Late Wednesday night, the U.S. Senate unanimously approved HB 748, the Coronavirus Aid, Relief and Economic Security Act (CARES). The U.S. House of Representatives is expected to promptly approve it, and the President has publicly indicated that he will sign it. This analysis assumes that it will proceed through both of those steps unchanged.
CARES contains up to $350 Billion in relief for small businesses via loans and loan forgiveness. These are some highlights of the provisions directly affecting small business:
- The maximum amount of Small Business Association (SBA) 7a loans (SBA 7a Loans), the most typical type of SBA loan, has been doubled to $10 million for 2020. Proceeds may be applied to employee salaries, paid medical or sick leave, insurance premiums, mortgage payments and any other debt obligations.
- Lenders who previously have not participated in sometimes paperwork-intensive SBA loan programs are invited to join the program. When analyzing the risk of a bank’s portfolio, loans made under CARES are given zero risk weight.
- CARES temporarily changes the SBA definition of “small business” to include businesses with fewer than 500 employees, including businesses with multiple locations. Any business with less than 500 employees per location in the food service industry is eligible.
- Eligibility requirements will be based on targeted COVID-19 relief targeted goals including salaries and payroll taxes paid, not typical eligibility requirements such as repayment ability.
- Collateral and personal guarantee requirements of typical SBA 7a Loans will be waived.
- Federal government guarantee will be 100% for the duration of calendar 2020, after which they will return to 75% for loans above $150,000 and 85% for those at or below $150,000.
- Authorizes $349 Billion in SBA 7a Loans through December 31, 2020.
- CARES provides protections for federal contractors impacted by COVID-19 restrictions, including relief from deadlines, payment continuation through forced work interruptions and prompt payment requirements.
- CARES provides for forgiveness of a loan made under its terms in an amount equal to the cost of continued payroll costs for the period from February 15, 2020 to June 30, 2020. “Payroll Costs” are defined broadly, and include the cost of insurance and other benefits. For employees earning over $100,000, only the first $100,000 is considered for forgiveness.
- Application fees are waived, and provided a business was in operation on February 15, 2020, there is a presumption that the business was affected by COVID-19.
- Loan repayment is deferred for no less than 6 months, and up to a year.
- CARES includes provisions intended to make the secondary market for such loans more attractive to investors.
CARES includes funding amounts for Small Business Development Centers and Women’s Business Centers for assistance in educating businesses about the funding available under the Act, and for training in dealing with COVID-19 issues in the workplace.