Q&A on CARES Act Loans Available to Small Businesses and Non-Profits

What types of loans are available?

  • The “Paycheck Protection Program” implemented under the CARES Act allows small businesses and non-profits to apply for loans in the amount of 2.5 times average monthly payroll costs, which can then be forgiven to the extent that the loan proceeds are used for payroll, rent, mortgage interest, and utilities during the eight weeks following receipt of the loan. Forgiveness is generally dependent on keeping employees and not significantly reducing their pay.
  • Economic Injury Disaster Loans (“EIDLs”) of up to $2 million and loan advances of up to $10,000 are available to small businesses and non-profits who have sustained economic injury due to the COVID-19 pandemic. While these loans aren’t forgivable, the loan advances (of up to $10,000) do not need to be repaid.

Paycheck Protection Program Loans

Who would qualify for a Paycheck Protection Program loan?
Though Paycheck Protection Program (“PPP”) loans are Small Business Administration (“SBA”) loans, the eligibility requirements normally applicable to SBA loans do not need to be met. Businesses and nonprofits (and certain other entities) are eligible if they employ fewer than 500 employees. In addition, a business with 500 or more employees may still be eligible if its size is consistent with what would be considered a small business in its industry, as listed in the SBA’s Table of Small Business Size Standards. For example, of particular interest here in Wisconsin, cheese manufacturers and breweries are eligible if they employ up to 1,250 people and meat processors (packers, if you will…) are eligible if they employ up to 1,000.

Sole proprietors, independent contractors, and certain self-employed individuals are also eligible.

To qualify, the borrower must certify that:

  • The uncertainty of current economic conditions makes the loan request necessary to support its ongoing operations;
  • Funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments;
  • It does not have any other application pending under this program for the same purpose; and
  • From February 15, 2020, until December 31, 2020, it has not received duplicative amounts under this program.

How much can I get?
An eligible entity can get a loan in the amount of 2.5 times its average monthly payroll costs, as calculated by looking at the previous year’s payroll. In the case of seasonal employers, average monthly payroll costs will be calculated by looking at the time period between February 15, 2019, and June 30, 2019, or, if the borrower prefers, the time period between March 1, 2019, and June 30, 2019. The loans are capped at $10 million.

What kind of terms can I expect?
These loans are capped at 4% interest. No personal guarantee or collateral will be required. Payments of principal and interest will be deferred for at least six months, but not more than a year. Any unforgiven portion of the balance will have a maximum maturity of 10 years.

How much can I get forgiven?
Amounts of the loan used for payroll (including additional wages paid to tipped employees), interest payments on mortgages, rent, and utilities during the 8-week period after receiving the loan will be forgiven, up to the amount of the entire principal of the loan. However, forgiveness will be reduced if either or both of the following occur:

  • The average number of full-time equivalent employees (“FTEs”) employed per month during the 8 weeks after the loan is made is lower than the average number of FTEs who were employed per month either: 1) between February 15, 2019, and June 30, 2019, or 2) between January 1, 2020, and February 29, 2020. Most borrowers get to decide which of these two date ranges to use when doing this comparison, though seasonal employers must use the first comparison (i.e., using the 02-15-19 to 06-30-19 time period).
    • If an employer reduces the number of FTEs between February 15, 2020, and April 26, 2020, but then brings the number of FTEs back up to normal by June 30, 2020, these reductions won’t be considered in any decrease of loan forgiveness.
  • The total salary or wages of any employee (other than salaried employees earning more than $100,000) during the 8 weeks after the loan is made is more than 25% lower than it was during the most recent full quarter.
    • If wages were reduced between February 15, 2020, and April 26, 2020, and are then brought back up by June 30, 2020, those wage reductions won’t be considered in any decrease of loan forgiveness.

How do I get one?
Lenders approved to make SBA loans can provide PPP loans. Check with your regular banker or lending institution, or find one through the SBA’s website.


Who would qualify for an EIDL?
The EIDL program is not new; these loans are available to businesses and non-profits impacted by declared disasters, usually applicable when a natural disaster strikes a particular geographic area. However, the CARES Act has expanded this program and clarified that the COVID-19 pandemic is a disaster impacting the entire country, making businesses and non-profits located anywhere in the country potentially eligible. Businesses, co-ops, ESOPs, and tribal small businesses employing no more than 500 employees, as well as individuals operating under a sole proprietorship or as an independent contractor, can qualify, if they were in business as of January 31, 2020.

How much can I get?
The amount a borrower can receive depends on the amount of working capital needed, the amount of its actual economic injury due to the pandemic, and its ability to repay. EIDLs are capped at $2 million. Importantly, if a borrower meets the basic criteria and applies for an EIDL, it will receive an advance on the loan of up to $10,000. This advance will not need to be repaid, regardless of whether the borrower is approved for the loan. The advance may be used for providing sick leave to employees, maintaining payroll, meeting increased costs for materials, making rent or mortgage payments, and repaying obligations that can’t be met due to revenue losses.

What kind of terms can I expect?
No personal guarantees will be required on loans of $200,000 or less, though collateral may be required for loans over $25,000. The interest rate is capped at 3.75% for businesses and 2.75% for non-profits. The term is up to 30 years.

How do I get one?
You can apply online through the SBA here.

Can I get both a Paycheck Protection Program loan and an EIDL?
Yes, though the money would need to be used to cover different expenses. And, if a borrower receives an advance on the EIDL loan and then takes out a PPP loan, the amount of that advance will be subtracted from the PPP loan forgiveness.

For legal questions on loans available through the CARES Act, please contact Lora Zimmer at [email protected] / 920-257-2214 or Becky Kent at [email protected] / 920-257-2213.

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Lora L. Zimmer

Health Law and Title IX Attorney at McCarty Law LLP
Lora focuses her practice in corporate and business transactions, with a particular focus on the business and regulatory needs of health care clients. In addition, Lora is a trained Title IX investigator, providing prompt, thorough investigations and objective reporting in response to alleged violations of schools’ sexual misconduct policies.