Summary of Federal Loan Programs – Coronavirus Aid, Relief and Economic Security Act, HR 748 (“CARES Act”)

The federal government recently enacted three phases of relief in response to the coronavirus outbreak. Phase 1 offers an Economic Injury Disaster Loans available under the existing Disaster Loan Program overseen by the U.S. Small Business Administration (“SBA”). Phase 2 features no loan programs. Phase 3 is the Coronavirus Aid, Relief and Economic Security Act (“CARES”).[1] CARES features both a Paycheck Protection Program (“PPP”) and an Economic Stabilization Loan Program geared for larger businesses. For information about the PPP, please see our article, Paycheck Protection Program (“PPP”) Under CARES, posted on our website.

NameLaw/StatusLoan ProgramShort Description
Phase 1: Coronavirus Preparedness and Response to Supplemental Appropriations Act, 2020, 3/6/2020H.R. 6074 (Law)1. Economic Injury Disaster Loans (through the Disaster Loan Program Account)1. Provides up to $2 million per borrower in working capital loans for small businesses. Small businesses must meet a list of size standards which vary per NAICS industry code.
Phase 2: Families First Coronavirus Response Act, 3/18/2020H.R. 6201 (Law)N/ANo loan programs as a part of this law, which addresses emergency preparedness and leave, health provisions, and tax credits for sick and family leave.
Phase 3: CARES Act 3/27/2020H.R. 748 (Law)2. Paycheck Protection Program;

3. Economic Stabilization Loans & Loan Guarantees

2. Makes temporary changes to the SBAs 7(a) loan program by providing 100% loan guarantees or SBA-administered loans of up to $10 million per small business, for payroll losses and selected working capital costs. While administered by SBA, loans are issue by private lenders. Small businesses are defined as having less than 500 employees or meet SBA NAICS code size standards.

3. Provides loans and loan guarantees to businesses of all sizes in industries most impacted by the coronavirus pandemic through the Federal Credit Reform Act of 1990, administered by the Treasury Secretary. Eligible businesses must demonstrate covered losses resulted from the pandemic.

Economic Injury Disaster Loan Program (“EIDL”) For Small Businesses

The SBA is making available its EIDL Program to qualifying small businesses and nonprofits. The Federal government has announced that it has made $50 billion available for this program, which is available to applicants in those states that have declared disasters to the SBA. As of March 25, 2020, most states and the District of Columbia have been declared statewide as “Disaster Areas,” in which eligible businesses can apply for the loans. A full list of Disaster Area Declarations can be found here:


CARES modified the eligibility requirements for the EIDL loans. In order to qualify as a “small business,” a business must:

  • Be a business concern having not more than 500 employees;
  • Be a sole proprietorship or an independent contractor;
  • Be a cooperative with not more than 500 employees;
  • Be an ESOP with not more than 500 employees;
  • Be a tribal business concern with not more than 500 employees; or
  • Qualify under the SBA’s eligibility standards prior to the CARES Act, which require that the applicant comply with SBA size standards that are determined by reference to the applicant’s industry NAICS code. The SBA’s table of codes can be found here:

  • Each industry classification has either a maximum number of employees or a maximum amount of annual receipts (averaged over a three-year period). An applicant must have no greater that the applicable maximum in order to be eligible. Note that employees of certain affiliates of an applicant must be included in calculating eligibility.

How to Apply and Loan Standards

Qualifying small businesses and nonprofits can apply directly to the SBA by following this link:

The SBA has stated it will consider the following among its criteria for underwriting these loans:

  • An applicant’s credit history;
  • An applicant’s ability to repay the loan;
  • The applicant’s location in a county declared as a Disaster Area; and
  • Whether the applicant’s working capital losses are due to the COVID-19 disaster, as opposed to a downturn in the economy generally or other reasons.

Loan Terms

  • Principal, Term and Interest: The SBA can loan an approved applicant up to $2 million, depending on need and underwriting, with a term of up to 30 years for repayment and at interest rates of 3.75% per annum for small businesses and 2.75% per annum for non-profits. Loans in excess of $25,000 may require collateral.
  • Personal Guaranties and Collateral: CARES modified EIDL temporarily so personal guaranties will not be required for loans under $200,000. CARES also waived the requirement that an applicant must not be able to obtain credit elsewhere. In a change from its past practice, the SBA has advised it will not decline a loan due to insufficient collateral or lack of collateral. This statement, however, was not embodied in the CARES Act legislation.
  • Use of Proceeds: Loan proceeds can be used for working capital, payroll and other expenses that the applicant could have paid had the disaster not occurred. But loan proceeds are not intended to be used to replace lost profits or to finance business expansion.


