On March 25, 2020, the United States Senate unanimously approved a $2 trillion rescue package to combat the Covid-19-induced economic downturn (https://www.congress.gov/bill/116th-congress/senate-bill/3548/text ). This third rescue package includes a variety of initiatives and financing sources that target different sectors of the US economy. When signed into law by the President– as is currently expected – the sprawling legislation would be the largest relief package in US history.

This is the third remedy that Congress has passed in the span of two weeks to face the COVID-19 public health and economic crisis: the first one was the March 6, 2020 $8.5 billion Coronavirus Preparedness and Response Supplemental Appropriations Act, (https://www.cdc.gov/cpr/readiness/funding-covid.htm), followed by the March 18, 2020 Family First Coronavirus Response Act (FFCRA Act) https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave .

The CARES Act was signed into law by the President on March 27, 2020. The CARES Act provides funding and/or tax relief to individuals, industries, businesses, and hospitals as follows:

1. Individuals: A cash payment of $1,200 to individuals who earned $75,000 or less in 2019 (or 2018 if they have not yet prepared their 2019 tax return). The size of the payment gradually decreases for workers who earned more than $75,000 and phases out completely at $99,000. A $2,400 check will be sent to married couples who earned less than $150,000 and will phase out at $198,000. Individuals and couples with children 16 and under will receive an additional $500 per child.

• Workers: They can receive an additional $600 per week payment for up to 4 months on top of state unemployment benefits; self-employed individuals and independent contractors are also eligible to obtain payments. The ‘waiting week’ that is customary for many state unemployment insurance applications may be repealed by state authorities, and there may be an additional 13 weeks of coverage after exhaustion of state benefits; 

• Small businesses: All loans provided and guaranteed by the SBA (the “Administration”) will be issued by US authorized commercial banks.

3.1 Application Timeframe. Section 1102(a)(2) – (SBA Section 7(a)(36)(A)(iii)). In order to obtain a loan under the CARES Act, the application must be submitted between February 15 and June 30, 2020. 

3.2 Eligibility. Section 1102(a)(2) – (SBA Section 7(a)(36)(D)(i)(I)(II) and (ii)). Small business eligible to apply for a loan are:

• Companies with fewer than 500 employees; or
• Individuals operating as sole proprietors or independent contractors.

3.3 Maximum loan amount. Section 1102(a)(2) – (SBA Section 7(a)(36)(E)). The maximum loan amount that a business may request is the lesser of:

• The sum of:
  • 2.5 multiplied by the average total monthly payments for payroll costs incurred during the 1-year period before the date on which the loan is made (with certain exceptions for seasonal employers)
  • And the outstanding amount of a loan under subsection (b)(2) that was made during the period beginning on January 31, 2020, and ending on the date of which covered loans are made available to be refinanced under the covered loan;
    • (b)(2) applies to certain loans authorized under the Consolidated Appropriations Act of 2020;

or

• $10 million.

3.4 Use of the loan. Section 1102(a)(2) – (SBA Section 7(a)(36)(F)). During the covered period, eligible businesses can use the proceeds of the loan to pay the following: (I) payroll costs (as explained – below); (II) continuation of group health care plan and premiums; (III) employee salaries, commissions, and compensation; (IV) payment of mortgage interest; (V) rent; (VI) utilities; (VII) interest and obligations existing before the covered period.

3.5 Loan eligibility. Section 1102(a)(2) – (SBA Section 7(a)(36)(G)). In order to be eligible to obtain a loan, the borrower must certify that due to the current economic conditions, he/she requests a loan to support ongoing business operations, acknowledging that funds will be used to retain workers and/or pay mortgages, rents, or utilities.

3.6 No fee. Section 1102(a)(2) – (SBA Section 7(a)(36)(H)). During the covered period, there will not be any fee for the covered loans.

3.7 No personal guarantee. Section 1102(a)(2) – (SBA Section 7(a)(36)(J)). Lender cannot require personal guarantee or collateral from the borrower.

