CARES Act Update: March 27, 2020

« back to news list March 27, 2020

While we wait for the House to pass the Coronavirus Aid, Relief, and Economic Security Act that was passed by the Senate the other day (the “CARES Act”) and for the President to sign it into law, we are providing you this brief summary of key provisions of the CARES Act that are applicable to most of our clients. We cannot not address all of the details in this brief summary, we want to provide you with the key concepts so you can use them in planning your next steps.

We typically do not provide summaries like this on bills before they become law, but since this situation is so fluid, we felt we could deviate from that policy to help you plan. Based on our sources, we don’t expect that the essence of the following provisions of the CARES Act will change in the final bill. However, if they do, we will publish another summary. We also expect that regulations and guidelines will be published within 30 days after the date of enactment of this Act.

Here are the key provisions applicable to most of our clients:

Section 1102 – Paycheck Protection Program -
We hope you can use the above in evaluating your options. Once CARES is finalized, we expect to update this summary.

Please contact us if you would like to discuss any of the above items and how they might apply to your situation.

  • Eligible for (“Eligible Recipients”):
    • employers (with less than 500 employees),
    • independent contractors,
    • self-employed individuals,
    • sole proprietorships,
    • nonprofit organizations, and
    • a few others.

  • Eligible Recipients must apply for a loan – referred to as the Small Business Interruption Loans – (the “Loan”):
    • The loan is applicable for the period from February 15, 2020 and June 30, 2020 (the “Covered Period”).

  • The Loan can be used to pay the following items:
    • Payroll costs (which includes total compensation),
      • Compensation cannot exceed $100,000 annually per individual employee (including the self-employed person and independent contractors),
        • The payroll costs will be prorated over the Covered Period.

    • Group health insurance costs,
    • Compensation,
    • Rent under a written lease,
    • Utilities, and
    • Interest on certain other debts incurred before February 15, 2020.

  • Payments on the Loan are deferred for a period of not less than 6 months and not more than 1 year (we anticipate a minimum of a December 31, 2020 deferral date) (the “Deferral Date”).
    • Eligible recipients will then apply for the Loan to be forgiven (application and process is not available yet).
    • The Loan can be forgiven after Deferral Date if the Eligible Recipient meets certain conditions.
      • The amount forgiven will not be taxable income to the Eligible Recipient.

  • Limits on amount of Loan forgiveness:
    • Cannot exceed the principal of the Loan
    • If a reduction in the number of employees occurs before December 31, 2020, that could cause a reduction in the amount forgiven,
      • This may be able to be adjusted by rehiring employees.

    • If an employee’s compensation is reduced by more than 25%, that could cause a reduction in the amount forgiven

  • Any part of the Loan not forgiven:
    • must be repaid over a 10 year period,
    • Interest rate cannot exceed 4%.

  • Maximum loan amount is the lesser of the following:
    • The amount resulting from applying the following formula:
      • The average total monthly payroll costs in the 1 year period before the Loan is given
      • Multiplied by 2.5,
      • Plus, certain outstanding loans made under Section 7(b)(2) of the SBA after January 31, 2020 (if any), or

    • $10,000,000.

  • The Loan is nonrecourse to the Eligible Recipient.
  • The personal guarantee requirement is waived.
  • No collateral is required from the Eligible Recipient.
  • Documents required to be submitted to obtain the loan as of today:
    • The list of documents necessary has not yet been finalized, but we believe it will consist of at least the following:
      • Payroll tax filings,
      • 1099-MISC,
      • Financial statements for 2019,
      • Business indebtedness,
      • Lease payments pursuant to a written lease, and
      • Mortgage documents.

  • Forms to apply for the Loan have not yet been provided.
    • Expected to all be online applications

  • If you have an existing SBA loan, you should contact your lender immediately to ask for the instant 3-month deferral provided for under CARES.
    • Please Note—Many lenders are not contacting their borrowers – so you need to act proactively and contact your lender to ask for the 3 month deferral.

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