What the CARES Act Means for Small Businesses and Non-Profits

As a small business owner, non-profit corporation, or charitable organization, there’s a good chance you’ve felt the impact of the coronavirus pandemic. Many businesses, for example, have had to temporarily (or permanently) close, limit their services, and struggle to reach customers, many of whom are sheltering in place.

Congress has provided some much-needed relief in the form of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act to help many businesses and non-profits get the financial support they need to stay above water.

The relief package, the largest of its kind in the nation’s history, offers help especially for those that might otherwise struggle to get the capital they need to stay open in the coming months. Below is a short summary of some of the provisions that might be relevant to small businesses, as well as charities and other non-profit corporations.

Paycheck Protection Program

One of the signature parts of the CARES Act is the Paycheck Protection Program (PPP), which helps cover payroll costs, mortgage payments, rent, and utilities to help reduce layoffs and temporarily stabilize companies.

It is available to small businesses, charitable organizations, and other non-profit corporations, as well as some other entrepreneurs, such as sole proprietors and independent contractors.

The program could prove a boon in maintaining a semblance of normalcy during this period and help put the business or organization in a position to ramp back up once the crisis ends.

This provision provides a Small Business Administration (SBA) loan of up to 2½ times a company’s monthly payroll costs, up to $10 million.

If you take part in the PPP, your loan can be forgiven if you meet the statutory and regulatory requirements. At least 75% of the loan must cover payroll costs for the eight weeks following the loan’s start, and you cannot reduce wages by more than 25%, or reduce headcount. The remainder of the loan can be utilized to make mortgage or rent payments as well as utilities.

You can apply for the PPP loan through most banks. The SBA advises that you check with your local lender to see if they are participating, and the U.S. Chamber of Commerce has released an easy-to-understand guide and checklist to help you determine eligibility.

Economic Injury Disaster Loans

Your business can also receive capital through an economic injury disaster loan (EIDL), though you cannot use these funds to pay for the same expenses as a PPP loan if you take out both.

With an EIDL, you can take up to $2 million in low-interest funding to cover a broad range of expenses, including payroll, mortgage payments, and debt.

Notably, the EIDL can also include an advance of up to $10,000 that does not need to be repaid. This grant can be requested and provided within three days of applying for the loan and can help businesses get funding for their most pressing needs.

Employee Retention Credit

For small businesses that do not take a PPP loan, the Employee Retention Credit is another CARES Act provision that allows you to obtain payroll relief.

If you are facing significant hardship—for example, your business has been forced to close temporarily—you can take a fully refundable tax credit for up to 50% of your employee wages (including costs such as health care) paid between March 12, 2020, and January 1, 2021.

However, this credit has a limit of $5,000 per employee, meaning it can be used against only $10,000 in wages per employee.

The Employee Retention Credit can apply to businesses with furloughed staff or reduced hours. Businesses with 100 or fewer full-time employees can use the credit for any wages, even full-time staff continuing to work during this period.

SBA Debt Relief

For small businesses that already have non-disaster SBA loans, such as 7(a) loans, the SBA will cover all payments for six months. This includes the loan’s principal, interest, and fees.

If you take out a new SBA loan, you may also be eligible for this relief, as the U.S. Senate Committee on Small Business & Entrepreneurship explains.

Speak with a Professional

The CARES Act has many provisions that could potentially help you navigate this period, including measures for individuals that can make it easier to cover your personal expenses as you keep your business afloat.

Because of the law’s many nuances, consider seeking out resources through the SBA or by speaking with your tax professional or local lender. In addition, talking with a fiduciary financial advisor can help you piece together how all the components can work for you as part of your overall financial picture.

Contact us for a complimentary needs assessment phone call.


This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.

Clayton Wealth Partners