Seyfarth is actively monitoring all aspects of federal legislation impacting our corporate clients based on COVID-19 business stimulus funding. We expect there to be rolling updates to these provisions based on programs yet to be defined by the Small Business Administration, the Federal Reserve, and the Department of Treasury. We are closely monitoring all developments and will supplement this Summary as the information becomes available. Please note that the CARES Act is still subject to House and Presidential approval.


A. The CARES Act Provisions Affecting Small Business

Paycheck Protection Program

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: 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.

B. Emergency Economic Injury Disaster Loans and Grants

The Act provides for Emergency Economic Injury Disaster Loans (EIDL) and grants for eligible entities for a covered period from January 31, 2020 to December 31, 2020.

EIDL Loans

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); and
  • 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

C. Subsidies For Certain Loan Payments

SBA will pay the principal, interest, and any associated fees that are owed on certain existing loans (SBA loans, loans from state and local development companies, and microloans) for a 6-month period starting on the next payment due (taking into account any deferment).

D. Bankruptcy Considerations

The CARES Act amends certain provisions of the Bankruptcy Code for a period of one year with respect to small business debtors and individual debtors.

Chapter 11 Small Business Debtors

The Act expands the number of small businesses (and individuals with business debt) eligible for treatment under Subchapter V of Chapter 11 by increasing the debt cap for small business bankruptcies from $2,700,000 to $7,500,000 for a period of one year. Subchapter V of Chapter 11 was recently enacted by the Small Business Reorganization Act of 2019 (SBRA) and became effective on February 19, 2020. Subchapter V offers a fast-track for small business debtors to more easily confirm plans of reorganization in Chapter 11. Conversely, Subchapter V offers creditors fewer rights and protections.

Individual Debtors

Also for a period of one year, the Act:

  • Excludes federal government payments for COVID-19 related purposes from the definition of "income" for individual debtors
  • Permits Chapter 13 individual debtors to modify confirmed plans based on COVID-19 related material financial hardships and to extend the time period to complete payments from five years to seven years


Title IV of the CARES Act provides $500 billion in emergency funding to the U.S. Department of Treasury's Exchange Stabilization Fund to provide economic relief in the form of loans, loan guarantees, and other investments in businesses, states and municipalities impacted by coronavirus.

Airlines and National Security

The government has committed $29 billion for direct loans or loan guarantees to the airline industry and $17 billion for businesses deemed critical to national security.

Businesses eligible for this relief must have continued operations jeopardized by losses from the coronavirus crisis. To be eligible for the funding, other forms of alternate financing must not be reasonably available to the business. The Fed will price assistance on a risk-adjusted basis and, if possible, at interest rates and terms based on market conditions for comparable obligations before the coronavirus outbreak. Loan durations will not exceed 5 years.

Borrowers and their affiliates cannot engage in stock buybacks, unless required under pre-existing contracts, or pay dividends, until one year after the date the loan or loan guarantee is no longer outstanding. Borrowers must, until September 30, 2020, maintain employment levels as of March 24, 2020, to the extent practicable, and cannot reduce employment levels by more than 10 percent from March 24, 2020 levels. A business borrower must also certify that it is created or organized in the U.S. or under U.S. laws with significant U.S. operations and that its employees are predominantly located in the U.S.

Loans and guarantees cannot be issued for an eligible airline or national security critical business unless the Secretary receives a warrant or equity interest in the business (if publicly traded) or a warrant or equity interest or debt instrument for private airlines or national security critical businesses.

Loans and guarantees with airline and national security business borrowers must also restrict the compensation of officers. Specifically, for officers that made over $425,000 in 2019, borrowers may not, beginning the year of any loan/guarantee and continuing for the one-year period following the satisfaction of the loan/guarantee, pay an officer more compensation than that officer received in 2019 or pay severance/other benefits that exceed twice the maximum total compensation in 2019. For officers that made over $3 million in 2019, borrowers may not, beginning the year of any loan/guarantee and continuing for the one-year period following the satisfaction of the loan/guarantee, pay an officer more than $3 million plus 50% of the amount over $3 million received by the officer in 2019.

The Treasury Department will publish procedures for submitting applications and minimum requirements within 10 days of the date of the enactment of the CARES Act into law.

