CARES Act Small Business Employer FAQ – Key Provisions

Small businesses are feeling the brunt of the struggle with mandated closures and otherwise decreased business during the evolving COVID-19 pandemic. The CARES (Coronavirus Aid, Relief, and Economic Security) Act includes a number of provisions to help American small businesses get the resources they need to stay afloat. 

Paycheck Protection Program

Small Business Debt Relief Program

This program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the date the CARES Act was enacted (March 27, 2020).

Q: Which SBA loans are eligible for debt relief under this program?

7(a) loans not made under the Paycheck Protection Program (PPP), 504 loans, and microloans. Disaster loans are not eligible (there is more information on this later in this document).

Q: How does debt relief under this program work with a PPP loan?

Borrowers may separately apply for and take out a PPP loan, but debt relief under this program will not apply to a PPP loan.

Q: How do I know if I’m eligible for a 7(a), 504, or microloan?

In general, businesses must meet size standards, be based in the U.S., be able to repay, and have a sound business purpose. To check whether your business is considered small, you will need your business’s 6-digit North American Industry Classification System (NAICS) code and 3-year average annual revenue. Each program has different requirements, see

Q: What is a 7(a) loan and how do I apply?

7(a) loans are an affordable loan product of up to $5 million for borrowers who lack credit elsewhere and need access to versatile financing, providing short-term or long-term working capital and to purchase an existing business, refinance current business debt, or purchase furniture, fixtures and supplies. In the program, banks share a portion of the risk of the loan with SBA. There are many different types of 7(a) loans, you can visit this site to find the one that’s best for you. You apply for a 7(a) loan with a bank or a mission-based lender. SBA has a free referral service tool called Lender Match to help find a lender near you.

Q: What is a 504 loan and how do I apply?

The 504 Loan Program provides loans of up to $5.5 million to approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. It is a good option if you need to purchase real estate, buildings, and machinery. You apply through a Certified Development Company, which is a nonprofit corporation that promotes economic development. SBA has a free referral service tool called Lender Match to help find a lender near you.

Q: What is a microloan and how do I apply?

The Microloan Program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers to start up and expand. The average microloan is about $13,000. These loans are delivered through mission-based lenders who are also able to provide business counseling. SBA has a free referral service tool called Lender Match to help find a microlender near you.

Q: I am unfamiliar with SBA loans. What resources are available to help me apply?

SBA resource partners are available to help guide you through the loan application process. You can find your nearest Small Business Development Center (SBDC) or Women’s Business Center here.

Economic Injury Disaster Loans & Emergency Economic Injury Grants

These grants provide an emergency advance of $1,000 per employee up to a maximum of $10,000 to small businesses and private non-profits harmed by COVID-19. In general, the emergency advance should be available with three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.

Q: Are businesses and private non-profits in my state eligible for an EIDL related to COVID-19?

Yes, those suffering substantial economic injury in all 50 states, DC, and the territories may apply for an EIDL.Q: What is an EIDL and what is it used for?

EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.

Q: Who is eligible for an EIDL?

Those eligible are the following with 500 or fewer employees:

  • Sole proprietorships, with or without employees

  • Independent contractors

  • Cooperatives and employee owned businesses

  • Tribal small businesses

Small business concerns and small agricultural cooperatives that meet the applicable size standard for SBA are also eligible, as well as most private non-profits of any size. See below for more info on size standards.

Q: My private non-profit is not a 501(c)(3). Is it still eligible for an EIDL and a grant?

Yes, if you are a private non-profit with an effective ruling letter from the IRS, granting tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code of 1954, or if you can provide satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law. However, a recipient that is principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs, whether in a religious or secular setting, or primarily engaged in political or lobbying activities is not eligible to receive an EIDL. If you are uncertain whether you qualify, please consult with legal counsel to determine whether your organization meets program criteria.

Q: Who is eligible for an Emergency Economic Injury Grant?

Those eligible for an EIDL and who have been in operation since January 31, 2020, when the public health crisis was announced.

Q: How long are Emergency Economic Injury Grants available?

January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive a grant.

Q: If I get an EIDL and/or an Emergency Economic Injury Grant, can I get a PPP loan?

Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID-19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.

Q: How do I know if my business is a small business?

Please visit to find out if your business meets SBA’s small business size standards. You will need the 6-digit North American Industry Classification Code for your business and your business’s 3-year average annual revenue.

