.

    Economic Injury Disaster Loan (EIDL) and Emergency Economic Injury Grant (EEIG) or EIDL Advance recipients may apply for and take out a PPP loan as long as there is no duplication in the uses of funds. Under CAA-21, the proceeds from an EIDL Advance will not be deducted from the loan forgiveness amount on the PPP loan. 

  • PPP loans are made through an SBA-approved lender. The PPP Extension Act of 2021 extends the PPP through May 31, 2021.

Economic Injury Disaster Loan (EIDL)

Designed to provide working capital loans to small businesses suffering substantial economic injury from COVID-19 crisis.

  • EIDL is an expansion of the existing Economic Injury Disaster Loan Program (EIDLP). It provides low interest loans to small businesses to pay payroll and certain operating costs and liabilities from January 31, 2020 through December 31, 2021 (as extended by CAA-21).

    Provides up to $60 billion in low interest loans to small businesses to pay:

    • Fixed debts
    • Payroll
    • Accounts payable
    • Rent
    • Utilities
    • Other bills that cannot be paid because of the disaster's impact

    Maximum Loan: Up to $500,000 for 24 months of working capital, based on borrower's actual economic injury and financial need.

    Debt Forgiveness: None.

    Interest Rate: 3.75% for businesses (fixed); 2.75% for nonprofits (fixed).

    Term of Loan: 30 years.

    Repayment Schedule: Deferred one year; interest still accrues

    Prepayment: Permitted without penalty.

    Program Period: January 31, 2020 through December 31, 2020.

  • Businesses with 500 or fewer employees or that meet the applicable SBA industry size standards that:

    • Were in operation on January 31, 2020
    • Suffered a "substantial economic injury," defined as an inability to meet its financial obligations, pay ordinary and necessary operating expenses, or has a reduction in working capital resulting from the COVID-19 crisis

    Businesses include sole proprietors, independent contractors, non-profits, and certain self-employed individuals.

  • Businesses that have already received an EIDL may also apply for a PPP loan.

    EIDL received after January 31, 2020 and through the date of a PPP can be rolled into PPP, if intended for same purpose.

  • Provide the required information on the U.S. Small Business Administration website to see if you’re eligible for an EIDL.

    SBA’s website indicates that it is still accepting EIDL loan applications from all eligible applicants experiencing economic impacts due to COVID-19.

SBA Debt Relief

Provides SBA borrowers with six months of relief from payments of principal, interest, and fees on certain SBA loans.

  • Permits banks to extend the duration of existing loan terms.

    Provides an extension on certain reporting requirements.

  • Existing SBA 7(a), 504 or micro loans, and new loans issued before September 27, 2020.

  • Does not apply to PPP or EIDL loans.

  • No application required.

    Borrowers should contact their lender with questions.

Employee Retention Credit

Incentivizes eligible employers impacted by the COVID-19 outbreak to keep employees on their payroll.

  • Eligible employers may claim as a credit against employment taxes an amount equal to 50% of up to $10,000 in qualified wages paid for each employee after March 12, 2020, and before January 1, 2021 (meaning up to $5,000 per employee).

    Certain health plan expenses can be allocated and treated as qualified wages when computing the credit.

    The credit is fully refundable.

    Employers may claim the credit by:

    • Claiming the credit on IRS Form 941
    • Reducing their federal employment tax deposits by the amount of the credit
    • Submitting Form 7200 (Advance Payment of Employer Credits Due to COVID-19) to request advance payment of the credit
  • An employer is eligible for the employee retention credit if it carries on a trade or business during 2020 that either:

    • Fully or partially suspends operation during any quarter in 2020 because of an order from a governmental authority restricting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19.
    • Experiences a significant decline in gross receipts during a quarter. A significant decline in gross receipts begins with the first quarter in which an employer's gross receipts for a calendar quarter in 2020 are less than 50 percent of its gross receipts for the same calendar quarter in 2019.

    Employers with more than 100 employees can claim the credit only for wages paid to furloughed employees or employees who had reduced hours, for services not rendered.

