The U.S. Senate and the U.S. House of Representatives passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2.2 trillion stimulus package designed to mitigate the effects of the novel coronavirus (“COVID-19”). The legislation includes relief for businesses and individuals, assistance to states, and key protections for workers. It is expected that the President will promptly sign the measure. At $2.2 trillion in emergency stimulus aid, the bill is the largest emergency stimulus package in United States history.
The CARES Act provides, among other things, economic assistance to millions of Americans and small and distressed businesses. For businesses, the legislation:
Establishes a $350 billion loan guarantee program to help small businesses keep employees on the payroll and cover necessities such as rent and utilities. If certain conditions are met, the loans are forgivable; and
Extends $500 billion in loans and loan guarantees to blunt the coronavirus’ economic impact, including $454 billion to businesses, states, and cities especially impacted by the coronavirus and not receiving loans through other provisions in the Act; $50 billion to passenger airlines; and $17 billion to businesses in the national security industry.

Keeping American Workers Paid and Employed Act

The CARES Act authorizes the Small Business Administration (“SBA”) to provide loan guarantees for up to $349 billion in loan commitments under the SBA’s 7(a) program (the SBA’s primary program for providing financial assistance to small businesses), funding a new “paycheck protection” program.

SBA Loan Eligibility

Defines eligibility for loans as a small business meeting the size requirements under the law to be eligible for an SBA loan. The SBA size standards vary by industry and are generally based on the average number of employees or average annual receipts. Under the CARES Act, small businesses would continue to be eligible under these standards. However, the CARES Act expands eligibility for loans authorized by the legislation (a “covered loan”) to all businesses with no more than 500 employees. Additional exceptions further expand the reach of the CARES Act. Includes sole-proprietors, independent contractors, and other self-employed individuals.

SBA Loan Terms

An eligible business may receive one covered loan, which the recipient may use for payroll costs; continuation of group health care benefits during periods of paid sick, medical or family leave, or insurance premiums; salaries or commissions or similar compensation; interest on mortgage obligations; rent; utilities; and interest on other outstanding debt. Generally, the maximum loan amount is the lesser of (1) $10 million, or (2) 2.5 times the average total monthly payments by the applicant for payroll costs—only payroll costs, not the other costs the loan proceeds may cover—incurred during the one-year period before the date of the loan. Waives both borrower and lender fees. The CARES Act does not require collateral or personal guarantees for a covered loan.  Sets a maximum interest rate of four percent.

SBA Loan Forgiveness

The CARES Act allows for covered loan forgiveness under certain conditions. The loan forgiveness amount, is equal to the payroll costs, mortgage interest payments, rent, and utility payments incurred or paid by a recipient during the covered period (8 weeks after loan origination).

The loan forgiveness amount is reduced if the recipient (1) reduces the average number of full-time equivalent employees per month during the covered period below the lesser of (a) the average number of full-time equivalent employees per month from February 15, 2019 to June 20, 2019 or (b) the average number of full-time equivalent employees per month from January 1, 2020 to February 29, 2020, or (2) reduces the salary or wages of any employee in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period. Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. The law also allows forgiveness for additional wages paid to tipped workers. Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with a term up to 10 years and a maximum 4% interest.

Applications

More detail on how to apply and the criteria the SBA will use to determine who will receive loans is expected within the next 15 days, when the Administrator is required to issue guidance and regulations implementing the program.

 

Emergency EIDL Grants

The CARES Act establishes an Emergency Grant to allow an eligible entity who has applied for an EIDL loan due to Covid-19 to request an advance on that loan, of not more than $10,000 which the SBA must distribute within 3 days. EIDL loans are an existing SBA program that offers loans with up to 30 year terms at 3.75% interest. The Act also establishes that applicants shall not be required to repay advance payments, even if subsequently denied for an EIDL loan. It outlines that these advances may be used for providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.

Assistance for American Workers, Families, and Businesses
Employee Retention Credits for Employers

Facing difficult decisions about closures, employers should be aware that they may be eligible for a refundable payroll tax credit for 50 percent of “qualified wages” paid to employees during the COVID-19 crisis. This credit is available to employers whose (1) operations were fully or partially suspended because of a COVID-19-related shut-down order, or (2) gross receipts have declined by more than 50 percent when compared to the same quarter in 2019, until the business recovers to 80 percent of gross receipts relative to the same quarter. The calculation of “qualified wages” depends on the number of employees (determined by taking the average number of employees in 2019), and is subject to an aggregate $10,000 cap per eligible employee for all calendar quarters, including health benefits.

Employer Payroll Tax Extension

Certain employer payroll taxes for the period of the date of enactment until the end of the year would be deferred by the CARES Act. Fifty percent of those taxes could be deferred until December 31, 2021, and the remaining 50 percent could be deferred until December 31, 2022.

 

Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy

The CARES Act provides $500 billion to the Treasury Department’s Exchange Stabilization Fund (“ESF”) to provide loans and loan guarantees for eligible businesses, states, and municipalities. Specifically, the CARES Act provides $25 billion for passenger air carriers; $4 billion for cargo air carriers; $17 billion for “businesses critical to maintaining national security”—though the legislation does not define this term; and $454 billion in support of the Federal Reserve’s lending facilities to eligible businesses, states, and municipalities. The Secretary of the Treasury will determine the terms and conditions of loans provided by the ESF.

The CARES Act further directs the Secretary of the Treasury to publish application procedures and additional requirements no later than 10 days after enactment of the legislation. The exact method for application and additional requirements for receiving funds will, therefore, remain uncertain until that date.
Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans
Provides up to 90 days of forbearance for multifamily borrowers with a federally backed multifamily mortgage loan who have experienced a financial hardship. Borrowers receiving forbearance may not evict or charge late fees to tenants for the duration of the forbearance period. Applicable mortgages include loans to real property designed for 5 or more families that are purchased, insured, or assisted by Fannie Mae, Freddie Mac, or HUD. The authority provided under this section terminates on the earlier of the termination date of the national emergency concerning the coronavirus or December 31, 2020.
Temporary Moratorium on Eviction Filings
For 120 days beginning on the date of enactment, landlords are prohibited from initiating legal action to recover possession of a rental unit or to charge fees, penalties, or other charges to the tenant related to such nonpayment of rent where the landlord’s mortgage on that property is insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, or the Violence Against Women Act of 1994.
We’ll update the website with more information about these programs as we learn more about them. For anyone interested in applying for an SBA loan, we encourage you to become familiar with the application process and the documents required. This will make you more familiar with what you’ll need when you file your application.