Signed into law on March 27, 2020, The Coronavirus Aid, Relief and Economic Security Act — or “CARES Act”, among other things, provides significant relief for small businesses. The Act injects roughly $2 trillion into the economy for coronavirus relief – providing roughly $350 billion in small business loans and an additional $500 billion in relief to distressed companies in distressed industries, expanding unemployment compensation, and providing rebate checks/tax relief to individuals, families and businesses. This relief is intended to last 3 months.
Small Business Loans – The CARES Act allocates up to $350 billion in emergency loans for small businesses with fewer than 500 employees (including sole proprietors, independent contractors and the self-employed) affected by COVID-19. These loans can be for up to $10 million and will be available through June 30, 2020. Proceeds from these loans may only be used on payroll and compensation costs, interest on debt obligations incurred prior to February 15, 2020, utilities, and/or rent payments. These loans will be guaranteed by the Small Business Administration and do not require any fee, collateral or personal guarantees from borrowers. Moreover, so long as these loans are used for the permitted purposes as previously stated, they will largely be forgiven (subject to any employee or wage reductions).
The CARES Act also expands the current Economic Injury Disaster Loan (“EIDL”) loan program through December 31, 2020. The Act not only increases the categories of businesses eligible for the EIDL program, but it also eliminates certain requirements of the current program, such as personal guarantees on loans for $200,000 or less, the inability to find credit elsewhere, and that businesses be operational for 1 year prior to applying. EIDL applicants can also be approved solely on their credit score, as opposed to tax returns, and will be eligible for a fully forgivable $10,000 emergency advance that can be received within 3 days.
Severely Distressed Sectors – The CARES Act, specifically, the Coronavirus Economic Stabilization Act (“CESA”), authorizes $500 billion for loans, loan guarantees, and other investments in support of eligible businesses. CESA earmarks $25 billion for passenger air carriers; $4 billion for cargo air carriers; and $17 billion for businesses that work in national security. The remaining $454 billion (and any unused amounts in the above categories) are to be used for the benefit of businesses, States and municipalities.
Specifically, these funds will go towards purchasing obligations or other interests directly from issuers of such obligations or other interests; purchasing obligations or other interests in secondary markets or otherwise; or making loans, including loans or other advances secured by collateral. Note, loans executed under CESA are not forgivable.
Unemployment Insurance – The CARES Act Section, Relief for Workers Affected by Coronavirus Act (“RWACA”), provides funding for unemployment compensation (“UC”) to workers adversely impacted by COVID-19. RWACA extends the availability of UC to those workers who are not otherwise covered by State UC laws or that have exhausted State UC benefits.
Relief for Individuals, Families and Businesses –
Individuals and Families: Individual payments of $1,200 for individuals and $2,400 for couples. The payments are reduced for individuals with incomes over $75,000 (or $150,000 for couples) and provides an additional $500 per child. The payments are eliminated for those with an income over $99,000 ($198,000 for couples).
Businesses: Employers, including tax-exempt organizations but not governmental entities – will have the option to receive a refundable payroll tax credit equal to 50% of the first $10,000 in wages per employee (including certain health plan expenses).
The U.S. Senate Committee on Small Business & Entrepreneurship has published a Guide to the CARES Act https://www.sbc.senate.gov/public/index.cfm/guide-to-the-cares-act
We are actively monitoring the CARES Act and other COVID-19 legal issues that impact your business. For more information on issues or additional resources that can aid you, please contact us at email@example.com.