COVID-19: Economic Relief Plan for Small Businesses

Keeping American Workers Paid and Employed Act

The Keeping American Workers Paid and Employed Act is Division A of the Coronavirus Aid, Relief, and Economic Security Act (CARES ACT).  The CARES Act is 880 pages long, consisting of several different Divisions and Titles:

A. Division A—Keeping Workers Paid and Employed, Health Care System Enhancements, and Economic Stabilization

  1. Title I—Keeping American Workers Paid and Employed Act, which includes paycheck protection and loan forgiveness, and small business contracting relief.
  2. Title II—Assistance for American Workers, Families, and Businesses, which includes unemployment insurance and tax relief.
  3. Title III—Supporting America’s Health Care System in the Fight Against the Coronavirus, which includes provisions related to medical supplies, health care coverage, and paid sick and family medical leave.
  4. Title IV—Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy, including relief to airlines, financial institutions, and sectors critical to national security.
  5. Title V—Coronavirus Relief Funds
  6. Title VI—Miscellaneous Provisions

B. Division B—Emergency Appropriations for Coronavirus Health Response and Agency Operations

The following is a summary of Division A regarding a few of the more important sections of the economic relief plan for small businesses:

Section 1102: Paycheck Protection Program

  • Increases the government guarantee of loans made for the Payment Protection Program under section 7(a) of the Small Business Act to 100% through December 31, 2020.
  • Includes sole-proprietors, independent contractors, and other self-employed individuals as eligible for loans.
  • Allow businesses with more than one physical location that employs no more than 500 employees per physical location in certain industries to be eligible and is below a gross annual receipts threshold in certain industries to be eligible.
  • Waives affiliation rules for businesses in the hospitality and restaurant industries, franchises that are approved on the SBA’s Franchise Directory, and small businesses that receive financing through the Small Business Investment Company (SBIC) program.
  • Defines the covered loan period as beginning on February 15, 2020 and ending on June 30, 2020
  • Establishes the maximum 7(a) loan amount to $10 million through December 31, 2020 and provides a formula by which the loan amount is tied to payroll costs incurred by the business to determine the size of the loan.
  • Specifies allowable uses of the loan include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.
  • For eligibility purposes, requires lenders to, instead of determining repayment ability, which is not possible during this crisis, to determine whether a business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor.
  • Provides a limitation on a borrower from receiving this assistance and an economic injury disaster loan through SBA for the same purpose. However, it allows a borrower who has an EIDL loan unrelated to COVID-19 to apply for a PPP loan, with an option to refinance that loan into the PPP loan. The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.
  • Requires eligible borrowers to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; they will use the funds to retain workers and maintain payroll, lease, and utility payments; and are not receiving duplicative funds for the same uses from another SBA program.
  • Waives both borrower and lender fees for participation in the Paycheck Protection Program.
  • Waives collateral and personal guarantee requirements under this program.
  • Outlines the treatment of any portion of a loan that is not used for forgiveness purposes. The remaining loan balance will have a maturity of not more than 10 years, and the guarantee for that portion of the loan will remain intact.
  • Sets a maximum interest rate of four percent.
  • Ensures borrowers are not charged any prepayment fees.
  • Increases the government guarantee of 7(a) loans to 100% through December 31, 2020, at which point guarantee percentages will return to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.
  • Allows complete deferment of 7(a) loan payments for at least six months and not more than a year, and requires SBA to disseminate guidance to lenders on this deferment process within 30 days.
  • Requires the Administrator to provide a lender with a process fee for servicing the loan. Sets lender compensation fees at five percent for loans of not more than $350,000; three percent for loans of more than $350,000 and less than $2,000,000; and one percent for loans of not less than
    $2,000,000.
  • Includes a sense of the Senate for the Administrator to issue guidance to lenders and agents to ensure that the processing and disbursement of covered loans prioritizes small business concerns and entities in underserved and rural markets, including veterans and members of the military community, small business concerns owned and controlled by socially and economically disadvantaged individuals.
  • Provides an authorization level of $349 billion for the 7(a) program through December 31, 2020. Increases the maximum loan for a SBA Express loan from $350,000 to $1 million through
    December 31, 2020, after which point the Express loan will have a maximum of $350,000.

