Part 1 – CARES Act: Small Business Loans to Mitigate COVID-19 Effects on Businesses

The CARES Act just passed by the House and Senate authorizes the Small Business Administration (“SBA”) to fully guarantee almost $350 Billion in Section 7(a) loans to small businesses affected by COVID-19.


Does your business qualify as a “small business”:

  • The business automatically qualifies if there are less than 500 employees
  • Your business can still qualify if you have more than 500 employees if your business has fewer than the number of employees specified in the NAICS table found at or the annual revenue for your business is lower than the revenue threshold found in the NAICS table.

The number of employees is based on a 12-month average. All employees, including independent contractors and part-time employees count as one employee. Revenues are based on average annual revenues for the last 3 fiscal years for which tax returns have been filed. Your businesses primary industry and the primary industry of the “affiliated group” will determine the NAICS code.

There are special eligibility considerations for NAICS codes beginning with “72” even if there are over 500 employees in total as long as there are less than 500 employees per location. This will include most hospitality and food & beverage establishments.

The determination of whether a business is aggregated with its affiliates for purposes of determining the number of employees and revenue is a gray area and is based on the ability to exercise control by an entity owner or a principal. The affiliate requirements are waived for all businesses with a NAICS code beginning with “72” as well as any business operating as a franchise. Please consult with us on this important area.

Loan Particulars

Loans will be administered by banks and other SBA approved lenders and are 100% guaranteed by the SBA.  No loans are made directly by the SBA.

The maximum loan amount is the lesser of your 12-month average payroll expenses multiplied by 2.5 or $10million. Payroll expenses include salaries and wages, sick leave, health care benefits, retirement benefits and severance. Payroll expense will exclude the compensation of any individual exceeding $100K annually, employees whose principal residence is outside of the U.S., sick leave and family leave wages paid under the Families First Coronavirus Response Act and the employers share of SSA taxes.

The permissible uses of the loan proceeds are payroll expenses (as defined above), payments of interest on any debt obligation secured by real or personal property, rent and utilities and interest on any debt obligation. There is no collateral requirement and no personal guarantees.

Loan Forgiveness

The loan recipients are eligible for loan forgiveness in an amount equal to all payroll expenses, payments of interest, rent for a lease and utilities. The loan forgiveness amount will be reduced by the percentage of full time equivalent employees that were eliminated during the 8 week period after the loan is funded.  If there were salary reductions of more than 25% for workers making less than $100,000 per year or employee eliminations occurring between February 15, 2020 and 30 days after the passage of the CARES bill, but by no later than June 30, 2020, and your business rehires the same number of full time equivalent employees that were eliminated or reinstates salary and wages for those making less than $100,000 per year whose salary and wages were cut by more than 25%, then the loan forgiveness amount will not be reduced.

We recommend that any business that was affected by COVID-19 give this program a high level of consideration and we can assist you through the process. Contact your BKM Sowan Horan client service team or our associates at Visorie (