Title I - Keeping American Workers Paid and Employed Act
- CARES Act Resources
- Title I - Keeping American Workers Paid and Employed Act
- Title II - Assistance for American Workers, Families and Businesses
- Title III - Supporting America's Health Care System in the Fight Against the Coronavirus
- Title VIII: Agency Appropriations
April 6, 2020: If you are considering a Paycheck Protection Program (PPP) loan, make your determination quickly and reach out to your bank to apply now, as the limited funds are first come, first served, and they are expected to go quickly.
What should you do?
- Most lenders are taking applications from their existing customers first. Some banks are prioritizing loans to businesses with fewer than 50 employees, or non-profits. At least one bank is no longer taking applications. Reach out to your bank to determine if its online application process is up and running and what limits are in place. If they are not available, ask your network to help you find a business banker whose bank is accepting applications.
- Complete the online SBA PPP loan application. Even if your bank is using an online application, completing the SBA’s form will require you to gather necessary documents and payroll records. Be complete and accurate and read the certifications, as amending an application may not be doable and you may have to start over. Your lender may have other requirements.
CARES Act PPP loans are generally designed for certain businesses and non-profits with fewer than 500 employees (including self-employed people), which will use the funds to retain workers and maintain payroll or make certain payments. A qualifying condition is that the current economic uncertainty makes the loan necessary to support the ongoing operations of the business. Loans are tied to payroll costs, and loan forgiveness is conditioned on maintaining or rehiring employees and maintaining compensation levels. There are eligibility rules and documentation and certification requirements. The program also intersects with other tax and employment laws.
For additional information and resources, please see:
The CARES Act expands eligibility for small business loans made under Section 7(a) of the Small Business Act by enacting a new Paycheck Protection Program that provides short-term cash flow assistance to eligible businesses to help them deal with the immediate economic effect of the COVID-19 pandemic. The loans are to be administered by the Small Business Administration (the “SBA”), and borrowers must apply through SBA approved lenders. Under the program, eligible business include: (a) small businesses, other business concerns, nonprofits, and veterans organizations that generally have fewer than 500 employees or the industry size standard set by the SBA; (b) sole proprietors; (c) independent contractors; (d) self-employed workers; (e) certain tribal business concerns; and (f) businesses in the accommodation and food services sector with fewer than 500 employees per location. An eligible borrower must have been in operation on February 15, 2020, and have paid employee salaries and payroll taxes.
Generally, the loans are to cover payroll, health care costs, mortgage interest payments, rent and utility payments, and interest on pre-existing debt obligations during the covered period (February 15, 2020, to June 30, 2020). The program also permits borrowers to refinance economic injury disaster loans made between January 31, 2020, and the date on which loans are made available under the program. Qualifying businesses are permitted to borrow up to 2.5 times the business’s average monthly “payroll cost” during the year prior to the loan and the amount of economic injury disaster loans being refinanced under the program, with a $10 million cap. The maximum interest rate is 4%. “Payroll cost” is a specifically defined term and has certain restrictions; “employees” include those employed on a full-time, part-time, and other basis; and the SBA “affiliation” rules will generally apply. Certain fees are waived, payments are deferred by at least six months (but not more than one year), and the SBA’s test (the ability to obtain funding from other sources without undue hardship) is waived. The SBA will have no recourse against an individual shareholder, member, or partner for nonpayment of a covered loan except to the extent that such shareholder, member, or partner uses the covered loan proceeds for a purpose not authorized under the CARES Act. Collateral and personal guarantees are not required. Borrowers must make a good faith certification that the uncertainty of current economic conditions makes the loan necessary to support their ongoing operations and that they will use the funds to retain workers and maintain payroll or other certain obligations and utilities.
Relief is coming quickly. The CARES Act mandates that the SBA issue implementing regulations within 15 days of enactment. The U.S. Department of Treasury is already approving new lenders. If an eligible business uses the loan for qualifying expenses while maintaining its workforce, some or all of the loan amount can be forgiven—see below.
