Small Business Interruption Loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES ACT)

Mar 26, 2020

Small Business Interruption Loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES ACT)


What is this Program?

Under the CARES Act, which was signed into law on March 27, 2020, the federal government will be allocating $349 billion to the Small Business Administration to guarantee loans to small businesses.

These are referred to as “7(a) loans” because they are authorized by that section of the laws governing the SBA.

Who Can Apply?

Any business with 500 or fewer employees.

The business does not have to be shut down completely or partially. Any business that applies is presumed to need the loan and will get it. The only underwriting standards are the company was in business on February 15, 2020, and had employees for whom it paid salaries and payroll taxes.

The self-employed and independent contractors are also eligible for these loans.

These loans are non-recourse meaning no personal guarantees or liens on practice assets. The government seems resigned to basically giving all of this $349 billion away—for better or worse—and probably better.

What is the Maximum Loan Amount?

The maximum loan you can receive will equal 2.5 times your average “payroll costs” during the 1-year period before the loan is taken.

(In the unlikely event you took a separate SBA “disaster loan” on or after January 31, 2020, then your 7(a) loan amount can be increased to include a refinancing of this disaster loan.)

Payroll costs” are defined very broadly and include:

(A) Employee salaries, wages, commissions, etc. up to $100,000 per year, $8,333.33 per month

(B) Payment for vacation, parental, family, medical or sick leave

(C) Severance payments

(D) Group health insurance

(E) Retirement plan contributions

(F) State and local taxes assessed on such compensation

Payroll costs do not include:

(A) Compensation over $100,000/yr, $8,333.33/mo

(B) Federal tax withholdings

(C) Compensation for non-US residents

(D) Sick leave and family leave provided by the new Families First Coronavirus Response Act for which there are already tax credits

How Do You Apply?

The SBA is guaranteeing these loans, and businesses will need to apply through banks and credit unions. Approximately 1,800 lenders are already approved to issue 7(a) loans. The bank at which you’ve set up your business banking account will be a great place to start.

Since the maximum loan amount will equal 2.5 x your average monthly payroll costs during the 12-month period preceding the loan, you will need to submit an application that includes a sizeable amount of documentation, including:

(A) Employee wages for the last 12 months, including you, your family and associate doctors – contact your payroll provider for the report

(B) This report must also show paid time off, vacation, sick pay, family medical pay, etc. All of this is eligible to be included. The more you can show the better, as this will increase the loan amount

(C) Withholding for state and local taxes on employee compensation

(D) 1099s paid to independent contractor doctors

(E) Documentation showing how much, you, the employer paid in employee group health insurance premiums for the past 12 months. Your insurance company should be able to provide this

(F) Documentation showing the amount of retirement plan funding the employer made for employees over the past 12 months (profit sharing 401(k) plans, cash balance plans, SIMPLE and SEP IRAs). If your 2019 plan administration has been completed, you should use this as the basis for these figures. (Employees’ own 401(k) salary deferrals won’t count for these purposes).

This will take some time and effort, so use the next few days to start assembling these materials. Be prepared to apply for and get the loan as soon as they are available.

Borrowers will also need to make a “good faith certification” that the uncertainty of the current environment makes the loan request necessary, that you intend to use the funds to retain workers and maintain payroll OR make mortgage payments, lease payments, and utility payments, and that you haven’t applied for another Section 7(a) loan.

Note that you are not required to retain employees to get the loan. If you have laid off or furloughed your staff so they can get unemployment, you can still get the 7(a) loan, but as we will see, the amount of loan forgiveness will be reduced to the extent that staff is laid off or their pay is dramatically reduced.

There will be no fee to obtain the loan – another example of how the feds are doing what they can to get this money circulating in the economy. Nor are you required to first exhaust other financing options.

How Long Will it Take to Get the Money?

Treasury Secretary Mnuchin has indicated that he expects them to be ready (the loans disbursed) by the end of next week. If so, that is amazingly fast. After some needless delay in the Senate, the Treasury Department will be fast-tracking this.

What Can the Loan Proceeds Can be Used For?

