On March 27th, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. While the bill contains numerous economic and healthcare response-related provisions, this summary focuses on a few aspects of the economic provisions for small business owners.

Paycheck Protection Program

The CARES Act focuses on providing economic relief with a newly-created tool: the Paycheck Protection Program (PPP). This program expands the existing Small Business Administration (SBA) loan program and allows the SBA to provide additional loans and loan forgiveness to businesses and certain individuals as a result of the COVID-19 pandemic.

PPP loans may be obtained by contacting an SBA-approved lender. The SBA will provide loans through the PPP during the covered period, from February 15, 2020 to June 30, 2020.

  • Small businesses are eligible for a loan if they employs 500 employees or fewer, or are in an industry that has an employee-based size standard through SBA that is higher than 500 employees;
  • Restaurants, hotels, or a business that falls within the North American Industry Classification System (NAICS) code 72, “Accommodation and Food Services,” and with each locations having 500 employees or fewer
  • Tribal businesses, 501(c)(19) veteran organizations, and 501(c)(3) nonprofits, including religious organizations. Nonprofit organizations are subject to SBA’s affiliation standards;
  • Independently owned franchises with under 500 employees, who are approved by SBA;
  • Eligible franchises can be found through SBA’s Franchise Directory.
How much can I borrow:

Loans are essentially limited to the lesser of 2.5 times the average monthly payroll costs during the 1-year period prior to the loan, or $10,000,000. Special calculation rules apply for seasonal workers and self-employed individuals.

Payroll Calculation Includes:
  • Salaries, wages and commissions, cash tips, vacation pay and family/sick leave
  • Severance payments, retirement payments, insurance premiums or other group health care benefits, state and local taxes assessed on compensation.
The calculation does not include the following:
  • Compensation in excess of an annual salary of $100,000 for any individual employee.
  • Payroll taxes, railroad retirement taxes, income taxes and any Compensation of an employee whose principal place of residence is outside the United States.
  • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act.

Debt payments on small business loans made during the period between January 31, 2020 and such date in the future where loans will be authorized to be refinanced may also be included when calculating expenses.

What can I use my loan for:

Payroll costs (as defined above), group healthcare benefits, insurance premiums, and interest (but not principal) on mortgages or other debt incurred prior to February 15, 2020, rent on any lease in force prior to February 15, 2020, and utility payments.

How is loan eligibility determined:
  • Borrower was in operation on February 15, 2020
  • Borrower had employees and paid salaries/wages and payroll taxes to those employees
  • Borrower paid independent contractors for services performed

All fees will be waived and the government is the guarantor of the note, not the borrower.

Additionally, the following options are available under the CARES Act:
  • Deferment of SBA loan repayments for up to one year for:
    • Eligible borrowers that were in operation on February 15, 2020 and had an approved loan or loan pending approval on or after the date of enactment
    • All borrowers are presumed to be impacted by COVID-19 – no substantiation required
    • SBA Express Loans are increased from $350,000 to $1,000,000 through December 31, 2020

Loan Forgiveness

PPP loan forgiveness will be available for certain operational expenses incurred by the borrower in the first eight weeks after the loan’s origination. These operational costs are generally the same as the operational costs that are allowable uses for the PPP loans, such as payroll costs, rent, utilities, interest on mortgage obligations, and payments of other debts incurred prior to February 15, 2020.

Loan forgiveness will be limited to the percentage obtained by dividing:
  • The number of full-time equivalent employees during the 8-week period after the SBA loan closes over the number of employees on the payroll between February 15, 2019 and June 30, 2019 or average number of employees on the payroll between January 1, 2020 and February 29, 2020 – whichever is a better result for the applicant
The loan forgiveness is further reduced where 
  • The most recent full quarter the employee was compensated during the covered period is reduced by greater than 25% during the period from February 15, 2020 and June 30, 2020 (eligible compensation is still limited to the $100,000 previously discussed or approximately $37,500)

For employees rehired that were terminated or furloughed between February 15, 2020 and approximately April 26, 2020 (30 days following enactment) no reduction in loan forgiveness is required as long as they are rehired prior to June 30, 2020 at their previous salary/wage rate. It doesn’t have to be the same employee. They only look at the number of employees, not specific employee and amounts paid.

Applications for forgiveness must be supported with the following filings:
  • Payroll tax returns filed with the IRS
  • State income, payroll and unemployment filings
  • Documentation related to the payment of mortgage interest payments, rent and utilities paid between February 25, 2020 and June 30, 2020
  • The applicant must certify funds will be used to retain workers and maintain payroll
  • Decisions must be made within 60 days

Emergency EIDL Grant

In an effort to get necessary funds into the hands of businesses suffering as a result of COVID-19 as quickly as possible, the CARES Act permits applicants for Economic Injury Disaster Loans (EIDLs) to request an advance of up to $10,000 from the SBA that need not be repaid even if the applicant is subsequently denied an EIDL and which may be used for any purpose allowable under Section 7(b)(2) of the Small Business Act, including:

  • 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

Employee Retention Credit

The CARES Act provides for an employer federal tax credit against the Social Security portion of payroll tax that the employer pays.

  • A credit will be allowed for 50% of employee wages against payroll taxes per quarter
  • Limited to $10,000 of wages per employee for all quarters (basically a maximum of $765 per employee)
  • An eligible employer is one in business during calendar year 2020 and was closed by executive order of a governmental authority or there is a significant decline in gross receipts for the period beginning the first quarter after December 31, 2019 for which gross receipts are less than 50% for the same quarter of the prior calendar year and ending with the first calendar quarter after the quarter where business receipts are 80% of the same calendar quarter of the year before
  • The employer cannot have more than 100 employees during 2019 to be eligible for the credit
  • Limited to the amount of wages that would have been paid for working an equivalent duration during the 30 days prior to such eligible period (i.e. 50% decline in gross receipts period)

Please note employers taking advantage of the Paycheck Protection Loan/Loan Forgiveness are not eligible for the credit

Delay of Payment of Employer Payroll Taxes

CARES Act allows employers and self-employed individuals to postpone deposits of their share of federal Social Security tax on employees’ wages paid as of the enactment date through and including December 31, 2020.

  • For payroll taxes imposed between March 27, 2020 and January 1, 2021, an employer may defer the payment of 50% of the taxes imposed to
    • December 31, 2021 for the first 50%
    • December 31, 2022 for the remainder

Please note employers taking advantage of the Paycheck Protection Loan/Loan Forgiveness are not eligible for this relief

Loan Documents can be found at the following link:  https://www.sba.gov/disaster/apply-for-disaster-loan/index.html

You can either upload the completed documents at the Small Business Administration website or work with your local lender using the forms located at the website link above.

In the event that you would like a referral to a local bank that will be supporting this program please let us know and we will be happy to provide an introduction.

The COVID-19 pandemic has created a constantly-changing situation for businesses of every size and industry. As future legislation is developed, deadlines are updated, and additional challenges and opportunities are uncovered, Reynolds + Rowella dedicated team is committed to understanding and applying this information to help you. Please continue to visits the R+R COVID-19 Resource Center frequently as updates will be added the situation progresses.


Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.


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