March 30, 2020

COVID-19 Updates – Fast Facts – Loans Available from the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)

By: M. Ari Storch and Shannon A. Byrne

On March 27, 2020, President Donald Trump signed legislation commonly known as the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) intended to stimulate the economy in response to the economic effects resulting from COVID-19. Included in this legislation are competitive loan offerings, with certain loan forgiveness provisions, to help small businesses meet their working capital, payroll and other operating expense needs.

Below are some fast facts businesses need to know about the eligibility requirements, application materials, and loan terms under the CARES Act.

What Funds are Available:

  • $349 billion loan fund

Purpose:

  • To provide working capital to be used for payroll, mortgage interest, rent, interest on certain debt payments, utility expenses.

Who are the Funds Available to?

  • Businesses, nonprofits, veteran organizations and Tribal businesses that do not have more than the greater of: (i) 500 employees, and (ii) if applicable, the standard number of employees established by the Small Business Administration (the “SBA”)
    • “employees” include individuals employed on a full-time, part-time or other basis
    • “businesses” include sole proprietors, independent contractors and certain eligible self-employed individuals

Eligibility Requirements:

  • Applicant was in operation on February 15, 2020
  • Applicant (i) had employees that were paid salaries and payroll taxes, or (ii) paid independent contractors as reported on a Form 1099-MISC

Loan Amount Available:

  • Up to 2.5 times the average total monthly payments for payroll costs (determined by the costs from the immediately preceding year) plus outstanding amounts of a loan another SBA loan made between 1/31/2020 and ending on the date that covered loans are made available to be refinanced
    • If an otherwise eligible borrower was not in business from 2/15/2019 – 6/30/2019, then the average total monthly payments for payroll costs incurred from 1/1/2020 – 2/29/2020.
  • Maximum available amount is $10 million

Loan Terms for Loans made from 2/15/2020 – 6/30/2020:

  • Interest rate is fixed 1%
  • SBA will impose fee caps on lenders who charge fees
  • No personal guarantee
  • No prepayment fees
  • No collateral required
  • Non-recourse as to any individual shareholders, members or partners of an eligible recipient (except to the extent they use the loan proceeds for purposes that are not specifically authorized)

Repayment Terms for Loans made from 2/15/2020 – 6/30/2020:

  • No payments (interest, principal and fees) for the first 6 months (this includes eligible borrowers who have an application for an SBA loan that is approved or pending approval on or after 3/27/2020)
  • Any outstanding balance after any loan forgiveness no later than 2 years after the borrower applies for loan forgiveness

Permissible Uses of Funds:

  • Payroll costs, including salaries of any employee on a prorated basis for the time period beginning February 15, 2020 and ending June 30, 2020 based on a salary of up to $100,000 per year
    • Salaries in excess of $100,000 are not permitted to be included in payroll costs
  • Certain group health care benefits
  • Employee salaries, commissions or similar compensations
  • Interest payments on mortgages
  • Rent
  • Utilities
  • Interest on other debt obligations incurred before February 15, 2020

Certification Requirements for Loans:

  • The uncertainty of the current economic condition makes the loan necessary to support ongoing operations
  • Acknowledgment that funds will only be used to retain workers and maintain payroll or mortgage payments, lease payments, and utility payments
  • Applicant does not have a duplicate application (the provisions of the CARES Act will automatically apply to pending SBA loans)
  • Applicant has not received funds for the same purpose under the same loan program

Materials to be Provided for Sole Proprietors and Independent Contractors:

  • Payroll tax filings reported to the IRS
  • Forms 1099-MISC
  • Income and expenses

The forgoing are additional resources available to small business owners and nonprofits during this crisis.  For more information on loan forgiveness under the CARES Act click here.

More information will become available in the upcoming days and weeks.  Rosenberg Martin Greenberg will continue to post material relevant to businesses as they manage through this evolving situation.  Until then, stay safe and, if you have any questions or need assistance during the loan application process, please feel free to give us a call.