The CARES Act authorizes loan forgiveness for eligible small businesses and nonprofit organizations under the Paycheck Protection Program (the “PPP”). Loans under the PPP are eligible for forgiveness up to the aggregate amount of payroll payments, interest payments on mortgage obligations, rent payments, and utility payments made during the eight-week period following loan origination as long as the amount does not exceed the original principal. Loan forgiveness will be decreased if the loan recipient either (a) reduces the average number of employees on their payroll or (b) decreases employee salaries or wages in excess of 25% of the salary or wages received by the employee during the most recent quarter before the covered period. Loan recipients may avoid a reduction in forgiveness by rehiring employees or eliminating the decrease in salary and wages. The calculations for forgiveness reductions are complicated and need clarification. Borrowers seeking loan forgiveness under the CARES Act must document and certify information associated with the loan. Any forgiveness granted under the PPP will not be included as part of the loan recipient’s gross income. Amounts not forgiven continue to be guaranteed and will have a maximum maturity date of 10 years from the date the borrower applied for loan forgiveness. SBA is to issue additional rules and guidance within 30 days. The PPP applications are now available here.
The CARES Act expands the SBA’s Economic Injury Disaster Loan (“EIDL”) Program by increasing the types of entities eligible to receive EIDLs and creating a grant program to support small businesses and nonprofits affected by the COVID-19 pandemic. The eligible businesses expansion is defined as (a) businesses with not more than 500 employees, (b) sole proprietorships, (c) cooperatives with not more than 500 employees, (d) ESOPs with not more than 500 employees, or (e) tribal small business concerns with not more than 500 employees. Private nonprofit organizations, small business concerns, and small agricultural cooperatives continue to be eligible for such EIDLs. EIDL applicants must be able to establish that the claimed economic injury is both substantial and a direct result of the COVID-19 disaster. An EIDL applicant may request an advance of up to $10,000 from the SBA to cover certain expenses, including making rent or mortgage payments, maintaining payroll to retain employees, meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains, repaying obligations that cannot be met due to revenue losses, and providing paid sick leave to employees unable to work due to the direct effect of COVID-19. The SBA will issue an advance within three days of the SBA Administrator’s receipt of the grant application. An EIDL grant recipient will not be required to repay the advance, even if the applicant is subsequently denied an EIDL; however, if the EIDL grant recipient also seeks loan forgiveness from the SBA, the forgiveness amount will be reduced by the EIDL grant amount. The SBA Administrator is waiving any rules as to certain personal guarantees and business duration requirements in connection with the loans involving the covered period (the period beginning on January 31, 2020, and ending on December 31, 2020). Applicants apply on the SBA website. The emergency grants terminate on December 31, 2020.
- Chapter 11: The streamlined Chapter 11 bankruptcy process (a faster, more flexible, and more cost efficient Chapter 11 reorganization process for small businesses) could be used by eligible small businesses with as much as $7.5 million in debt (current limit is $2.73 million for eligible small businesses). Expires in one year.
- Chapter 7: Federal payments under the CARES Act would be excluded from the Chapter 7 means-test calculation. Expires in one year.
- Chapter 13: Federal payments under the CARES Act would be excluded from income calculations under Chapter 13 bankruptcy proceedings. Debtors experiencing hardship because of COVID-19 would be allowed to modify existing Chapter 13 bankruptcy reorganization plans. Expires in one year.
Resources & Ideas
- Carmen CalzacortaShareholder
- Omar ContrerasAssociate
- Russel RobertsonShareholder
- Charmin ShielyShareholder
- Savannah WolfeAssociate
Ideas Fuel Industries
Highlights of PPP Loan Items in the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and 2021 Consolidated Appropriations Act (Updated 01/06/2021)
Why You May Want to Wait to File for PPP Loan Forgiveness and Other Tips
PPP Loans and Changes of Ownership Asset Transactions and Mergers