The loan proceeds can be used for more overhead expenses than what went into calculating the amount of the loan, including:

(A) Payroll costs (see definition above)

(B) Interest (not principal) payments on mortgages

(C) Rent

(D) Utilities

(E) Interest (not principal) on any debts that were incurred before February 15, 2020

How Long Can We Defer Repayment on the 7(a) Loan?

Borrowers can completely defer repayment of principal and interest for at least six months but not more than one year. Apparently, the particular deferment period will be up to the discretion of the bank that issues the loan.

What Portion of the Loan Will be Forgiven?

The amount of loan forgiveness will equal the sum of the employer’s:

(A) Payroll costs (as broadly defined above)

(B) Interest (not principal) on any business debts that were incurred prior to February 15, 2020

(C) Rent

(D) Utilities, including electricity, gas, water, transportation, telephone and internet access . . .

Which are incurred during the 8-week period that begins on the origination date of the 7(a) loan. Hopefully, the country will have returned to work well before these 8 weeks elapse.

The amount forgiven cannot exceed the original principal amount of the loan.

The loan forgiveness concept encourages employers to keep everyone employed. The amount of loan forgiveness will be reduced proportionally by the reduction in full-time equivalent employees during the “covered period” of February 15, 2020 – June 30, 2020, compared to February 15, 2019 – June 30, 2019. So, if you employed 15 FTEs in 2019 and 10 now, the forgiveness will be reduced by one-third. It will be further reduced to the extent that employees are being retained but are having to take pay cuts of more than 25%.

The CARES Act encourages employers to rehire workers and/or restore the pay of employees who were kept but took big pay cuts. If by June 30, 2020, you rehire the laid-off employees and/or restore the salaries of the employees who took pay cuts, then your loan forgiveness will not be reduced.

Note that a large pay cut to a highly paid employee won’t proportionately reduce your loan forgiveness. Say you have a highly paid associate who is barely working and you can drop their pay to $8,333.33/mo. That will be fully covered by loan forgiveness and you will not have your loan forgiveness proportionately reduced. (On the other hand, if someone earning less than $100,000/yr suffers a greater than 25% pay cut, say 30%, then your loan forgiveness will be reduced by that 5% excess amount.)

What Must Be Done To Get the Loan Forgiveness?

The borrower has to show evidence that it actually spent money on the things that are eligible for loan forgiveness by submitting an application to the bank that includes:

(A) Documentation verifying the number of employees on payroll during the 8-week period of eligible loan forgiveness, including payroll tax filings reported to the IRS as well as state income, payroll, and unemployment insurance filings

(B) Documentation, including cancelLed checks, payment receipts, accounting reports, etc. verifying payments on business debts, rent and utility payments

(C) A certification from an officer or owner of the borrower that the information being submitted is true and that the amount for which forgiveness is being requested was used to retain employees, make interest payments on business debts, lease payments, and utilities.

This will take some effort, but it has to be done. There will be no debt forgiveness without it.

What Will the Tax Treatment be on the Forgiven Debt?

Even though this is debt cancellation income, which is normally taxable, in this case, the cancelled debt will be excluded from income.

What Happens to the Portion of the Loan that is Not Forgiven?

The remaining balance will continue to be guaranteed by the SBA, have a maximum maturity of 10 years and bear interest at the rate of 4% or less.

Will There be Prepayment Penalties on 7(a) Loans?


Is it Preferable to Lay Off or Furlough Staff and Send Them to Unemployment or Keep Them on the Payroll and Get a 7(a) Loan?

There are two viable approaches that you can take. The first is more conservative and less disruptive and the second more aggressive but probably better for most.

Approach #1
If you have not already let your staff go and think that doing so will be difficult in terms of employee morale, then consider taking the 7(a) loan at the beginning of the loan application process, as early as the end of next week. The benefit of this loan is a tax-free gift, via loan forgiveness, to pay 8 weeks worth of your payroll costs, rent, interest on your debt service and utility bills.

$349 billion has been allocated to this program, and it’s conceivable that this money will be depleted before the last day these loans are authorized to be made. If that happens, Congress will likely authorize another round of funding, but that is never guaranteed.