Section 1103: Entrepreneurial Development

Authorizes SBA to provide additional financial awards to resource partners (Small Business Development Centers and Women’s Business Centers) to provide counseling, training, and
education on SBA resources and business resiliency to small business owners affected by COVID-19.

Authorizes SBA to provide an association or associations representing resource partners with grants to establish: (i) one online platform that consolidates resources and information available across multiple Federal agencies for small business concerns related to COVID–19; and (ii) a training program to educate Small Business Development Center, Women’s Business Center, Service Corps of Retired Executives, and Veteran’s Business Outreach Center counselors on the various federal resources available to ensure counselors are directing small businesses appropriately.

Section 1106: Loan Forgiveness

  • Establishes that the borrower shall be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.
  • Amounts forgiven may not exceed the principal amount of the loan. Eligible payroll costs do not include compensation above $100,000 in wages. Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages.
  • Payroll costs plus any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation + and any covered utility payment.
  • The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
  • Allows forgiveness for additional wages paid to tipped workers.
  • Canceled indebtedness resulting from this section will not be included in the borrower’s taxable income.
  • Upon a lender’s report of an expected loan forgiveness amount for a loan or pool of loans, the SBA will purchase such amount of the loan from the lender.
  • Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest. The 100% loan guarantee remains intact.

Section 1107: Direct Appropriations

This section appropriates funds for the following uses:

  • $349 billion for loan guarantees;
  • $675 million for Small Business Administration salaries and expenses;
  • $25 million for the Office of Inspector General;
  • $240 million for small business development centers and women’s business centers for technical assistance for businesses;
  • $25 million for resource partner associations to provide online information and training;
  • $10 million for minority business centers for technical assistance for businesses;
  • $10 billion for emergency EIDL grants;
  • $17 billion for loan subsidies;
  • $25 million for Department of Treasury salaries and expenses; and
  • $100 billion for secondary market guarantee sales.

Section 1108: Minority Business Development Agency

Authorizes $10 million for the Minority Business Development Agency within the Department of Commerce to provide grants to Minority Business Centers and Minority Chambers of
Commerce for the purpose of providing counseling, training, and education on federal resources and business response to COVID-19 for small businesses.

Eliminates the Minority Business Center program’s non-federal match requirement for a period of three months and allows for centers to waive fee-for-service requirements through September
2021.

Section 1110: Emergency EIDL Grants

  • Expands eligibility for access to Economic Injury Disaster Loans (EIDL) to include Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees or any individual operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020 to December 31, 2020). Private non-profits are also eligible for both grants and EIDLs.
  • Requires that for any SBA EIDL loans made in response to COVID-19 before December 31, 2020, the SBA shall waive any personal guarantee on advances and loans below $200,000, the requirement that an applicant needs to have been in business for the 1-year period before the disaster, and the credit elsewhere requirement.
  • During the covered period, allows SBA to approve and offer EIDL loans based solely on an applicant’s credit score, or use an alternative appropriate alternative method for determining applicant’s ability to repay.
  • Establishes an Emergency Grant to allow 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 the SBA must distribute within 3 days.
  • Establishes that applicants shall not be required to repay advance payments, even if subsequently denied for an EIDL loan.
  • In advance of disbursing the advance payment, the SBA must verify that the entity is an eligible applicant for an EIDL loan. This approval shall take the form of a certification under penalty of perjury by the applicant that they are eligible.
  • Outlines that advance payment may be used for providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.
  • Requires that an advance payment be considered when determining loan forgiveness, if the applicant transfers into a loan made under SBA’s Paycheck Protection Program.

More information and update will follow.

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