CARES provides that during the period from January 31, 2020 through December 31, 2020 the SBA may advance an up-to-$10,000 grant to each applicant, paid within three days after completing its application to the SBA. The grant is not required to be repaid, even if the applicant does not obtain a loan under the EIDL program, or if the applicant instead obtains a grant under CARES’ Paycheck Protection Program (described in our article Paycheck Protection Program (“PPP”) Under CARES). But if the applicant does instead obtain a grant under the PPP, the amount of the advance will be reduced from the forgivable amount of such PPP loan. The advance may be used to pay allowable costs:

  • providing paid sick leave to employees unable to work due to the direct effect of the COVID–19
  • maintaining payroll to retain employees during business disruptions or substantial slowdowns
  • meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains
  • making rent or mortgage payments
  • repaying obligations that cannot be met due to revenue losses.

For more information on requirements for qualification for an Economic Injury Disaster Loan, and the SBA’s programs relating to COVID-19 generally:     A checklist of items to be provided with the application and a description of the procedures for applying for a loan follow.

Checklist of items to be provided with the application:

  • Completed Form 5 application form.
  • Completed IRS Form 4506-T, including information for:
    • Each owner with 20% or more ownership interest
    • Each general partner or managing member, regardless of ownership %
    • Each owner who owns more than 50% of an affiliate business
  • At least 2 years complete business tax returns with all schedules
  • Most recent year-end balance sheet and income statement
  • Current YTD balance sheet and income statement as of most recent month-end
  • Schedule of fixed debts
  • Personal financial statement on each owner with 20% or more ownership interest


  • Applicants should register for log-in credentials and complete the application on the SBA website.
  • The checklist above will be verified and credit will be checked by SBA.
  • Forecasts will be completed to determine loan amount.
  • Decision can take up to four weeks.
  • After approval and loan signing, the first $25,000 is disbursed within five business days.
  • Each business or non-profit will work with an assigned case officer on additional disbursements.
  • Loan disbursements can repay bank bridge loans up to $25,000.



Up to $1 million is available through the existing SBA express loan process, an increase from the previous maximum of $350,000. SBA express loans feature a 36-hour turnaround time.

Summary of Economic Stabilization Loan & Loan Guarantees

The program exists to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.


  • Provides $29 billion to aviation companies, $17 billion to businesses critical to maintain national security and $454 billion to other negatively impacted businesses through loan, loan guarantees within provisions of the Federal Credit Reform Act of 1990 and other investments in programs and facilities through the Federal Reserve.
  • States and Municipalities may receive loans, loan guarantees and investments from the amounts listed above as long as the total amounts awarded through the program do not exceed $500 billion.
  • The CARES Act does not provide a specific allocation distribution of direct loans vs. loan guarantees, nor does it include language on maximum amounts.
  • Eligible businesses must have incurred covered losses, direct or incremental, incurred as a result of coronavirus, as determined by the Treasury Secretary.
  • Provides limits on wage increases to high-wage employee compensation during a two-year period.
  • Specific procedures for application and minimum requirements will be published by the Treasury Secretary within 10 days after enactment of the CARES Act.

Distribution of Loans and Loan Guarantees

The Treasury Secretary authorizes $500 billion in loans and loan guarantees to businesses, states and municipalities of any size through the provisions of the Federal Credit Reform Act of 1990.

  1. Not more than $25,000,000,000 shall be available for passenger air carriers.
  2. Not more than $4,000,000,000 shall be available for cargo air carriers.
  3. Not more than $17,000,000,000 for businesses critical to maintaining national security
  4. Not more than $454,000,000,000 shall be available for other eligible businesses.


  1. Must be a state or municipality or an eligible business. An “eligible business” is defined as:
    1. an air carrier; or
    2. a United States business that has not otherwise received adequate economic relief in the form of loans or loan guarantees provided under the CARES Act.
  2. Other credit must not be reasonably available at the time of the transaction.
  3. Intended obligations must be prudently incurred.
  4. The loan or loan guarantee must be sufficiently secured.


Any loans made by the Treasury Secretary shall be at a rate not less than a rate taking into consideration the current average yield on outstanding marketable obligations of the United States of comparable maturity.


