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How the CARES Act Can Help Small Businesses

Coronavirus-related stay-at-home orders and falling consumer demand have been extremely challenging for small businesses. If you’re a small-business owner, make sure you’re taking advantage of the help that’s available.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed by Congress and signed into law on March 27th, includes two primary provisions to help small businesses:

  • The Paycheck Protection Program, which makes as much as $10 million available to pay up to eight weeks of payroll costs, including benefits, during the COVID-19 crisis. Funds can also be used to pay interest on mortgages, rent, and utilities.
  • The Economic Injury Disaster Loan (EIDL) and EIDL emergency advance. EIDL is a longstanding program that provides aid to small businesses in disasters. The emergency advance provides up to $10,000 of economic relief to businesses facing temporary difficulties related to COVID-19.


The CARES Act included $349 billion in funds for the programs, which were fully tapped by April 19th. However, Congress passed a new aid package that will add $320 billion for the PPP and EIDL, which was signed into law on April 24th. The bill includes limits on the size of businesses receiving loans, in response to concerns that larger businesses received loans intended for small businesses. The bill also includes aid for hospitals, with most directed to facilities in rural areas.

How the Paycheck Protection Program can help

The Paycheck Protection Program (PPP) authorizes forgivable loans to small businesses to pay their employees. The loans are made by banks associated with the Small Business Administration (SBA). Small business owners can borrow up to $10 million (but no more than two-and-a-half times their average monthly payroll for the past 12 months).

The loan will be forgiven as long as (1) at least 75% of the funds is used to cover payroll costs, mortgage interest, rent, and utility costs over an eight-week period after the loan is made and (2) employee and compensation levels are maintained. The program caps payroll at $100,000 on an annualized basis for each employee.

Borrowers can repay the loans over two years at an interest rate of 1%, and the SBA defers the first payment for six months. All loans have the same terms regardless of lender or borrower.

How the Economic Injury Disaster Loan program can help

The EIDL has two programs: one approved by the CARES Act to provide up to a $10,000 grant per small business, and an existing longstanding program for aid to small businesses in disasters. Both require application through the SBA.

The CARES Act approved the EIDL emergency advance—which does not have to be repaid, so essentially it’s a grant. Small businesses in all U.S. states, Washington D.C., and territories are eligible to apply.

In general, SBA disaster loans (EIDL) are the primary form of federal assistance for losses from disasters, such as hurricanes. They provide relief from economic injury caused by a disaster, and working capital during the period affected by the disaster. The CARES Act expands the longstanding EIDL program to all businesses with fewer than 500 employees that have suffered substantial economic injury from COVID-19. The maximum EIDL is a $2 million working capital loan at a rate of 3.75% for businesses and 2.75% for nonprofits with up to a 30-year term; the SBA defers payments for up to a year.

Borrowers can obtain up to $200,000 without a personal guarantee. A credit score determines approval and no tax returns are required. The borrower, however, must allow the SBA to review tax returns if requested. For loans of more than $25,000, general security interest in the business assets provides collateral. Borrowers can apply through the SBA website.

Bottom line

The CARES Act provides a lifeline to small business owners. However, with local banks facing logistical constraints and seeking more guidance on the rules, it will take time before the SBA and Treasury Department work through the details.

Small-business owners can discuss PPP loans with a local SBA-affiliated bank, and can apply directly to the SBA for EIDL loans or grants. Given demand, the newly approved $320 billion in funds may be depleted quickly. Congressional leaders have said that they will turn their attention now to debate over additional rounds on stimulus, in phases, including potential infrastructure funding and support to local governments.

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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Neither Schwab Bank nor Quicken Loans provide small-business loans and do not participate in the PPP program.

The policy analysis provided by Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.


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