The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") provides substantial economic stimulus to individuals, businesses, and hospitals because of the Coronavirus (COVID-19) pandemic. Under Title I of the CARES Act, qualifying businesses will be able to receive no-fee "small business interruption loans" at an interest rate not exceeding 4 percent without the need to provide personal guarantee or collateral.
A qualifying business
includes "any business concern, nonprofit organization, veteran's organization, religious organizations or Tribal business" that employs no more than 500 employees, or a greater number based on the size standard applicable to the industry. This includes sole proprietors, independent contractors, and self-employed individuals. Accommodation and Food Services Industry businesses may be eligible if they have no more than 500 employees per physical location.
The amount of the loan
is capped at 2.5 times the average monthly payroll costs as defined by the statute, up to a total of $10 million.
Payroll costs includes
: i) salaries, wages, commissions, or similar compensation; ii) payment of cash tip or equivalent; iii) payment of vacation, parental, family, medical, or sick leave; iv) allowance for dismissal or separation; v) payment required for the provision of group health care benefits, including insurance premiums; vi) payment of any retirement benefits; vii) payment of state or local tax assessed on the compensation of employees; and viii) the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period.
Payroll costs do not include
: i) the compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period; ii) taxes imposed or withheld under chapters 21, 22 or 24 of the Internal Revenue Code of 1986 during the covered period; iii) any compensation of an employee whose principal place of residence is outside of the United States; iv) qualified sick leave wages and qualified family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
The use of these loans is limited to:
i) payroll costs; ii) costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; iii) employee salaries, commissions, or similar compensation; iv) payments of interest on any mortgage obligation (does not include any prepayment of or payment of principal on a mortgage obligation); v) rent; vii) utilities; viii) interest on any other debt obligations that were incurred before the covered period.
These loans are eligible for forgiveness
up to the amount spent by the borrower during an 8-week period after the origination date on: i) the payroll costs for workers making less than $100,000; ii) mortgage interest payment; iii) rent; and iv) and utilities payments.
The amount forgiven may be reduced
proportionally by: i) any reduction in full-time employees retained compared to previous levels; and ii) the decrease in pay of any employee (excluding employees with an annualized rate of pay of more than $100,000) beyond 25% compared to previous compensation.
There is an exemption to the reduction in forgiveness
if an employer reduces the number of its employees or compensation between February 15, 2020 and April 26,2020, and the employer were to rehire its personnel and return the adjusted salary by June 30, 2020.
The deadline to apply is June 30, 2020, at any lending institution approved to participate by the Small Business Administration or the Department of Treasury. Additional regulations and guidelines are expected regarding other terms and conditions of the program. The applicability of some of the statutory provisions may vary depending on the circumstances of a given business. All businesses would be well-advised to seek counsel to explore whether and how this program assists its sustainability in these trying times.
