President Donald Trump is expected to sign H.R. 748, the Coronavirus Aid, Relief and Economic Security Act (“CARES”), which passed the House on March 27, 2020, following several days of intense negotiations between Congressional leaders and Treasury Secretary Steven Mnuchin.
The main features for small businesses are emergency grants and a forgivable loan program for companies with 500 or fewer employees. There are also changes to rules for expenses and deductions meant to make it easier for companies to keep employees on the payroll and stay open in the near-term.
The bill provides $10 billion for grants of up to $10,000 to provide emergency funds for small businesses to cover immediate operating costs.
Relief for existing loans:
There is $17 billion to cover six months of payments for small businesses already using SBA loans.
Under the Paycheck Protection Programs provisions of the Act, there is $350 billion allocated for the Small Business Administration to provide loans of up to $10 million per business.
- Who is eligible? Businesses, self-employed individuals, or those part of the “gig economy,” can access Paycheck loans, as can certain nonprofits, including 501(c)(3) organizations and 501(c)(19) veteran organizations, all of which must have less than 500 employees. The Cares Act, however, does not provide relief for portfolio companies owned by private-equity or venture-capital firms.
- How does your business apply for the loan? The loans will be distributed using the existing framework of the SBA’s 7(a) program. Borrowers will need to apply through banks, credit unions and other lenders. Approximately 1,800 private lenders are approved to issue 7(a) loans. New regulations providing that almost all FDIC insured banks may make sure loans are anticipated.
- What use of proceeds is allowed? Working capital, and specifically payroll support, including paid sick, medical or family leave and costs related to continuation of group health care benefits, salaries, mortgage and rent payments, utilities and other existing debt obligations are appropriate uses of the loan proceeds?
- Will any repayment of any portion of these loans be forgiven? Any portion of that loan used to maintain payroll, keep workers on the books or pay for rent, mortgage and existing debt could be forgiven, provided workers stay employed through the end of June 2020.
For additional information, please see the guidance created by Chairwoman Velázquez of the House Small Business Committee: The Small Business Owner’s Guide to the CARES Act for more detailed information about programs and initiatives that will soon be available, as well as additional tax provisions.
If you have questions or concerns about this legislation and its impact, please contact us. Our attorneys have extensive experience with employment law and we are happy to work with you over the phone or via virtual meeting so that you can ensure your business is in compliance.