3.8 Balance. Section 1102(a)(2) – (SBA Section 7(a)(36)(K)). If, after the principal amount of the loan is forgiven, the borrower still has a balance due – based on the reduction under Section 1106 – (i) the remaining balance shall continue to be guaranteed by the SBA and (ii) the covered loan shall have a maximum maturity of 10 years from the date the applicant submitted an application for forgiveness.

3.9 Deferral. Section 1102(a)(2) – (SBA Section 7(a)(36)(M)(ii)(I)(II)). All borrowers are eligible to a loan payment deferral for a period of not less than 6 months but not more than 1 year, including principal, interest, and fees.

3.10 SBA reimbursement to banks. Section 1102(a)(2) – (SBA Section 7(a)(36)(P)). The Administration will reimburse lenders for processing loans at the following rates:

• 5% for loans up to $350,000;
• 3% for loans between $350,000 and $2M; and
• 1% for loans over $2M.

3.11 No Prepayment penalty. Section 1102(a)(2) – (SBA Section 7(a)(36)(R)). There shall be no prepayment penalty for payments made on a covered loan (borrowers will be able to repay in advance without incurring any penalties).

3.12 Commitment. Section 1102(b)(1). The authorized commitment from the federal government for general business loans is $345,000,000,000.

3.13 Amount to be forgiven for workers. Section 1106(d)(5). The amount of loan forgiveness is determined without regard to the re-hiring of full-time employees or reduction in the salary of one single employee if either occurred between February 15, 2020, and 30 days after the enactment of this bill.

3.14 Application documentation. Section 1106 (e). To apply for forgiveness, an eligible recipient must submit to the lender:

1. Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the periods described in subsection (d), including:
   1. Payroll tax filings reported to the IRS; and
   1. State income, payroll, and unemployment insurance filings.
   1. Documentation verifying payments on the covered mortgage, lease, or utility obligations;
   1. Certification from an authorized individual that the documentation is true and the loan was used appropriately (unclear if this is a notary or an individual at the business, an auditor, etc.); and
   1. Any other documentation deemed necessary by the Administrator.

3.15 Documentation required. Section 1106(f). There will be no forgiveness without the required documentation.

3.16 Forgiveness decision. Section 1106(g). Lenders shall render a forgiveness decision not later than 60 days after receiving an application.

3.17 Forgivability requirements. Section 1106 and Section 1102(a)(2) – (SBA Section 7(a)(36)(A) and (F)). Covered loans may become forgivable if used to pay:

• Payroll costs, including:
  • Salary, wages, commission, or similar compensation;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for dismissal or separation (severance packages);
  • Payment required for the provisions of group health care benefits, including insurance premiums;
  • Payment of any retirement benefit;
  • Payment of state or local tax assessed on the compensation of employees; and
  • Sole proprietor wages (but I don’t think this is relevant).
• Any payment of interest on any mortgage obligation;
• Any payment on any rent obligation (under a lease started before February 15, 2020); and
• Any covered utility payment (electric, gas, water, transportation, telephone, internet access for which service began before Feb. 15).

• Small businesses (with fewer than 100 employees): A 50% payroll tax credit on wages up to $10,000 per worker during the crisis;

• Businesses: A two-year deferral on the 6.2% social security tax employers and the self-employed pay on wages. The current bill mandates that half of the deferred amount must be paid by the end of 2021 and half must be paid by the end of 2022 (https://www.politico.com/news/2020/03/25/whats-in-stimulus-package-coronavirus-149282);

• Business NOLs: Losses that occurred in 2018, 2019 and 2020 can be carried back for 5 years with no application of the 80% limitation;

• Businesses and local governments: $454 billion in emergency lending provided that they retain 90% of their employees (as of March 24, 2020) and do not engage in stock buy-back.

The Department of the Treasury is expected to establish a process where almost all FDIC-insured banks can originate SBA loans. Treasury Secretary has also stated that he hopes to make the loan application process very simple with same-day disbursement (https://www.wsj.com/articles/how-to-apply-for-small-business-loans-under-the-coronavirus-stimulus-bill-11585235059).