COVID-19 CARES Act
Executive Summary of the CARES Act. Our firm prepared an executive summary of the most significant provisions of the CARES Act, signed into US law on March 27, 2020, which is available here. This PowerPoint presentation expands on our CARES Act FAQs that appear below.
Living with a PPP Loan (Part II). This PowerPoint presentation will provide an overview of Paycheck Protection Program (“PPP”) loan forgiveness, documents you will need to prepare, and pitfalls to avoid to ensure your loan is forgiven.
Living with a PPP Loan - Staying in Compliance and Maximizing Forgiveness. This PowerPoint presentation outlines questions with respect to the Paycheck Protection Program (“PPP”).
Update On PPP Loans - Major Change to Employee Counting Rules and Due Date Extension. The Small Business Administration (“SBA”) issued important new guidance, changing the rules for counting employee towards the 500-employee limit and extending the due date for the repayment of Paycheck Protection Program (“PPP”) loans. This client alert explains the new guidelines and related considerations.
Main Street Loan Facilities. On April 30, 2020, the Treasury Department released FAQs and term sheets for its previously announced Main Street Lending Program, designed to support lending to small and medium-sized businesses impacted by the COVID-19 pandemic. The Program will operate through three facilities: the Main Street New Loan Facility, the Main Street Priority Loan Facility, and the Main Street Expanded Loan Facility. This client alert describes the terms of these three new loan programs.
Paycheck Protection Program Loans Capped at $20 Million per Single Corporate Group. In new guidance issued on April 30, 2020, the Small Business Administration (“SBA”) stated that businesses that are part of a “single corporate group” may not receive Paycheck Protection Program (”PPP”) loans exceeding $20 million in the aggregate for the “single corporate group.” This cap is effective immediately with respect to any PPP loan that has not been fully disbursed by April 30, 2020. This client alert explains the new guidelines and related considerations.
Paycheck Protection Program Update – SBA Adds New Restrictions on Access. On April 23, 2020, the Small Business Administration issued new guidance apparently intended to severely restrict access to Paycheck Protection Program (PPP) loans. Although apparently issued in response to large PPP loans made to several publicly traded companies, the new guidance is not limited to public companies and applies to all PPP loan applicants. This client alert explains the new guidelines and related considerations.
"Main Street” Loan Facilities under the CARES Act. On April 9, 2020, the Federal Reserve announced the details of a new program established under the CARES Act, the Main Street Lending Program, intended to assist small and medium-sized businesses impacted by the COVID-19 pandemic by making up to $600 billion in loans available for eligible borrowers. The program is designed for businesses with up to 10,000 employees or up to $2.5 billion in 2019 revenues. This client alert summarizes the terms of the loans available under this new program.
The CARES Act – Opening Day Update on Paycheck Protection Program Loans. On Friday, April 3, the Small Business Administration (“SBA”) opened the window for loan applications under the Paycheck Protection Program ("PPP") established under the CARES Act. During the overnight hours just before starting the intake process, the SBA also released a revised PPP loan application form and additional regulatory guidance with important new information. The client alert analyzes the early PPP loan results as announced by the Treasury and the revised loan application and the additional regulatory guidance.
SBA Loans Available under the CARES Act (Updated April 4, 2020). The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a $2.2 trillion economic relief package enacted to provide financial assistance to U.S. individuals and businesses in response to the impact of the COVID-19 pandemic. Among the key features of the relief package are the creation of the Paycheck Protection Program (PPP), a $349 billion Small Business Administration (SBA) loan guarantee program, designed to help small businesses keep employees on the payroll and meet other necessary expenses, and the expansion of the types of borrowers eligible to apply for Emergency Injury Disaster Loans (EIDLs). This client alert discusses the loans available under the CARES including the Paycheck Protection Program, loan forgiveness available under the PPP, and the expansion of the EIDL program.
FAQs Regarding the PPP
Q1:What is the Paycheck Protection Program (“PPP”)?
A1: The CARES Act establishes a forgivable loan program under Section 7(a) under the Small Business Act (15 U.S.C. § 636). Under the PPP, an eligible borrower can borrow up to $10 million to pay covered payroll and other operational costs.
Q2: Who is an “Eligible Borrower” under the PPP?