Q: How do I apply for an economic injury disaster loan?

To apply for an EIDL online, please visit Your SBA District Office is an important resource when applying for SBA assistance.

Q: I am unfamiliar with the EIDL process, is there anyone who can help me apply?

Yes, SBA resource partners are available to help guide you through the EIDL application process. You can find the nearest Small Business Development Center (SBDC), Women’s Business Center, or SCORE mentorship chapter at

Employee retention tax credit

This provision would provide a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis.

Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave (IRC sec. 45S).

Please note that the credit is not available to employers receiving assistance through the Paycheck Protection Program. The credit is provided through December 31, 2020.

Delay of Payment of Employer Payroll Taxes

This provision would allow taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.

The deferral is provided to employers who are also receiving assistance through the Paycheck Protection Program. However, once an employer’s loan is forgiven, they are no longer eligible to defer deposit and payment of the employer’s share of social security tax due after that date. Please note that the amount of the deposit and payment of the employer’s share of social security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due in the two equal installments at the end of 2021 and 2022.

Business Tax Relief 

The CARES Act also provides assistance to businesses through the modification of rules related to net operating losses (“NOLs”), interest expense deductions, alternative minimum tax credits and trade or business losses of non-corporate taxpayers. Many of these modifications are designed to provide critical cash flow and liquidity to businesses during the COVID-19 emergency, including through amending prior tax returns to obtain tax refunds. What this means to you is that employers have several tools available to them to help with cash flow, claim tax refunds, or reduce upcoming tax payments.

Retirement plan provisions affecting Plan Sponsors

Q: How do the coronavirus-related distribution and loan provisions affect retirement plan amendments?

Retirement plans may choose (but are not required) to adopt these rules immediately, even if the plan does not currently allow for hardship distributions or loans. The plan amendment deadline for adopting these new rules would be no earlier than the last day of the first plan year beginning on or after Jan.1, 2022, or later as prescribed by the Treasury Secretary.

Many employers are likely to see increased interest from participants in taking loans or other in-service distributions from 401(k) plans, so it is important to review what options are currently permitted under the plan, and the requirements that must be met to allow those distributions. Here is a general review of these plan features:

  1. In-Service Distributions. Some plans permit in-service distributions once participants reach age 59½.
  2. Hardship Distributions. Some plans permit hardship distributions to employees under limited statutory circumstances that constitute an “immediate and heavy financial need,” including medical costs, payments required to prevent eviction or foreclosure, or costs attributable to qualifying federal disasters (the COVID-19 pandemic has been declared a qualifying FEMA disaster in about half of states as of March 30, 2020). Some plans also permit a “facts and circumstances” analysis to permit distributions for hardships other than the statutory list.
  3. Loans. Some participants may opt to take loans instead of distributions. Loans must be expressly permitted under the plan, and the employer will likely have a separate loan policy in place that would govern the terms of loans from the plan. Loans are limited to $50,000 or 50% of the participant’s vested account balance, whichever is less.

Plan loans or in-service distributions must be expressly permitted by the plan, and the plan will likely outline any requirements or limitations applicable. If the plan does not expressly provide for loans or distributions, the employer can generally amend the plan at any time to permit them. Employers may also be able to expand the availability of distributions or loans already available under their plans, but should seek legal counsel to ensure any expansion would be permitted under the law. For example, for furloughs, applicable tax laws permit suspension of plan loan repayment for up to one year, and the loan can be re-amortized over the original term once the employee returns to work. 

Q: Does the CARES Act allow for any extensions to 2020 retirement plan filing deadlines?

The CARES Act expands the Department of Labor’s authority to postpone certain deadlines under ERISA. In general, the legislation expands the circumstances to go beyond a terroristic or military action to also include a public health emergency declared by the Secretary of Health and Human Services under the Public Health Service Act.

The DOL and Treasury Department may choose to provide relief from various filing requirements, such as an automatic extension of the Form 5500 series for retirement plans, an extension to the deadline for correcting a failed ADP or ACP test and an extension of the period for distributing excess contributions and excess aggregate contributions under a plan, among others. As of March 27, 2020 the agencies have not yet granted specific extensions to any plan filing requirements.

Q: Does the CARES Act provide any relief to single-employer DB Plan funding?

