The CARES Act Essentials for Businesses and Lenders

To ease the economic impact of the public health crisis caused by COVID-19, Congress recently enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2 trillion stimulus package designed to provide aid to states, industries, and workers during the COVID-19 outbreak. The CARES Act creates a $500 billion lending program for businesses and local governments. The CARE Act incentivizes businesses to retain employees and expands access to federal unemployment insurance and other benefits. Many of the provisions of the CARES Act may be crucial for both businesses and lenders to weather the COVID-19 crisis.


  1. Lending Program for Businesses. The CARES Act authorizes $349 billion for the Paycheck Protection Program, which grants the U.S. Small Business Administration (“SBA”) the power to provide forgivable loans to small businesses to use for payroll expenses, such as employee salaries, rent, and utility payments. A business is eligible if it is (1) a small business as defined by SBA standards (generally up to 500 employees), (2) a business in the accommodation and food services sector with up to 500 employees at each location, (3) a 501(c)(3) non-profit with fewer than 500 employees that does not receive Medicaid funding, (4) a sole proprietorship, (5) a self-employed individual, or (6) an independent contractor. Funds will be distributed through both direct lending and Federal Reserve lending. Assistance provided under this program is also subject to certain requirements, including the requirement that funds be used to retain the recipient’s workforce.


  1. EIDL Program. Recently, the SBA declared that Economic Injury Disaster Loans (“EIDL”) are available to small businesses impacted by COVID-19. Those businesses that are eligible may receive a loan of up to $2,000,000 to help pay for financial obligations and operating expenses. Businesses may utilize the loans to pay debts, payroll, and other such bills that cannot be paid as a result of lost revenue from COVID-19. Additionally, the CARES Act authorizes $10 billion to provide emergency grants of up to $10,000 for eligible small businesses that apply for EIDL loans. Such advances are to be paid by the SBA to applicants within three (3) days of submitting an application and can be used to pay for paid sick leave to employees, payroll, increased costs of materials, rent, debt service payments, and other obligations that cannot be met due to revenue losses as a result of COVID-19. Per the CARES Act, these emergency grants do not need to be repaid. Registration for an EIDL is available online at The deadline to apply for a COVID related EIDL is December 16, 2020.


  1. Tax Benefits for Employers. The CARES Act offers tax benefits for employers, including the following measures:


  • Employee Retention Credit. Provides businesses with a refundable tax credit for the employer’s component of employment (i.e. social security) taxes. Such credit is equal to worth 50 percent of an employee’s wages paid between March 12, 2020 and December 31, 2020. For the purposes of the credit, wages are capped at $10,000.00 per employee, resulting in a maximum credit of $5,000.00 per employee. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.


  • Employer Payroll Tax Delay. Allows employers and self-employed individuals to defer payment of the employer’s share of the Social Security taxes. The deferred tax must be paid over the following two years.


  • Modifications to Net Operating Loss. Reduces the limitations on a company’s use of net operating losses. Net operating losses are currently subject to a taxable income limitation and cannot be carried back to reduce income in a prior tax year. The CARES Act allows net operating losses arising in tax years beginning in 2018, 2019 or 2020 to be carried back five years. It also temporarily removes the taxable income limitation to allow a net operating loss to fully offset income. However, real estate investment trusts may not carry back losses.


  1. Expansion of Unemployment Insurance. The creation of a temporary Pandemic Unemployment Assistance program will provide payment to those not traditionally eligible for unemployment benefits (including those who are self-employed, independent contractors, or with limited work history) who are unable to work as a direct result of COVID-19. Benefits are available for individuals who are unemployed, partially unemployed, or unable to work. The legislation provides an additional $600 per week in unemployment benefits, in addition to benefits available under other programs, for four months.


  1. Bankruptcy Relief. CARES Act provides greater access to bankruptcy relief for small businesses.  The CARES Act amends the Small Business Reorganization Act of 2019 (“SBRA”) to make the provisions of subchapter V of chapter 11 of the Bankruptcy Code available to small business debtors carrying debt of up to $7,500,000.00. This is a significant increase from the previous limit of $2,725,625. Subchapter V and the SBRA creates a streamlined Chapter 11 for small business debtors by, among other things, eliminating creditor committees and loosening the absolute priority rule with respect to unsecured creditors. Loosening the absolute priority rule allows business owner to retain equity in the business without paying unsecured creditors in full.


If you have any questions regarding the CARES Act or need legal assistance as a result of the COVID-19 health crisis, please contact Chris Rubino or one of the other commercial real estate attorneys  at Thompson Burton PLLC.


***Leena Shetty, Vanderbilt University School of Law (May 2020) assisted with the research and writing of this article.