Last Friday Congress approved and President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  CARES represents the third round of legislation responding to the ongoing Coronavirus virus, and is the largest economic and relief package in the Nation’s history.  It provides over $2.2 trillion of funding geared toward providing cash flow and tax relief for small businesses and individuals impacted by the pandemic, and it will have a particularly significant impact on the closely-held private client. 

The legislation is quite lengthy (880 pages) and covers a wide spectrum of complex business and tax issues.  Consequently, we will be sending out a series of Newsletters to address the various components of the Act most likely to impact our clients and professional relationships.  In this first newsletter, we will focus on the expanded SBA loan program referenced as the Paycheck Protection Program, which is a key part of the legislation designed to provide cash flow to impacted small businesses.


The CARES Act appropriates $349 billion in guaranteed, low-interest, no-fee loans under the program.  Additionally, as further detailed below, payment under these loans will be deferred and a significant amount of the loans may be cancelled with no tax consequences.


During the Covered Period (Feb 15th thru June 30th), any business concern, private or public non-profit organization which employs less than 500 employees and has been impacted by the economic conditions associated with the Coronavirus pandemic shall be eligible to receive a loan under the Small Business Act.

Businesses operating in industries particularly impacted (such as food service, travel, and lodging) with more than 500 total employees, and more than one physical location, may still qualify provided they do not have more than 500 employees per physical location. 

Loan Amount, Usage, and General Terms

The maximum amount of the loan offered under this program is the lesser of:

  1. $10 million; or,
  2. The average monthly payments for payroll costs which include salaries and wages, tips, vacation/family/medical/sick leave, severance, heath care and retirement benefits and state or local taxes on such wages, for the one-year period before requesting the loan [multiplied by 2.5].

The funds received under the Program can be used for the following business expenditures:

  1. Payroll costs as defined above, including sick, medical, family leave, and continuation of employee-related health care costs;
  2. Employee salaries;
  3. Mortgage payments;
  4. Rent payments;
  5. Utilities; and,
  6. Interest on other debt obligations incurred before the Covered Period.

The government will guarantee 100% of the loan through 12/31/20; thereafter, the guarantee will be reduced to 75% on loans over $150,000 and 85% for loan under $150,000. 

It’s also important to realize that a taxpayer may not qualify for both a Business Interruption Loan and the Employee Retention Credit, and any loan forgiveness under this program will limit eligibility for the payroll tax deferral.  As a result of these limitations, it’s often desirable to calculate the benefit under each alternative before pursing funds under any of these programs.

Payment Deferral

During the Covered Period, all principal and interest payments will be deferred for a period of not more than one year.  The SBA has been directed to issue guidance on the deferral parameters within 30 days of the CARES Act’s approval.

Any balance not paid by the end of the period identified by the SBA will be structured as 10-year maturity with an interest rate no greater than 4% and no prepayment penalties

Loan Forgiveness 

A significant component of this program is a portion of the debt incurred will be forgiven and cancelled.  To offer a further benefit, unlike the typical rules of debt forgiveness, the taxpayer will not be subject to any income tax resulting from the debt cancellation.

In general, the amount of debt eligible for cancellation is equal to the total payroll costs for employees plus all payments made on any pre-existing debts during the period from February 15, 2020 through June 30, 2020.  However, payroll cost for any employee compensation above $100,000 is not eligible for reduction. 

The amount forgiven is also reduced on a pro-rata basis for any reduction in the number of employees as compared to the same period in 2019, or for a reduction of employee salaries of more than 25% (excluding those making over $100,000).


This newsletter is intended only as a summary and not specific advice.  As with any area of law, the rules in this Act are complex and the application of this program to individual circumstances needs to be separately analyzed and considered.  DUGGAN BERTSCH has a team of attorney’s available with expertise to help you through this difficult time and interpret any of the CARES or related Acts that may impact your family or businesses.

In our next newsletter, we will outline and discuss the multitude of tax-related provisions in the CARES Act.  In the meantime, please reach out to us with any questions.

Team Members: