Small business economic relief opportunities from the COVID-19 CARES Act

The U.S. Senate unanimously passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 on March 25, with more than $2 trillion in total relief and $350 billion in support for small businesses.

From an update by the global law firm Squire Patton Boggs, far and away the most robust of those programs include a new Paycheck Protection Program under section 7(a) of the Small Business Act and an expansion of the Small Business Administration’s (SBA’s) current Economic Injury Disaster Loan (EIDL) program, which the SBA is allowed to approve and offer based solely on an applicant’s credit score or “alternative appropriate methods” for determining an applicant’s ability to pay.

Another especially helpful resource is a $10 billion Emergency Grant Program. During the covered period, small businesses, nonprofits and agricultural cooperatives may request an emergency advance loan of up to $10,000 against an EIDL — with no requirement to repay that advance, even if the EIDL application is denied. Should the SBA certify the applicant eligible for the EIDL, the SBA is directed to provide the advance within three days after receiving the application.

Are you a small business?

No single SBA guideline defines what size a business must be to constitute a “small business.” But, factors that SBA takes into account vary by industry, with reference to the applicable “NAICS” Code for the borrower’s business, and may include:

• average annual revenue (depending on the industry, annual revenue may not exceed US$1 million or US$30 million); or
• average annual number of employees (depending on the industry, the maximum number of employees might be 250 or 1,500).

Under the CARES Act, the SBA will execute a new lending program, called the “Paycheck Protection Program,” which provides for expanded eligibility. For purposes of this program, determining whether a prospective borrower is a small business will turn on employee head count (and not a revenue cap). Additionally, the employee cap is the greater of 500 employees or the number of employees specified under the SBA’s existing regulations.

How does the law affect small businesses?

This first phase of COVID-19-related relief legislation removed regulatory hurdles and authorized the SBA to provide an estimated $7 billion in low-interest disaster loans to small businesses. To enhance the process, the legislation provides SBA $20 million to cover its costs in connection with that effort.

The law requires employers with fewer than 500 employees to provide two weeks’ worth of paid sick leave if employees are unable to work due to quarantine or isolation; are experiencing symptoms of COVID-19; or are caring for someone who is in quarantine or isolation and/or have children in schools that have closed. Employers themselves will receive tax credits to offset the costs of providing this paid leave. The law includes a provision that allows the Secretary of Labor to exempt small businesses with fewer than 50 employees from the paid leave requirements.

Through section 7(a) of the Small Business Act, the SBA will administer forgivable loans of up to $10 million per company to provide cash-flow assistance to employers who maintain their payroll during this emergency, help workers remain employed and enable affected small business to snap back after the crisis.

What can the loan be used for?

• Paid sick, medical or family leave;
• Costs related to continuation of group health care benefits during periods of leave;
• Employee salaries;
• Mortgage payments; and
• Any other debt obligations.

Note: The SBA will require lenders to provide complete payment deferment relief for a period of not more than one year.

What can the loan not be used for?

• Individual employee compensation over $100,000 per year;
• Compensation of an employee whose principal place of residence is outside the US; and
• Sick and family leave wages covered under the Families First Coronavirus Response Act.

Loans would be forgiven completely if employers maintain their payroll during the covered period (Feb. 15, 2020 – June 30, 2020). SBA application fees are waived. During the covered period (Feb. 15, 2020 – June 30, 2020), no collateral or personal guarantee shall be required for the loan.

Expansion of Economic Injury Disaster Loan Program

The Economic Injury Disaster Loan (EIDL) program is a currently available economic relief program administered by the Small Business Administration. SBA is working with state governors through its network of 68 District Offices to manage this loan program. Under the bill, the SBA’s authority to carry out this expanded program will end on Dec. 31, 2020.

The CARES Act expands SBA’s EIDL program for a covered period of Jan. 31, 2020, to December 2020, and authorizes an additional $10 billion for its use to help small businesses against COVID-19. An Emergency Grant is established to let an eligible entity who has applied for an EIDL loan due to COVID-19 to request an advance on that loan, of not more than $10,000, which SBA must distribute in three days. Also established is an ability for applicants not to be required to repay advance payments, even if subsequently denied for an EIDL.

Eligible are:

• Tribal businesses, cooperatives and Employee Stock Ownership Plans (ESOPs) with 500 or fewer employees;
• Sole proprietorships and independent contractors during the covered period (Jan. 31, 2020 – Dec. 31, 2020); and
• Private nonprofits.

The owner might want to review his/her current insurance policies, other assistance programs and his/her currently existing banking relationships to determine whether obtaining SBA assistance under these circumstances can adversely affect current financing agreements and arrangements. Also, it is advised that the owner contact his/her insurance agent to review his/her policy; determine whether the concern is insured for business interruption; understand exactly what it is covered for under these circumstances; determine whether collateral sources of recovery are available; and develop an overall plan for maintaining its business operations through the entire crisis.

How do companies apply?

Under legislatively revised criteria, once a state becomes a declared disaster area, small businesses, private nonprofits, homeowners and renters can seek an EIDL by applying online. SBA Disaster Assistance Customer Service can be contacted at (800) 659-2955 (TTY: (800) 877-8339) or by email at disastercustomerservice@sba.gov.

For more information go to the full report from Squire Patton Boggs at squirepattonboggs.com/-/media/files/insights/publications/2020/03/current-economic-relief-opportunities-for-us-small-businesses-impacted-by-the-covid-19-outbreak-in-the-cares-act/currenteconomicreliefopportunitiesalert.pdf.