Cardinal Business Financing outlined the relief provided to small businesses in the Coronavirus Aid, Relief, and Economic Security Act.

The Act provides more than $2 trillion in emergency economic relief for businesses, families and individuals affected by the coronavirus pandemic (COVID-19)—the largest stimulus or rescue package in American history. The Act represents the third piece of legislation intended to help families and companies impacted by COVID-19.

Below is a breakdown of the $2 trillion price tag and highlights of potential economic relief opportunities for U.S. businesses (including small and mid-sized businesses) if the bill is signed into law.

$500 Billion in Emergency Relief Funds for Larger U.S. Businesses, States and Municipalities

The CARES Act provides a $500 billion in emergency relief funds (“Fund”), which will lend money for loans, loan guarantees or other aid to businesses, states and municipalities impacted by COVID-19. The Fund will be run by the U.S. Department of Treasury and allow the Federal Reserve to inject more than $4 trillion into the economy and credit markets.

The bill references without details the “Main Street Lending Program,” which would allow the Federal Reserve to administer to small and mid-sized businesses under its existing authority under the Federal Reserve Act.

$367 Billion in Emergency Relief Loans to Small and Mid-Sized Businesses

The $349 Billion Paycheck Protection Program (PPP) expands the Small Business Administration’s (“SBA’s”) Economic Injury Disaster Loan program and would provide up to $10 million in loans for small businesses impacted by COVID-19 to maintain their payroll-related costs. If the loan is ultimately used for those payroll-related costs, the loan would be forgiven.

Who is eligible?

• Businesses, start-ups, veterans organizations, and non-profits with 500 employees or less or that meet the industry size standards provided by SBA. (Nonprofits receiving Medicaid reimbursements are excluded; for businesses with multiple locations, the business is eligible if it employs 500 or fewer employees per location; has under $500 million in gross revenue, and falls within the “accommodation and food services” sector).
• Sole proprietorships.
• Independent contractors and eligible self-employed individuals.

What are the relevant loan terms?

• The SBA may guarantee covered loans for the covered period (February 15, 2020 – June 30, 2020).
• In terms of loan amounts, businesses could get up to the lesser of $10,000,000 or a specific calculated average (the amount guaranteed is an amount equal to a factor of the average total monthly payroll costs in the year before the loan is made or from the covered period, if the business did not exist last year).
• Notably, for businesses, payroll costs are defined as the sum of all payments for compensation, including salary, wage, cash tips, paid time-off, severance, healthcare benefits, state or local taxes. For sole proprietors or independent contractors, payroll costs are defined as the sum of all compensation payments, including wages, commissions or similar compensation capped at $100,000.

What can you use the loan for?

• Employee salaries (up to a certain amount).
• Paid sick, medical or family leave.
• Costs related to group healthcare benefits during periods of leave.
• Rent or mortgage payments.
• Other debt obligations.

What can you NOT use the loan for?

• Executive compensation over $100,000 per year.
• Compensation of an employee whose principal place of residence is outside the US.
• Sick and family leave wages covered under the recently enacted Families First Coronavirus Response Act (H.R. 6201).

The SBA will require banks to provide payment deferment relief for between 6 months and one year.

Is it true that these loans could be forgiven?

• Yes, businesses could have the entire loan (up to $10,000,000) completely forgiven if they use it to maintain their payroll (keep people employed) during the covered period.

No collateral or personal guarantee is required for the loan during the covered period.

The bill expresses the Senate’s intent that the SBA favor loans to businesses in rural or underserved markets, including veterans and members of the military community, and small businesses owned and controlled by socially and economically disadvantaged individuals, and businesses in operation for less than 2 years.

$10 Billion Economic Injury Disaster Loan (EIDL) Program

The EIDL program is also administered by SBA, which provides relief from economic injury caused directly by a disaster, such as COVID-19, and permits you to maintain a reasonable working capital position during the period affected by the disaster. EIDLs do not replace your lost sales or revenue.

The EIDL program is expanded for a covered period (January 31, 2020 to December 31, 2020), and authorizes an additional $10 billion to help small businesses impacted by COVID-19.

The bill waives the following provisions in the existing EIDL program:

• Requirement for a personal guarantee on advances and loans below $200,000;
• Requirement that an entity has been in business at least one year; and
• Requirement that an applicant be unable to find credit elsewhere.

The SBA is allowed to approve and offer EIDL’s based solely on an applicant’s credit score.

Emergency Grants provide an eligible EIDL applicant to request an advance of less than $10,000, which the SBA must distribute in three days.

Applicants may not be required to repay advance payments, even if later denied an EIDL.

Eligibility for EIDLs:

• Sole proprietorships and independent contractors;
• Private nonprofits; and
• Tribal businesses, cooperatives, and Employee Stock Ownership Plans.

What are the loan terms?

• Loans are determined by actual economic injury and can be worth up to $2 million.
• The interest rate for small businesses is 3.75%.
• Loans have long-term options (up to 30 years), but will be determined on a case-by-case basis, depending on a borrower’s ability to pay.

What can you use the loan for?

• Pay fixed debts;
• Accounts payable; and
• Employee sick leave.

What can you NOT use the loan for?

• Refinance debts incurred before COVID-19;
• Make payments on other loans owned by a federal agency, including SBA;
• Pay tax penalties or non-tax criminal/civil fines;
• Repair physical damage; or
• Pay dividends or disbursements to owners or partners except as related to their services for the business.