Other Business and Local Government Support

The remaining $454 billion is available to support relief to all other eligible businesses, states, and municipalities in the form of interest-bearing loans, loan guarantees and other investments, including equity investments in programs and facilities established by the Federal Reserve. Borrowers with direct loans under these facilities cannot, absent a waiver, engage in stock buybacks, unless required under pre-existing contracts, or pay dividends, until one year after the date the loan is no longer outstanding. The restrictions on compensation outlined above applicable to airline carriers and national security businesses likewise apply.

All applicable requirements under Section 13(3) of the Federal Reserve Act apply to these programs and facilities. This includes a requirement that any borrower be solvent (i.e., not in bankruptcy, resolution under title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any other Federal or State insolvency proceeding).

Nonprofits and Medium-Sized Businesses

Title IV of the CARES Act also provides for the Treasury Department and the Federal Reserve to work together to implement a special Section 13(3) Federal Reserve facility that provides financing to banks and other lenders that make direct loans to nonprofits and mid-sized businesses (between 500 – 10,000 employees). The loans will be subject to annualized interest rates of 2 percent per annum or less.

Note that "nonprofit organizations" are eligible, but that term is not defined for purposes of this loan program. A separate Title of the Act defines it to include only 501(c)(3) tax-exempt organizations, so it is unclear whether other nonprofits are eligible, including those tax exempt under other subsections of Internal Revenue Code section 501(c).

Eligible borrowers applying for direct loans under this program will be required to certify, among other things, that:

  • the uncertainty of economic conditions makes the loan request necessary to support ongoing operations;
  • funds received will be used to retain at least 90 percent of the recipient's workforce, with full compensation and benefits, through September 30, 2020;
  • the recipient intends to restore not less than 90 percent of its February 1, 2020 workforce with full compensation and benefits no later than 4 months after the end of the coronavirus public health emergency;
  • the recipient will not pay dividends or conduct stock buybacks while the loan is outstanding, except for pre-existing obligations;
  • the recipient will not outsource or offshore jobs for the term of the loan plus an additional two years;
  • the recipient is created/organized and domiciled in the U.S. with significant operations and a majority of employees located/based in the U.S.;
  • the recipient is not a debtor in a bankruptcy proceeding;
  • the recipient will not abrogate existing collective bargaining agreements for the term of the loan plus an additional two years; and
  • the recipient will remain neutral in any union organizing effort for the term of the loan.

Businesses will need to evaluate the relative costs and benefits of receiving assistance given the foregoing requirements.

Loan Forgiveness. Unlike the Paycheck Protection Program loans described above under Section I, loan forgiveness will not be permissible under loans or facilities provided under Title IV of the Act as part of $500 billion economic relief package.

Conflict of Interest Provisions. Businesses in which the President, Vice President, an executive department head, Member of Congress – or such individual's spouse, child (including adult children), son-in-law, or daughter-in-law – own at least a 20% direct or indirect equity stake will not be eligible for emergency relief funds under Title IV of the CARES Act.


A. 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.

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).

B. Businesses

Title II of the CARES Act provides eligible employers an employee retention credit which is a refundable payroll tax credit for 50% of qualified wages (qualified wages are limited to $10,000 per employee per all quarters). Qualified wages also include health plan expenses.

The Act allows employers and self-employed individuals to defer the employer share of Social Security tax (6.2%). The deferred tax is payable in equal parts over the following two years.

The Act modifies certain rules addressing businesses' net operating losses (NOLs). Accordingly, NOLs arising in 2018 through 2020 can be carried back 5 years. The limitation of 80% of taxable income on the utilization of NOLs is eliminated with respect to pre-2021 taxable years and carry-forwards of pre-2018 NOLs.

The Act allows corporations to accelerate their ability to recover Alternative Minimum Tax credits from prior years and to claim any resulting refund.

The Act increases the limitation on the deduction of interest expense by businesses from 30% to 50% of taxable income (with adjustments) for 2019 and 2020.

The Act corrects the "retail glitch" and enables businesses to immediately write off the costs of all qualified improvement property, including 15-year retail improvement property and 15-year restaurant property.

The Act increases from 10% to 25% the deduction limit applicable to corporations for certain charitable cash contributions made in 2020.

The Act waives the federal excise tax on alcohol used to produce hand sanitizer in 2020.


The Act amends the Families First Coronavirus Response Act (the FFCRA) to allow employers to obtain an advance credit for the tax credit provided by the FFCRA. In addition, the amended FFCRA authorizes the Secretary of Treasury to waive the penalty for failure to deposit the employer's portion of Social Security tax and Railroad Retirement Tax Act excise tax due to anticipation of the tax credit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.