Corporate Law Blog

The CARES Act – What You Need to Know about Relief Now Available for Businesses

With the passage of the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, businesses received a dose of much-needed relief in the form of tax payment deferrals and loan programs. In this post, we’ll take a look at both the previously established EIDL Program and the Paycheck Protection Program.

Paycheck Protection Program

The Paycheck Protection Program (PPP) expansion of Section 7 (a) of the Small Business Act (formerly known as “Small Business Interruption Loan Program”) includes qualifying businesses, independent contractors, sole proprietors, non-profits, veteran’s organizations, religious organizations, or Tribal businesses that have fewer than 500 employees or meet the SBA’s size requirements under the industry-based North American Industry Classification System (NAICS). Hospitality and restaurant businesses and others (independently-owned franchises approved by the SBA, for instance) are exempt from some of these requirements and instead meet location-based requirements.

EIDL Program

The Economic Injury Disaster Loan Program (EIDL) under Section 7 (b)(2) of the Small Business Act has been expanded, allowing more businesses to obtain EIDL loans. Generally, the applicant pool for these faces similar criteria as the Section 7(a) loans listed above. Eligibility for these loans will be based upon the applicant’s ability to pay the loan (such as a credit score), but the usual requirements that the business be in operation for at least a year prior to the disaster or that the business is otherwise ineligible for credit have been waived.

The Interplay between PPP and EIDL

Applicants cannot use funds from both programs to cover the same expenses. For instance, employers may not pay payroll expenses out of both PPP funds and EIDL funds. EIDL loans may, however, be refinanced by a PPP loan.