A Comprehensive Small Business Guide to CARES Act COVID-19 Relief

by Dan Caplinger | Updated Aug. 5, 2022 - First published on May 18, 2022

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The coronavirus pandemic has put a huge burden on small businesses. Many companies have had to close their doors to prevent spreading the COVID-19 disease, while others are struggling to operate under health-related restrictions.

The financial impacts have been disastrous, and that's made it hard for small businesses to keep employing workers and continue to run.

Here's the latest on what the federal government is offering.

To help small businesses, lawmakers in Washington recently passed the Coronavirus Aid, Relief, and Economic Security Act, known in short as the CARES Act. This legislation put in place two programs to help small businesses get the financing they need.

Here are all the details you need about what the CARES Act is doing for small businesses.

What are the two primary small business programs that the CARES Act created?

Two major provisions of the CARES Act apply to small businesses: the Paycheck Protection Program and the Economic Injury Disaster Loan and grant program.


  • The Paycheck Protection Program (PPP) provides federally guaranteed loans to employers who need cash in order to maintain their payrolls during the coronavirus crisis.

    Although the money is structured as a loan, the federal government intends to forgive the loans entirely for employers who keep paying their workers, with forgiveness of up to eight weeks' worth of payroll costs.

  • In order to get a PPP loan, a business must have been in operation as of Feb. 15, 2020. It applies to most businesses with fewer than 500 employees, including charitable nonprofits, veterans organizations, and tribal business concerns.

    Eligible businesses include sole proprietorships, independent contractors, and self-employed individuals.

  • The loan size depends on how old the business is. For those businesses that were in operation between Feb. 15, 2019 and June 30, 2019, the maximum loan amount is 250% of the average monthly payroll costs over that timeframe.

    Those that weren't in business during that period will instead calculate 250% of their average payroll costs during January 2020 and February 2020. The absolute maximum loan size is $10 million.

  • Eligible payroll costs include salaries, wages, and other standard forms of compensation, but they also incorporate some other common small business costs. Payment for vacation time as well as parental, family, medical, or sick leave pay is also included, as is severance pay or other allowances for job loss.

    Small businesses can also include payments for group healthcare benefits such as insurance premiums, as well as retirement benefits and any state or local taxes on employee compensation.

    However, some items are not eligible for treatment as payroll. Compensation for employees/owners above $100,000 doesn't count, nor do payroll taxes or income tax withholding amounts.

    Employees whose principal residence is outside the U.S. can't have their wages included in the total for the small business.

    Moreover, there's no double-dipping for benefits, so if the business gets a credit under other federal law for providing family or sick leave, it can't also include the costs as eligible payroll for PPP purposes.

  • Businesses can use loan proceeds to cover eligible payroll costs as well as other expenses, such as sustaining group health coverage, interest on mortgage obligations, rent, utilities, and interest on any other debt that the business incurred before the covered period started on Feb. 15, 2020 or later.

  • PPP loans can charge interest rates up to 4%. However, they're not allowed to have loan origination fees or prepayment fees, and the Small Business Administration (SBA) will set application fee maximums for lenders. The SBA has said that PPP loans should have a maturity of two years and charge 1% interest.

    The amount forgiven under the loan provisions includes payroll costs and payments of mortgage interest, rent, and utilities during the covered eight-week period, as compared to the costs during the previous-year time period.

    To claim forgiveness, you need to apply through your lender, providing documentation of covered employees and costs. Any amount not forgiven must be repaid over a maximum of 10 years, with principal and interest deferment lasting six months to a year after the loan is granted.

    For more from the SBA about these loan provisions, check out the SBA's website here.

  • All lenders certified under the Small Business Administration's guidelines are eligible to make PPP loans.

  • The U.S. Senate's Committee on Small Business and Entrepreneurship put together a great resource with information on the CARES Act. The portion about the PPP starts on page two of the document.

  • Economic injury disaster loans (EIDLs) are low-interest loans of up to $2 million to help businesses pay for expenses that they could have paid had it not been for the coronavirus outbreak. The idea is to cover not only payroll but also other operating expenses of the business.

  • Sole proprietorships, independent contractors, cooperatives, employee-owned businesses, and tribal small businesses with 500 or fewer employees are eligible to receive EIDLs. Most private nonprofit organizations are also eligible regardless of their size.

  • To provide more immediate relief, the federal government allows small business owners to apply for up to $10,000 as an advance on an EIDL. Although called an advance, this amount is actually a grant rather than a loan, and business owners won't have to repay it.

    The money is available to those who've suffered temporary losses of revenue as a result of the coronavirus pandemic, and the SBA expects these amounts to get paid within days of businesses applying for them.

  • Loan funds are available to cover a wide range of business expenses, including payroll, rent, accounts payable, and other fixed payments. You can also use EIDLs to cover bills that you could've paid had it not been for the coronavirus.

  • The payback period for EIDLs runs up to 30 years. The current interest rate for most small businesses is 3.75%. You can get more details from the SBA here.

  • The best way to apply for an EIDL is online through the SBA COVID-19 Disaster Loan website.

Can businesses participate in the PPP and get an EIDL?

Eligible small businesses can apply to be part of the PPP and also get EIDLs. However, there are a couple of things to keep in mind:

  • If you receive a $10,000 advance under the EIDL's emergency advance program, that amount will get subtracted from your PPP loan.
  • You can't use EIDL proceeds for the same purposes as PPP loan proceeds. However, you can use them for the same category of expenses over different time periods, or for different cost categories.

Make the best of government small business assistance

The federal government knows how hard times are for small businesses right now, and it wants to help. With these programs, you can get money you need to keep your employees paid and your business running.

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