On March 25, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"); a vote in the House is tentatively set for Friday, March 27. As discussed in our
previous alert, the CARES Act includes a "Paycheck Protection Program" of up to $349 billion in loans, fully guaranteed by the Small Business Administration.
These SBA 7(a) Relief Loans are available for small businesses and non-profits with up to 500 employees (1,500 in certain sectors) for up to the lesser of (i) $10 million or (ii) the average total monthly payroll costs of the business or non-profit during the year prior to the loan being made, multiplied by 2.5. The loans are intended to cover approximately 2.5 months of payroll obligations (including paid sick leave), employee salaries, wages and tips, mortgage payments, rent and utility payments, insurance premiums and other debt obligations.
Eligibility is not subject to the SBA's standard "no credit elsewhere test;" however, applicants must have been operational on February 15, 2020 and have had employees for whom the applicant paid salaries and payroll taxes or paid independent contractors. Additionally, applicants must be substantially impacted by public health restrictions as a result of COVID-19.
Relief loans may be subject to forgiveness equal to the amount of those payroll support, rent and utility payments, and interest on mortgages and other debts existing as of February 15, 2020 and spent during the eight (8) week period after the loan closing date. Proceeds of relief loans used to make principal payments on mortgage indebtedness will not be eligible for forgiveness. The total amount forgiven will also be reduced based on a company's reduction in employee retention and compensation (beyond 25%) compared to the previous year; however, salary reduction for employees earning more than $100,000 will not be included in this calculation. Similarly, to promote employee retention, employers who rehire employees previously laid off between February 15 and April 1 will not be penalized for loan forgiveness purposes so long as those employees are rehired by June 30.
Also on March 25, Governor Wolf announced $60 million in new funding available for small businesses in Pennsylvania with 100 or fewer full-time employees. Administered by the Pennsylvania Industrial Development Authority (PIDA), the COVID-19 Working Capital Access (CWCA) Program provides up to $100,000 in financing for working capital used for operations, excluding fixed assets and production machinery and equipment. CWCA loans are for three years, with a 12-year amortization period and carry a 0% interest rate (2% fixed for agricultural producers). Applications are handled by local certified economic development organizations. Philadelphia-based businesses may apply through PIDC, while those in surrounding counties may find their local CEDO via the Department of Community and Economic Development
website.