A2: Any employer (including Section 501(c)(3) and other non-profit organizations) with 500 or fewer employees can borrow under the PPP. In addition, employers with more than 500 employees can borrow under the PPP if they can qualify under the general guidelines established by the Small Business Administration (“SBA”). When determining employee count, note that the CARES Act loosens the affiliation rules for businesses in the hospitality and restaurant industries (NAICS Codes beginning with 72) and businesses that receive financial assistance from a licensed Small Business Investment Company.
Q3: What if my business started after February 15, 2020 or if my business has no employees?
A3: You are not eligible to borrow under the PPP.
Q4: What is the formula for determining how much an employer can borrow under a PPP loan?
A4: An Eligible Borrower can borrow an amount equal to 2.5 times the Eligible Borrower’s Qualified Payroll Costs (as discussed in Q&A-5), up to a maximum of $10 million.
Q5: What are “Qualified Payroll Costs”?
A5: “Qualified Payroll Costs” are the total average monthly Payroll Costs paid by an Eligible Borrower during the one-year period ending on the PPP loan origination date. This formula is subject to adjustment for (i) borrowers that are seasonal employers, (ii) borrowers that were not in business during the period from February 15, 2019 through June 30, 2019 and (iii) borrowers with certain SBA loans made during the period beginning on January 31, 2020, and ending on the date on which covered loans are made available to be refinanced under the covered loan.
Q6: What are “Payroll Costs”?
A6: Payroll Costs include employee compensation, which includes healthcare costs, severance, retirement benefits, sick pay, vacation pay and other similar items.
Q7: What can an Eligible Borrower pay with the proceeds borrowed under a PPP loan?
A7: Even though the principal amount is calculated solely based on Payroll Costs, an Eligible Borrower can use loan proceeds to make payments for the following uses (“Permitted Uses”): Payroll Costs (subject to the income limitation discussed in Q&A-8), health care benefits, rent for real or personal property, utilities, interest on any mortgage and interest on any other debt incurred before February 15, 2020.
Q8: Are there any employee income limitations on the use of loan proceeds to pay Payroll Costs?
A8: An Eligible Borrower can use loan proceeds to pay any employee, without regard to annual compensation. However, no more than $37,500 can be used to pay an employee making more than $100,000 per year.
Q9: What is the maximum maturity of that portion of a PPP loan that is not forgiven?
A9: Unless forgiven (as discussed in Q&A-10), a PPP loan has a term of ten years, with interest at up to 4 percent. An Eligible Borrower has the ability to defer all principal and interest payments for at least six months.
Q10: How does loan forgiveness work?
A10: Principal and the underlying interest on a PPP loan will be canceled if and to the extent that an Eligible Borrower makes Cancellation Payments (as defined below) during the 8-week period (the “Covered Period”) beginning on the loan origination date. “Cancellation Payments” include payments of (a) Payroll Costs, (b) interest payments on secured obligations (real or personal property) incurred prior to February 15, 2020, (c) rent payments on real or personal property leases entered into prior to February 15, 2020 and (d) utility payments on services started prior to February 15, 2020.
The Cancellation Payments will be reduced if the Eligible Borrower engages in a disqualifying workforce or wage reduction, thereby proportionally decreasing the amount of the Cancellation Payments. After taken into account any Cancellation Payments (as adjusted for any disqualifying workforce or wage reductions), the unforgiven portion of the PPP loan is subject to the repayment terms outlined in Q&A-9.
Q11: How does a workforce reduction reduce Cancellation Payments?
A11: It appears that the PPP drafters intended to reduce Cancellation Payments (and therefore the amount of loan forgiveness) in proportion to any workforce reduction, based on the percentage reduction in workforce (unless rehired by June 30, 2020) determined by comparing the average number of full-time employees during the Covered Period to the average number of full-time equivalent employees during one of two alternative base periods chosen by the Eligible Borrower (either the period beginning on February 15, 2019, and ended on June 30, 2019, or the period beginning on January 1, 2020 and ending on February 29, 2020). However, the statutory language appears to contain a drafting error that excessively reduces the Cancellation Payments by miscalculating the proper reduction ratio.
Q12: How does a wage reduction reduce Cancellation Payments?
A12: If an employee making $100,000 or less suffers a wage decrease of more than 25 percent during the Covered Period (as compared to the last full calendar quarter prior to the Covered Period), the amount of the wage reduction for the Covered Period (but only to the extent in excess of the 25 percent reduction) reduces the amount of the Cancellation Payments.