The Senate and House have passed the CARES Act which is a stimulus package for the nation and includes several important opportunities for small business to receive assistance. The law will be signed by the President shortly.
In this legislation, there are several relief programs for businesses. In particular, the Paycheck Protection Program provides small businesses with relief with potentially forgivable loans in an amount up to $10 million to support payments for payroll costs as well as certain operation costs and expenses. Here are some brief highlights of the pending Paycheck Protection Program:
Who Is Eligible?
Small businesses, nonprofit organizations and veterans’ organizations. The organization must have fewer than 500 employees or if applicable, fewer than the size standard established by the SBA for the industry in which the business operates. Please see: https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf. The term “employee” includes individuals employed on a full-time, part time, or other basis.
What Time Period Is The Relief For?
The “covered period” is 2/15/2020 to 6/30/2020 under the Act. What are the Loans?
Potentially forgivable loans in an amount up to $10 million from qualifying institutions to the eligible businesses identified above. The amount of the loan is a function of the business’ average total monthly payments for payroll costs incurred during the 1-year period before the date on which the loan is made multiplied by 2.5 and the outstanding amount of a loan under subsection (b)(2) of 15 U.S.C. 636 (i.e. SBA Disaster Loans) that was made during the period beginning on 1/31/20 and ending on the date on which loans are made available to be refinanced under the covered loan. A different methodology is used for businesses that were not in operation during the period beginning on 2/15/19 and ending 6/30/19.
What Can The Loan Be Used For?
The proceeds of the loan may be used for (1) payroll costs; (2) costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums; (3) employee salaries, commissions or similar compensations; (4) mortgage interest; (5) rent; (6) utilities; and (7) interest on any other debt obligations that were incurred before February 15, 2020.
How Can I Apply For The Loan?
The loans will be administered through local SBA lenders and “additional lenders determined by the [SBA] and Secretary of the Treasury to have the necessary qualifications to process, close, disburse and service loans made with the guarantee of the [SBA].” The Legislation provides delegated authority to lenders to make borrower eligibility determinations.
An eligible recipient must make a good faith certification (i) that the uncertainty of the current economic conditions makes necessary the loan request to support operations; (ii) acknowledging that funds will be used to retain workers and maintain payroll, to make mortgage payments, lease payments and utility payments; (iii) that the recipient does not have an application pending for a loan for the same purpose and duplicative of amounts applied for or received under covered loan; and (iv) during the period beginning on 2/15/20 and ending on 12/31/20, that the recipient has not received a loan for the same purpose and duplicative of amounts applied for or received under a covered loan.
How Is The Loan Forgiven?
A recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the 8-week period beginning on the date of origination of the loan: (a) payroll costs; (b) payments of interest on any covered mortgage obligation; (c) payments on any covered rent obligation; and (d) covered utility payments. The amount of forgiveness may not exceed the principal amount of the loan. Furthermore, forgiveness is reduced proportionally by any reduction in employees and/or a reduction in wages more than 25%. To obtain forgiveness, a recipient must submit an application directly to the lender verifying compliance.
What Can Businesses Do Now?
Consequently, businesses should contact their local bank as soon as possible and verify they are an SBA lender and what the bank’s process will be for issuing these loans. Since the authority is delegated to the bank, different banks may have different processes. You should contact your regular bank where you have an existing relationship as this may move the process faster.
In addition, businesses should gather their payroll and operation expenses from 2/15/2019 through 6/30/2019 to justify their request for relief.
Finally, to the extent it is sustainable, businesses should avoid laying off employees and instead take steps to maintain employees on their payroll as this program is passed and implemented.
Don’t Forget About New Jersey
New Jersey passed legislation today that will help many New Jersey businesses through grants and loans administered by the NJEDA. See the full release here: https://www.njeda.com/Press-Room/News-Articles/Press-Releases/NJEDA-Announces-New-Initiatives-to-Support-Busines
Federal Paid Sick Leave and Emergency FMLA Update
The US Department of Labor announced the effective date of the Federal Paid Sick Leave and Emergency FMLA will be April 1, 2020. Here is a link to the required posting from the DOL: https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf and the FAQs about posting: https://www.dol.gov/agencies/whd/pandemic/ffcra-poster-questions.
There are many other nuances to CARES Act and the Paycheck Protection Program and this is only a brief overview. Please reach out to discuss this legislation further so you will be prepared to move forward in seeking relief under the Act.
If you have any questions please contact Megan Knowlton Balne at 856.355.2936 or firstname.lastname@example.org.