Approach #2
The best way to handle this for most practices will be a two-part approach that takes advantage of unemployment benefits and the 7(a) loans. This is more disruptive to the practice as it requires furloughing or laying off the employees. However, if you’ve already done this, then that is a non-issue:

  1. If your practice is shut down or largely shut down, then furlough staff and have them apply for unemployment. Thanks to the CARES ACT, they will get traditional unemployment benefits plus a $600 kicker.  This will replace all or most of their normal pay, and in some cases give them a raise.
  2. When you are ready to reopen your practice, rehire your staff then, and obtain the 7(a) loan then. Just do this by the June 30 deadline -- better yet, a couple weeks before then in order to give yourself a cushion.  You will use the loan proceeds to pay your overhead when the practice reopens.  You should get the benefit of loan forgiveness for the 8 weeks following the date you take your loan (so into July and August).  And, so long as the employees are rehired by June 30, the loan forgiveness will not be reduced.  In this way, you are taking advantage of unemployment insurance to cover your employees’ wages during the shutdown period and also getting the tax benefits of the 7(a) loan once your practice reopens.

Collier & Associates, Inc. will update our blog as the CARES Act progresses. We take pride in continuing to keep our Newsletter subscribers and website visitors updated on current events during this extraordinary time.

We will work diligently to answer general inquiries via the blog post if time permits. However, if your questions are detailed in nature, please request to set up a conference call for a formal legal consultation. Thank you.


Collier & Associates, Inc. provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act on this information without seeking advice from professional advisors.


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Updated March 27, 2020


  1. diane hagen on at 11:25 am

    Brandon, I’ve tried to search for lenders approved to issues these loans, without success. Is there a quick way to find out who is lending these or is it a matter of calling banks and asking?

    Also, I’d also like to know the answer to Ed Wentz’s question above.


  2. Ed wentz on at 11:07 am

    Is it true that there is an upper limit on practice gross collections (even if they are under the 50 employee limit ) that will exclude a person from getting loan forgiveness if they maintain staff and salaries.

  3. Elizabeth Dekker on at 10:37 am

    I have been closed for two weeks. My hygienist has not yet filed for unemployment. Should I rehire her now? Should I boost her normal hours to try to cover the last two weeks?
    Also…I have never paid myself any type of a salary…just pay my own personal bills as “owners draw”. How will this all figure into it.
    Also I have a second LLC to wish I pay myself rent. Will this count?
    I no longer have any business loans as I am debt averse and pay things off early.

  4. Fred Maron on at 10:36 am

    I have already submitted for a Covid 19 SBA loan and received notification that it is being reviewed. Can the application be converted to the new 7 (a) loan, or do I have to cancel this application and submit a new one at a bank?

  5. DCB on at 9:01 am

    How will this effect me if some employees have applied for unemployment prior to the CARES Act?

  6. Ryan Thomas on at 8:36 am

    Brandon, you mention that the loan can be forgiven for certain expenses (payroll, rent, etc) incurred during an 8 week period beginning on origination date.

    The bill text mentions that the forgiven amount will be for all qualified expenses during the covered period of March 1, 2020 to June 30, 2020.

    Did you mean 16 weeks instead of 8 weeks?

    • Brandon Collier on at 9:15 am

      Ryan, I believe you may be looking at an earlier version of the bill, not the version that was passed.

  7. Brian Shuman DMD on at 8:23 am

    For some employees the unemployment plus the $600 per week “Kicker” may be more than their salary. The $600 per week annualized to $31,000 per year on top of what they qualify for based on their actual salary. Is that an issue?

    Also, as we try to get the paperwork together and run dated reports, you mention “the maximum loan amount will equal 2.5 x your average monthly payroll costs during the 12-month period preceding the loan” What dates do we use to calculate the 12 month period?
    Thank you so much

    • Brandon Collier on at 9:17 am

      April 1, 2019 – March 31, 2020 or thereabouts.

  8. Mendlik on at 7:50 am

    Thank you for your quick response to legislation and spelling it all out for us!

  9. Jordan Roth on at 7:45 am

    What happens if you’ve been in business for less than a year? Say… since last August

    • Brandon Collier on at 9:23 am

      They addressed this. You will calculate your payroll costs based on the average per month – averaged over Jan. 2020 and Feb. 2020.