The loan or loan guarantee is either (a) sufficiently secured, or (b) is made at a rate that (i) reflects the risk of the loan or loan guarantee, and (ii) is to the extent practicable, not less than an interest rate based on market conditions for comparable obligations prevalent prior to the outbreak of COVID-19.

The duration of loans or loan guarantees should be as short as practicable, and not to exceed 5 years.

Except to the extent required under a contractual obligation in effect as of the date the CARES Act became law, the CARES Act prohibits the eligible business from repurchasing any outstanding equity interests while the loan or loan guarantee is outstanding.

The CARES Act provides that, until the date 12 months after the date the loan or loan guarantee is no longer outstanding, the eligible business shall not pay dividends or make other capital distributions with respect to the common stock of the eligible business.

Prohibition on Loan Forgiveness

The principal amount of any obligation issued by an eligible business, state, or municipality that is acquired under a program or facility shall not be reduced through loan forgiveness.

Employee Retention

The loan or loan guarantee through agreement requires eligible businesses to maintain existing employment levels as of March 24, 2020 until September 30, 2020, and shall not reduce its employment by more than 10 percent from the levels on such date.

High-Wage Employee Compensation Limits

If an eligible business receives a loan or loan guarantee, during a 1-year period starting on the date the agreement is executed, no officer or employee of the eligible business whose total compensation exceeded $425,000 in calendar year 2019 will receive from the eligible business:

  1. total compensation which exceeds, during any 12 consecutive months of such period, the total compensation received by the officer or employee from the eligible business in calendar year 2019; and
  2. will receive from the eligible business severance pay or other benefits upon termination of employment with the eligible business which exceeds twice the maximum total compensation received by the officer or employee from the eligible business in calendar year 2019.

If an eligible business receives a loan or loan guarantee, during a 1-year period starting on the date the agreement is executed, no officer or employee of the eligible business whose total compensation exceeded $3,000,000 in calendar year 2019 will receive from the eligible business during any 12 consecutive months of such period total compensation in excess of the sum of:

  1. $3,000,000; and
  2. 50% of the excess over $3,000,000 of the total compensation received by the officer or employee from the eligible business in calendar year 2019.

The term “total compensation” includes salary, bonuses, awards of stock, and other financial benefits provided by an eligible business to an officer or employee of the eligible business.

General Terms & Conditions

For the avoidance of doubt, any applicable requirements under section 13(3) of the Federal Reserve Act (12 U.S.C. 343(3)), including requirements relating to loan collateralization, taxpayer protection, and borrower solvency, shall apply with respect to any obligation or other interest issued by an eligible business, State, or municipality that is acquired under a program or facility under subsection (b)(4).

Terms, conditions and containment of covenants, representatives, warranties, and requirements (including requirements for audits) will be determined as Treasury Secretary deems appropriate.

Further Guidance & Future Programs for Consideration

No later than 10 days after the date of enactment of the CARES Act, the Treasury Secretary shall publish procedures for application and minimum requirements, which may be supplemented by the Treasury Secretary in the Treasury Secretary’s discretion, for the making of loans and loan guarantees.

Mid-size & Large Business Financing

The Treasury Secretary shall endeavor to create a program or facility that provides financing to banks to make direct loans to eligible businesses between 500 – 10,000 employees with an annualized interest rate not higher than 2% per annum, with no principal or interest during the first 6 months. The loans would be based on good faith certifications that a) uncertainty of economic conditions deem the loan necessary, b) funds will be used to retain 90% of the recipients’ workforce at full compensation and benefits until September 30, 2020, c) workforce and compensation levels from February 1, 2020 will be restored no later than 4 months after termination of the COVID-19 public health emergency

Main Street Lending Program

Nothing shall limit the Federal Reserve System to establish a Main Street Lending Program or other similar program or facility that supports lending to small and mid-sized businesses on such terms and conditions as the Board may set consistent with section 13(3) of the Federal Reserve Act 16 (12 U.S.C. 343(3)), including any such program in which the Treasury Secretary makes a loan, loan guarantee, or other investment under subsection (b)(4).

Government Participants

The Treasury Secretary shall endeavor to seek the implementation of a program or facility in accordance with subsection (b)(4) that provides liquidity to the financial system that supports lending to states and municipalities.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

[1] This summary is based on the bill text available on March 25, 2020