What Every Small Business Owner Needs to Know about CARES Act


The COVID-19 pandemic hasn’t been easy for anyone. That said, small business owners have been particularly struggling in recent months. Regardless of your industry, the pandemic’s impact on the economy has likely affected you financially.

Thankfully, there are various business term loans you can take out to stay afloat right now. If you run a small business, you should familiarize yourself with the help the Small Business Administration is currently offering via the CARES Act. The following points will cover some of the basic information you need to know about it:

What You Need to Know about the CARES Act

The President signed the CARES Act into law on March 27, 2020. The act sets aside $376 billion in relief funds for small business owners and employees feeling the effects of the pandemic. If you’re thinking about applying for a loan offered through the CARES Act, consider these details:

  • Although a business only typically qualifies as “small business” (and is thus eligible for a loan) if it has 500 or fewer employees, a business may still be eligible for CARES Act loans if they otherwise fit the definition of a “small business concern” according to section 3 of the Small Business Act, 15 U.S.C. 632.
  • Loans typically have two-year terms, no pre-payment penalties, and a 1% fixed rate.
  • You don’t need to provide collateral or personal guarantees for your business to be eligible.
  • You can defer loan payments for six months. However, interest will continue to accrue.

Once you receive a loan, you also need to make sure you’re using it as intended. Specifically, you must use 75% of the funds for “payroll costs,” which can include:

  • Any salaries, wages or other such payments to employees. This doesn’t include payments to independent contractors. The U.S. must also be the primary residence for employees.
  • Costs associated with employee benefits.
  • State and local taxes on compensation.

Fortunately, CARES Act loans may technically qualify for loan forgiveness if you use 75% for payroll costs (and the remaining 25% for other business costs), and if you maintain employee compensation levels or restore those levels after receiving the loan funds.

You can head to the official SBA site to learn more, as certain details and factors, such as deadlines, frequently change. The site also offers a list of lenders in your state through whom you can apply for a loan. Again, while no one will pretend the COVID-19 pandemic has been easy, help is available. You should take advantage of it.