Signed into law on March 27th, the Coronavirus Aid, Relief and Economic Security (CARES) Act creates a half-dozen new programs to help distressed businesses and workers deal with the global COVID-19 pandemic and any related shutdowns. Among those programs are forgivable small business loans and other types of loan assistance. A small business as defined under the CARES Act is one that employs fewer than 500 workers or fewer than the level set by the SBA for the employer’s industry.
Paycheck Protection Program
The Paycheck Protection Program, developed under the CARES Act, is a new forgivable loan program created to help small businesses pay their expenses and continue to keep their workers employed during the health crisis.
The Program provides loans of up to 250% of the employer’s average monthly payroll costs, with a cap of $10 million. Average monthly costs are determined by looking back one year from the date of the loan. An employer may use this loan to cover salaries, group health benefits, rent, utilities, and other specified expenses. Under the Act, however, the employer cannot use the loan to pay for other coronavirus-related benefits, such as paid leave under the Families First Coronavirus Response Act (FFCRA).
The Act gives the U.S. Small Business Administration (SBA) the authority to implement the program and make the loans available through existing lenders. The SBA will also waive standard fees and personal-guarantee requirements — no collateral is required. Instead, the SBA will require employers to certify that:
- the employer needs a loan to support its operations;
- the employer will use the loan to retain its workers, maintain payroll, or pay other qualifying expenses;
- the employer does not have another application for the same purpose pending; and
- the employer has not already received a loan covering the same period.
The loan comes with an interest rate of 4% or less but will be forgiven if the employer maintains its workforce for the covered period: February 15th, 2020, to June 30th, 2020. If the employer reduces its workforce during the covered period relative to last year, or reduces the salary or wages paid to an employee by more than 25%, the loan forgiveness will drop by the same percentage.
Small Business Debt Relief Program
For small businesses that currently already have non-disaster SBA loans, the CARES Act provides immediate relief for the carriers of those 7(a) loans, 504 loans, and microloans. Under the relief program, the SBA will cover all loan payments on these loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of when President Trump signed the bill into law. Employers who are interested in applying for a 7(a), 504, or microloan can consult with the Small Business Administration for eligibility requirements.
Economic Injury Disaster Loans & Emergency Economic Injury Grants
Also under the CARES Act, small business owners in all U.S. states, Washington D.C., and territories are eligible to receive an Emergency Economic Injury Grant, which is an emergency advance of up to $10,000. First, however, employers must apply for an Economic Injury Disaster Loan (EIDL) and then they can request the advance. The advance does not need to be repaid under any circumstance, and may be used:
- to keep employees on payroll;
- to pay for sick leave;
- meet increased production costs due to supply chain disruptions; or
- pay business obligations, including debts, rent, and mortgage payments.
According to the SBA, employers requesting the advance can expect to receive it within three days of applying for an EIDL.
Mid-Sized Business Loan Program
It isn’t just small businesses that are covered under the CARES Act; there are provisions for mid-sized employers as well. Under the Act, mid-size businesses (those with 500 to 10,000 employees) can obtain a loan through the U.S. Treasury Department with no greater than a two-percent annualized interest rate, and no interest or principal payments for six months. This is to try and enable employers to retain at least 90 percent of their workforce, at full compensation and benefits, until September 30, 2020. One of the stipulations under this program, however, is that the borrowing employer must make a “good-faith certification” that they “will remain neutral in any union organizing effort for the term of the loan.” In other words, if a mid-sized company receives the loan, it is agreeing to waive its free speech rights and allow campaigns to unionize employees during the length of the full loan term. More information about this specific program should be released in the coming days.
For a full analysis of all the provisions under the CARES Act, the SBA has released a comprehensive guide for employers to better understand the new programs that are available to them.