    Employers with fewer than 100 employees can claim the credit on all wages paid, regardless of whether employees provided services.

    Although tax-exempt organizations are eligible for the credit, state and local governments are not.

    Self-employed individuals are also not eligible for the credit as to their self-employment services and earnings.

  • Ineligible if receiving a PPP loan, even if the employer does not receive forgiveness of all or a part of that loan.

    Ineligible if employer received a credit for qualified leave wages under the Families First Coronavirus Response Act (FFCRA) regarding the same wages.

Employee Retention Credit Tool

Quickly and accurately advise your business clients on relief options. The Employee Retention Credit Tool helps to determine if your business clients may qualify for the credit and otherwise do not qualify for or will not take a PPP loan. Or share the link with your business clients for them to use.

Payroll Tax Deferral

Helps employers and self-employed individuals in the face of economic hardship related to the COVID-19 crisis.

  • Deferral of employer share of 6.2% social security tax or half of self-employment tax.

    Applies to payments during the period March 27, 2020 to December 31, 2020.

    Instead of depositing these taxes on a next-day or semi-weekly basis:

    • The deposit due date for 50% of the taxes is deferred to December 31, 2021
    • The remaining 50% is deferred until December 31, 2022
  • Payroll tax deferral is available to all employers with no size restriction.

    Self-employed individuals and tax-exempt organizations are eligible.

  • Employers who have received a PPP loan and are having their loans forgiven can defer eligible payroll tax payments for the entire period of March 27, 2020 to December 31, 2020.

    Employers can defer payroll tax before determining:

    • Whether the employer is entitled to the paid leave credits under the FFCRA or the employee retention credit under the CARES Act; and
    • The amount of employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits.

Targeted EIDL Advance

A targeted loan advance on an Economic Injury Disaster Loan (EIDL) to provide immediate economic relief to businesses in low-income communities to ensure small business continuity, adaptation, and resiliency.

  • CAA-21 allocated an additional $20 billion to a Targeted EIDL Advance program for eligible businesses located in low-income communities.

    Permitted Use: The Targeted EIDL Advance funds can be used for working capital and normal operating expenses, such as payroll, health care benefits, rent or mortgage payments, utilities, and paying other fixed-debt payments that cannot be paid due to lost revenue.

    Maximum Amount: $10,000.

    Repayment: Loan advance does not have to be repaid.

  • Businesses that:

    • Apply for an EIDL.
    • Are located in a low-income community. The SBA has released an online mapping tool to help you understand if your business is located in a low-income community.
    • Suffered an economic loss of more than 30% (i.e., gross receipts declined during an 8-week period between 3/2/20 and 12/31/21 as compared to an 8-week period before 3/2/20 or during 2019).
    • Have 300 or fewer employees.

    Businesses include sole proprietors, independent contractors, and non-profits.

  • If a business previously received an EIDL advance (also known as an Emergency Economy Injury Grant EIDL grant) in an amount less than $10,000, it may receive a Targeted EIDL Advance in the amount equal to the difference between $10,000 and the amount of the previously received EIDL advance.

    Businesses that have already received an EIDL and/or Grant may also apply for a PPP loan.

    Cannot be used for the same purpose as PPP.

  • EIDL applicants must wait until they receive an email invite from the SBA to apply for the Targeted EIDL Advance. All communication from SBA will be sent from an official government email account ending with @sba.gov.

Additional resources

This page was created by Thomson Reuters legal and tax experts to assist your small business. For further in-depth coverage, access free COVID materials via the following Thomson Reuters platforms.

Practical Law Global Coronavirus Toolkit

A trusted resource leveraged by legal professionals and corporate counsel, Practical Law offers free access to content specific to navigating COVID-19 and business interruptions.

Checkpoint Edge COVID-19 folder

Leveraged by tax and accounting professionals, Checkpoint Edge offers free trial access to a COVID-19 folder that includes support, service, training and video tutorials.