  10. Jordan Roth on at 7:30 am

    For defining payroll, does a) refer to EACH employee salary, wages and commissions or total for all?

  11. Peter Moreland on at 7:25 am

    Your wording here brings up a question. – “You don’t get this handout if you’ve sent your staff to unemployment.”
    So if the staff is already on state unemployment, we will not be eligible for 7a loans? OR can we rehire and still be eligible?
    Thanks for your great work as always!
    Also, in a Sub-S corp, I assume doctors wages up to 100k can be included?

    • Grace Park on at 8:25 am

      Each staff member is working once a week with the dentist being on call. In Virginia, we were told that we could keep staff part time and they can file for partial unemployment, and have been doing so. Should they stop filing for unemployment till the loan gets approved?

  12. Daniel Won on at 4:40 am

    Can I apply for a 7a along with EIDL, or are they mutually exclusive, in which case it seems 7a is way better.

  13. Carolyn Melita on at 12:58 am

    Brandon, if I have furloughed my employees so that they can collect unemployment but I hire them back at full pay once i receive the loan, is that when the 8 week period begins for the purposes of loan forgiveness later?

  14. Diana Liley on at 12:58 am

    If practicing as a sole proprietor, is net income on Schedule C considered as wages of the doctor for purposes of this loan?

    • Brandon Collier on at 9:25 am

      Yes, but capped based on $100,000/yr.

  15. Tom Semans on at 11:23 pm

    If our staff has elected to file for unemployment already, can these loans help us with the required 12 weeks of paid sick leave ( at 2/3s of their pay) we have to pay to employees whose children our home because of the schools being closed.
    Thank you

    • Brandon Collier on at 9:26 am

      I don’t believe paid sick and family medical leave is required while employees are collecting unemployment.

  16. Robert Neighbors on at 11:16 pm

    We have been shut down for almost 2 weeks. The staff is being paid for this 2 week closure with PTO which is for the pay period ending 3/27. Many of us here in Virginia were told to lay off our employees so they could start the unemployment process which they have. Should we tell them to suspend their applications since they are technically paid through 3/27? Would we be penalized if they are considered laid off for 1 week then hired back? Thoughts? Thanks,Rob

  17. Ryan on at 10:48 pm

    Brandon thank you for your efforts in explaining this vital information!

    Under the section “How Do You Apply?” you suggest obtaining documentation on:
    (A) Employee wages for the last 12 months, including you, your family and associate doctors – contact your payroll provider for the report

    Does this bill suggest that owner-docs wages (up to $100,000) will be forgiven? If so, will this only apply to those business entities that pay wages to owners (ie S-corps, C-corps)? What about sole-proprietorships and partnerships in which owners do not receive W2 wages? Will a portion of their pay (or draw) be forgiven?

  18. Lawrence Chen on at 10:40 pm

    What does this mean? “The maximum loan you can receive will equal 2.5 times your average “payroll costs” during the 1-year period before the loan is taken” Does that mean 2.5 times the average payroll for a pay period? That means all my payroll from the past 12 months divided by 26, since we get paid every 2 weeks and then multiply that by 2.5. Is that correct or am I reading that wrong?



    • Tamara Adams on at 10:45 am

      The way I read the bill, it is 2.5 times the monthly payroll costs.

  19. Michelle Burlingame on at 10:32 pm

    Others have recommended laying off or furloughing now if you are completely closed down (ie NY state) and then taking the disbursement of the 7a loan funds right around the time that you plan to be able to re- open to be able to use that money to get you back up and running (as long as everyone is brought back by June 30th). Is there anything wrong with that logic that you can see? Thank you!

    • Brandon Collier on at 9:45 am

      That is a good idea in the sense that these loans will be issued up to June 30. If you keep staff on unemployment until then and then bring them back – and get the 7(a) loan at that time – you should get the loan forgiveness for the following 8 weeks of payroll costs. (Don’t wait until June 30; give yourself a couple week cushion).

      The concern is that the $349 billion will be spent by then. If it is, and Congress doesn’t reauthorize another round of funding, then the loans won’t be available. I think that’s a low-level risk.

