Day: March 31, 2020


                Last Friday Congress passed a $2 Trillion Economic Stimulus Bill (the “CARES Act”) that provides for loans to small businesses (under 500 employees) as well as payroll tax credits to encourage employers to continue to pay their employees while their businesses are closed down or curtailed due to the coronavirus pandemic. Information regarding small business loans will be included in another Alert. Key employment-related provisions include:

Unemployment Insurance Provisions

This CARES Act creates a temporary Pandemic Unemployment Assistance program through December 31, 2020 to provide payments to workers displaced as a result of the COVID-19 crisis, and includes payments to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.  The CARES Act also supplements traditional state unemployment insurance and provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months. In addition, the CARES Act provides funding to pay the first week of unemployment benefits, permitting states to pay unemployment compensation benefits to recipients as soon as they become unemployed instead of waiting one week before the individual is eligible to receive benefits.

The CARES Act also provides an additional 13 weeks of unemployment benefits through December 31, 2020 to help those who remain unemployed after the applicable weeks of state unemployment benefits are no longer available (i.e., increasing total weeks of eligibility in Pennsylvania from 26 to 39). Employees whose hours are reduced are eligible for pro-rated unemployment benefits.

Employee Retention Credit For Employers Subject To Closure Due To Covid-19

This provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis in order to induce employers to retain employees. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.

The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Delay Of Payment Of Employer Payroll Taxes

The CARES Act also allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2 percent Social Security tax on employee wages and must submit those amounts to the IRS quarterly. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Social Security Trust Funds will be held harmless under this provision.

Direct Payments To Individual Taxpayers

Under the CARES Act, the Secretary of the Treasury has been directed to provide rebate checks to individual taxpayers in order to stimulate the economy.  Individual taxpayers with an adjusted gross income of $75,000 or less will receive a $1,200 rebate check, and an additional rebate of $500 per dependent child.  Taxpayers filing jointly will receive $2,400 in addition to the $500 per child.  The rebates will be proportionally phased out for individual taxpayers with adjusted gross income of $75,000 to $99,000 and for joint filers with adjusted gross income of $150,000 to $198,000.  The phase out reduces a taxpayer’s rebate by $5 for each $100 of adjusted gross income in excess of the applicable phase-out thresholds (i.e. $75,000 or $150,000, as the case may be).

We will continue to provide updates to our clients regarding important COVID-19 legislation that affects employers and employees.  If you have any questions regarding the foregoing, please contact Jennifer Chalal at or Nancy Abrams at or Peter Cripps at





In response to the COVID-19 pandemic, the federal government has authorized the Small Business Administration (SBA) to provide emergency disaster loans to small businesses affected by the COVID-19 crisis and the slow down in economic activity resulting from the emergency.

These loans are available under the SBA program that is normally used to provide emergency relief to businesses adversely affected by natural disasters such as tornados, hurricanes and earthquakes. In particular, qualifying small businesses and non-profits may apply for up to $2 million under the SBA Economic Injury Disaster Loan (EIDL) program.

EIDL loans may be used to pay fixed debts, payroll, accounts payable and other bills and expenses that companies are unable to pay as a result of the COVID-19 emergency.

It is important to note that the EIDL program is separate and distinct from the programs which may become available under the CARES Act that is expected to be passed by Congress this week. After the CARES Act is enacted, we will provide a supplemental alert discussing SBA funding programs under the CARES Act, especially the terms of the payroll protection loans that are expected to be part of the CARES Act.

How Does a Company Apply For An EIDL Loan? Unlike traditional SBA loan programs such as the popular 7(a) program which utilize commercial banks and other SBA lenders as the contact point for loan applications and disbursement of loan proceeds, small businesses seeking EIDL loans will apply directly to the SBA and receive disbursements directly from the SBA.   The SBA application is available at

What Terms Are Available For EIDL Loans? EIDL loans are, in fact, loans – mot grants. EIDL loans are not subject to the forgiveness provisions that are expected to be applicable to certain payroll protection loans under the proposed CARES Act. However, EIDL loans may provide up to $2 million in low-interest loans to small businesses that may be used for permitted working capital purposes.

  • Maximum Loan Amount: $2,000,000.
  • Interest Rates: 3.75% for eligible small businesses and 2.75% for eligible nonprofits.
  • Repayment Terms: Payments may be deferred for 12 months.
  • Loan Term: Up to 30 years. The SBA will determine the loan term for each borrower on a case-by-case basis, taking into account the borrower’s ability to pay.
  • Use of Proceeds: Proceeds may be used to pay fixed debts, payroll, accounts payable and other bills that can not be paid as a result of the COVID-19 emergency. EIDL loans may not be used for expansion and are not intended to replace lost profits.
  • Collateral: Traditionally, the SBA requires collateral for loans under the EIDL program in excess of $25,000. In light of the stated purposes of EIDL loans and the nature of the COVID-19 crisis, we are optimistic that the SBA will be flexible in its collateral requirements for companies without collateral or with existing senior secured debt.

What Forms Are Necessary To Apply? The SBA has modified its normal application process and is requiring fewer forms with the initial application.   As of today, the SBA requires the following documents with the initial online application:

  • Business Loan Application (SBA Form 5)
  • Economic Injury Disaster Loan Supporting Information (SBA Form P-019)

Initially, additional forms were to be required with the original application. Yesterday, the SBA adjusted the application process and now provides that a Disaster Assistance loan officer may contact an applicant and request that it fill out the following additional forms:

  • Fee Disclosure Form and Compensation Agreement (SBA Form 159D)
  • Personal Financial Statement (SBA Form 413D)
  • Request for Transcript of Tax Return (IRS Form 4506-T)
  • Schedule of Liabilities (SBA Form 2202)
  • Additional Filing Requirements (SBA Form 1368)
  • Additional Filing Requirements (SBA Form 413D)

Will EIDL Loans Impact Existing Commercial Loans? Most likely, yes. Companies that have existing loans with commercial banks or non-bank financial institutions should review their existing loan documents and consult with legal counsel. Both secured and unsecured commercial loans often contain covenants that restrict or prohibit the borrower from incurring additional indebtedness. Before closing an EIDL loan (or any other SBA loan), companies should discuss with counsel the need for any required waivers, consents or amendments from existing lenders.

Can an EIDL Borrower Also Take Advantage of CARES Act Payroll Protection Loans?   It appears likely that the CARES Act will permit any EIDL loan granted as a result of the COVID-19 emergency will be able to be refinanced by a loan granted under the proposed payroll protection loan provisions of the CARES Act – which may effectively convert all or a portion of the EIDL loan into a payroll protection loan eligible for the forgiveness provisions expected to be contained in the CARES Act for payroll protection loans that meet the terms and conditions of such loan forgiveness.

We will continue to provide updates to our clients and friends regarding important COVID-19 legislation that affects small businesses. If you have any questions regarding the foregoing, please contact Pete Cripps at or 215-241-8884.