Yes. The Act provides single-employer defined benefit plan funding relief by giving companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until Jan. 1, 2021. At that time, contributions due earlier would be due with interest. The provision also provides that a plan’s status for benefit restrictions as of Dec. 31, 2019 will apply throughout 2020, such that a plan sponsor may elect to treat the plan’s adjusted funding target attainment percentage for the last plan year ending before Jan. 1, 2020, as the adjusted funding target attainment percentage for plan years which include calendar year 2020.

Q. Because of the financial hardship we are experiencing due to the COVID-19 virus, our company is considering reducing or suspending employer contributions to our plan. What we need to know if we want to proceed with this?

During this tough economic time, many employers are considering reducing or suspending employer matching, nondiscretionary, or profit sharing contributions to their 401(k) plans. For non-safe harbor plans, employers have a great deal of flexibility to reduce or discontinue matching or non-elective contributions. Generally, non-safe harbor plans that specify a certain matching or non-elective contribution formula can be amended at any time to reduce or suspend these employer contributions prospectively, although participants are still entitled to any contributions they have earned under the terms of the plan prior to the amendment. For plans that permit entirely discretionary employer contributions, a plan amendment may not be necessary, although a formal employer approval (i.e., a board or committee consent) is recommended to document the change.

On the other hand, safe harbor contributions can be suspended only if the employer is operating at an economic loss for the plan year, or if the annual safe harbor notice provided to participants before the start of the current plan year contained a disclosure that the employer might reduce or suspend the safe harbor contributions. To suspend safe harbor contributions, the employer must also take the following steps:

  • The employer must provide a notice to employees at least 30 days before the change is made, explaining that the safe harbor contributions are being reduced or suspended.
  • The employer must amend the plan to provide for the reduction or suspension of these contributions prior to the effective date of the change. The employer is still obligated to pay any contributions earned under the terms of the plan prior to the effective date.
  • Because the plan loses its safe harbor protections, the employer will be required to perform ADP, ACP, and top heavy testing for the plan for the entire plan year.

Q: Because of the financial hardship we are experiencing due to the COVID-19 virus, we are considering temporarily laying off employees or possibly implementing a furlough program. How would these actions affect our retirement plan benefit program?

Retirement plan sponsors having to furlough and lay off employees should definitely consider how such actions will impact plan benefits, and may want to consult with legal counsel to ensure all potential issues and costs are considered. A furlough is typically not considered a termination from service, so furloughed employees may continue to accrue vesting service or even additional benefits under the plan while on furlough or other approved but unpaid leave. Employers should review plan provisions regarding service when considering placing employees on furlough or unpaid leave.

On the flip side, plan sponsors making layoffs or reductions in force should note that an involuntary turnover of 20% or more plan participants creates a presumption that there has been a partial plan termination. If a partial plan termination has occurred, all impacted employees will become fully vested in their entire account balance, including all employer contributions (and matching contributions), regardless of the plan’s vesting schedule.

Q: Does the CARES Act offer any flexibility with regard to depositing employee deferrals?

Although workforce changes and personal circumstances may result in reduced elective contributions to 401(k) plans, it is important to also note that the current crisis does not reduce plan sponsors’ fiduciary obligations with regard to depositing employee contributions. Employers should make sure, whether implementing furloughs or layoffs, adapting to having employees work remotely, or operating under tightened budgets, that any employee contributions withheld are timely remitted to the plan. Those contributions are considered plan assets as soon as they can reasonably be segregated from the employer’s general assets, and failure to timely separate contributions from the employer’s general assets could result in excise taxes, penalties, and other additional costs to the employer.

Additionally, to the extent any leave of absence is paid or partially paid or in the event of layoffs, employers should be mindful to properly apply the plan’s compensation definition for purposes of employee deferrals. For example, paid time off is generally considered plan compensation, while severance pay is not.

Q: Is there anything we need to consider doing with regard to our plan’s investment line-up?

Plan sponsors must continue to review and monitor the investment options offered under their plan during this time. Plan investment fiduciaries and committees should continue to have meetings (by teleconference or video conference, as necessary) with their investment advisors to discuss the investments offered to plan participants.

Retirees and workers alike have likely been groaning when looking at stock values over the last several weeks. While it takes some time for market volatility to level out, these provisions included in the CARES Act may provide retirement plan participants with additional flexibility and more options for loans and penalty-free withdrawals during this stressful time.

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