  20. Dallin on at 10:13 pm

    Brandon- I have kept them all on payroll with reduced hours, but also advised them to seek unemployment last week to help. What do I do?

  21. Michael Moon on at 10:03 pm

    Brandon, what should owner/doctors do if they have been paying themselves the 491K match match, I believe 285k a year for 2020? We have already paid ourselves some 65k. Can we pay our spouses and kids their prorated wages?

    Thank you

    • Matt Ankrum on at 8:58 am

      Brandon thanks for keeping us ahead of the curve.
      Is the 100k max payroll per employee or total payroll? (I’m asking in reference to max amount of loan borrowed)
      We have 2 Doctors in the practice and 6 auxiliaries, each doctor makes well over 100k.

  22. Michael Moon on at 10:02 pm

    Brandon, what should owner/doctors do if they have been paying themselves the 491K match match, I believe 285k a year for 2020? We have already paid ourselves some 65k. Can we pay our spouses and kids their prorated wages?

    Thank you

    • Brandon Thank you for your timely info
      Last week , I Told my employees that they will continue to receive full pay as I appreciate them . This government program is icing on the cake
      Have been a subscriber and attendee since Harvey and your father.

    • Andrew Z on at 5:44 am

      Is loan forgiveness still available for rent payments made to an LLC owned by the dentist and/or spouse?

  23. Stu Rubin on at 9:56 pm

    I am the sole owner of two dental practices. They are separate entities with their own tax payer IDs and separate employees. Can they be combined when applying for the loan? It’s my understanding that you can’t apply for two loans. Is that correct? Thanks

  24. Matt, client on at 9:52 pm

    Thank you for very prompt and informative e amilI have paid my each member of my team 16 hours of Sick day ‘ regardless of accrual rule” for Monday and Tuesday and kept my children & one business staff on payroll. This letter was e mailed to them. “As a result of the Coronavirus pandemic, which has brought nearly all non-essential work to a halt, on Monday, March 16, 2020, our office closed to all non-emergent patient visits. While initially, we anticipated that this closure would be temporary, based on the nature of our work, particularly the close proximity within which we must treat our patients, and guidance we have since received from The American Dental Association, Academy of Pediatric Dentistry, and the , we now anticipate that the office will remain closed for an extended period of time.
    In light of this development and based upon the guidance we have received, Drs have made the difficult decision to layoff staff members, effective immediately. We did not come to this decision lightly, but our hope is that by making the decision now, as opposed to in a week or two, you will have the ability to apply for unemployment benefits earlier. Your final paycheck, which will be deposited on Wednesday, March 25 will include payment for all hours worked from Monday, March 9 through Tuesday, March 17, paid time off for Monday March 16 and Tuesday, March 17 (for those of you that did not work), plus any remaining unused paid time off that you have accrued to date. We have already paid the health insurance premium for March 2020. If you receive healthcare through Atlantic Pediatric Dentistry, you will receive information in the mail about how to apply for COBRA within the next two weeks.
    When this crisis ends, and we are able to re-open the office, it is our sincere hope and expectation to reach out to each of you for re-employment.
    In the meantime, please contact me directly with any questions you have. Stay healthy and safe.
    My question are: should I re-hire them and Frankly who wants to come back when they are getting a full pay thru unemployment.
    If I hire them back they won’t agree to use their PTO time unearned or earned time.
    I have 10 staff and that is a small group that is more chance of getting sick.
    I though only covers 50% of the employees salaries while the practice is closed to patients. I am glad the employees are covered but is there any provision in the law helping dentist in epicenters with ZERO cash flow for possibly next 2-3 month?

  25. Stefan Bender on at 9:44 pm

    What if some of my employees have already filed for unemployment prior to the CARES ACT being passed into law?
    Would I be required to pay their full salaries for the days the office was closed prior to this bill becoming law?

  26. Jody McCrady on at 9:32 pm

    What if a few of the employees have already applied for unemployment (but haven’t received any money yet). Can you apply for the loan, get approved and then have them cancel their unemployment application and go ahead and pay them in the payroll for the 8 weeks?


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