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CARES Act EIDL & Paycheck Protection Programs1,2

Updated April 8, 2020
  Economic Injury Disaster Loan (EIDL) Program Paycheck Protection Program
Originating Statute Section 7(b)(2) of the Small Business Act (as modified by Section 1110 of the CARES Act). Subsection (36) of Section 7(a) of the Small Business Act (the “SBA”) entitled the “Paycheck Protection Program” (added by Section 1102 of the CARES Act).

Borrower must be a “small business concern”3 or an “eligible entity,” which includes a business with no more than 500 employees4.

The broad “affiliation” rules traditionally used for SBA loans will apply to the 500-employee test, likely rendering most portfolio companies of a private equity sponsor ineligible. There are no exceptions for accommodation and food services businesses. (Section 1110(a) of CARES Act)

Borrower must be a “small business concern” or a business with no more than 500 US resident employees (or a greater number of employees as is used in the “small business concern” test otherwise be applicable to the borrower).

The broad “affiliation” rules traditionally used for SBA loans will apply to the 500-employee test, likely rendering most portfolio companies of a private equity sponsor ineligible.

However, as applied to accommodation and food services (NAICS code 725), (a) the affiliation rules are explicitly waived and (b) the 500-employee limitation applies on a per physical location basis. The affiliation rules are also waived for certain franchises and businesses with SBIC investors. (Section 36(D) of SBA)

Lender Borrowers should apply directly with the U.S. Small Business Administration (the “Administrator”) through Traditional SBA lenders plus other FDIC-insured lenders and credit unions approved by the Treasury Secretary. (Section 1109 of CARES Act)
Timing Must be originated by Dec. 31, 2020. Must be originated by June 30, 2020.
Use of Proceeds Based on permitted uses under traditional disaster loans (including to pay fixed debts, payroll, accounts payable and other obligations that can’t be paid because of the disaster’s impact).

Includes (a) “payroll costs”6, (b) costs related to the continuation of group benefits, (c) mortgage interest payments, (d) rent, (e) utilities and (f) interest on any other debt obligations incurred prior to Feb. 15, 2020. (Section 32(F) of SBA) Subsequent SBA guidance clarifies that at least 75% of the loan must be used to fund “payroll costs.”

EIDL loans originated prior to April 3, 2020 can be refinanced under this program. (Section 36(F) of SBA)

Maximum Loan Size $2 million (not changed by CARES Act). The lesser of (a) $10 million and (b) (i) 250% of average monthly payroll costs for 2019 or a TTM period7 plus (ii) the amount of any EIDL loan refinanced. (Section 36(E) of SBA)
Loan Deferral No (not changed by CARES Act). Lenders required to provide complete payment deferment relief, including payment of principal, interest, and fees, for 6 months (SBA guidance).
Loan Forgiveness No (not changed by CARES Act)

Upon borrower’s submission of a separate application and supporting documentation, portions of the loan used to fund the following costs incurred and paid during the 8-week period following the date of loan origination (the “covered period”) shall be eligible for forgiveness: (a) payroll costs8 (including lost tips), (b) mortgage interest payments, (c) rental payments and (d) utility payments. Subsequent SBA guidance clarifies that non-payroll costs are subject to a 25% cap of the total forgiveness amount.

The forgiveness amounts are reduced for businesses that lay off employees or reduce wages beyond 25% (based on comparisons to certain prior periods), but such lay-offs and wage reductions will be ignored to the extent borrower has eliminated employee and/or wage reductions prior to June 30, 2020.

Amounts forgiven will not be included in borrower’s taxable income. (Section 1105 of CARES Act)

Maturity Maximum of 30 years (determined on a case-by-case basis based on ability to repay) (not changed by CARES Act). 2 years (to the extent any balance remains after forgiveness) (SBA guidance).
Interest Rate 3.75% for for-profit businesses (not changed by CARES Act). 1% (SBA guidance).
Underwriting Criteria The Administrator may rely solely on a borrower’s credit score or any other appropriate method. (Section 1110(d) of CARES Act) SBA delegates authority to lender. Lenders are instructed only to consider whether the borrower (a) was in operation prior to Feb. 15, 2020 and (b) had employees for whom the borrower paid salaries and payroll taxes or paid independent contractors. (Section 36(F) of SBA)
Emergency Advances Eligible borrowers can request that the Administrator provide an emergency advance (up to $10,000) within 3 days following application submission. These advances are not repayable even if loan is denied (Section 1110(e) of CARES Act). Not available.
Prepayment Penalty None (not changed by CARES Act). None. (Section 36(R) of SBA)
Collateral Required Yes, for loans over $25,000. However, loans will not be denied if collateral is not available. Personal guarantee
requirement waived for loans below $200,000. (Section 1110(c) of CARES Act)
No collateral or personal guarantee required. (Section 36(J) of SBA)
Eligibility for Employee Retention Credit Not affected. Borrowers who receive a loan under this program are not eligible for the Employee Retention Credit. (CARES Act Section 2203(j))


  1. Unless otherwise noted, section references are to the CARES Act, based on the version of the bill approved on March 27, 2020. We will update this summary based on related regulations as they become available. The information provided herein is intended to be a summary only and reference should be made to the language of the actual statutes and regulations.
  2. In addition to the EIDL Loan Program and Paycheck Protection Program, there may be other loans available through the U.S. Small Business Administration, including SBA Express Loans which were increased from $350,000 to $1 million under Section 1102(c) of CARES Act.
  3. The "small business concern" test is based on industry-specific maximum annual revenue and/or employees. The test applies both to the individual company and to its affiliates (using a very broad affiliate test). A complete discussion of the "small business concern" test and affiliation rules can be found here: i n/retrieve ECF R?gp=&S I D=7780ee089107f59ef3f78b938e2282b7&r= PART&n=13y1.
  4. For purposes of SBA loans, all individuals employed on a full-time, part-time, or other basis counted as employees.
  5. A complete list of industries classified under NAICS code 72 can be found here:
  6. “Payroll costs” include: (a) employee compensation, including (i) salary, wage, (ii) tips, (iii) vacation, parental, family medical or sick leave, (iv) allowance for dismissal or separation, (v) payments for the maintenance of health care benefits (including insurance premiums), (vi) payment of retirement benefits, and (vii) payroll taxes, and (b) if the borrower is a sole proprietor or independent contractor, income in an amount not more than $100,000 per year (as prorated for the covered period); but specifically exclude (x) payments to an individual employee exceeding $100,000 (as prorated for the covered period) and any payments to independent contractors, (y) compensation to employees whose principal residence is outside of the US and (z) qualified sick and family leave for which a credit is allowed under the Families First Coronavirus Response Act. April 6 guidance from the SBA clarified that payroll tax withholding for Federal income tax and FICA paid by the employer or employee should not reduce payroll costs.
  7. For "seasonal employers," average monthly payroll costs are based on period commencing Feb. 15, 2019 or March 1, 2019 and ending June 30, 2019.
  8. As defined in footnote 6.
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