Access To Cash - Key Provisions Of The Cares Act

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act provides resources to assist business owners with relief amid the current COVID-19 pandemic. The CARES Act provides business owners with several options to access needed cash, including grants, loan forgiveness, and loans to cover payroll and other operating expenses.

The new legislation establishes different programs intended to address different business needs. This summary provides a roadmap to business owners in order to navigate the key requirements of these new laws.

If you are seeking a quick infusion of cash to stabilize your business, then the “Economic Injury Disaster Loans and Emergency Economic Injury Grants” would be a helpful resource.

If you currently have a Small Business Administration (SBA) loan and are seeking short-term relief from these loan payments, then the “Small Business Debt Relief Program” will provide assistance to your business.

If your business needs cash to cover working capital and the retention of employees, then the “Paycheck Protection Program” should provide you with the necessary relief.

Economic Injury Disaster Loans and Emergency Economic Injury Grants

Emergency grants and SBA Economic Injury Disaster Loans (“EIDL”) can be used in conjunction with each other to provide necessary cash to a business. Eligible businesses must first apply for an EIDL loan and then may request an advance via an emergency grant. Emergency grants are available for up to $10,000 to businesses, independent contractors and private non-profits. The funds should be available within three days of applying for an EIDL.

There is no repayment required on any advance of the emergency grant, even if the EIDL loan is denied. The advance may be used for paid sick leave, maintaining payroll to retain employees, rent or mortgage payments, or other obligations that cannot be met due to revenue losses. EIDLs have been a borrowing option through the SBA, but the CARES Act expanded eligibility for the period between January 31, 2020 and December 31, 2020.

  • The following businesses are eligible for an the expanded EIDL terms if they were operating since January 31, 2020:
    • Businesses with not more than 500 employees (including private nonprofit organizations);
    • Individuals operating as sole proprietorships, with or without employees;
    • Independent contractors;
    • Cooperatives and employee-owned businesses with not more than 500 employees; and
    • Tribal small business concerns.
  • To qualify for an EIDL under the CARES Act, the applicant must have suffered “substantial economic injury” from COVID-19.
  • EIDL loan amounts will be based on the actual economic injury, determined by the SBA, up $2 million.
  • The interest rate for EIDL loans is 3.75% for a small business and 2.75% for a non-profit with up to a 30-year term.
  • EIDLs under the CARES Act do not require personal guarantees for loans up to $200,000, but do require personal guarantees by owners of more than 20% of the borrower for loans in excess of $200,000.
  • The EIDL and any emergency grant obtained between January 31, 2020 and June 30, 2020 may be obtained in addition to applying for a Paycheck Protection Program (described below). However, any amount received in a grant will be deducted from the amount forgiven in the Paycheck Protection Program loan.

Small Business Debt Relief Program

This program provides immediate relief to small businesses with non-disaster SBA loans and microloans. This program can be attractive to a small business owner that is already indebted to third parties.

  • The SBA will pay the principal, interest, and fees for six months for certain covered loans, including the SBA’s 7(a) loan guaranty program that originated before the enactment date of the CARES Act.
  • This relief will also be available to new borrowers who take out loans within six months of March 27, 2020.
  • This subsidy excludes the Paycheck Protection Program and EIDLs.  

 Paycheck Protection Program (“Ppp”) Loans

PPP loans are 100% federally guaranteed loans for small businesses to allow companies to maintain their employees and allow for partial loan forgiveness. The PPP provides for up to $10 million in small business loans. Those eligible under this program will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. The loans are available to each entity once. This program would be retroactive to February 15, 2020, in order to help bring workers back onto payrolls, who may have already been laid off. Small businesses and sole proprietorships may begin the application process on April 3, 2020 and independent contractors and self-employed individuals may begin the application process on April 10, 2020. 

  • The following businesses are eligible for PPP loans, provided they were in operation on February 15, 2020:
    • Businesses with no more than 500 employees (including 501(c)(3) organizations and Veteran organizations under 501(c)(19));
    • Sole proprietors;
    • Independent contractors;
    • Certain self-employed individuals;
    • Businesses with more than one physical location, but fewer than 500 employees at each site, in certain industries; and
    • Tribal businesses described in section 31(b)(2)(C) of the Small Business Act with no more than 500 employees.
  • PPP loans are available until June 30, 2020 to cover the cost of:
    • Payroll (with some limitations for employees with salaries over $100,000)
    • Continuation of group health care benefits, including paid sick, family, or medical leave;
    • Insurance premiums;
    • Interest on any mortgage obligation;
    • Rent and utilities; and
    • Interest on other debt obligations incurred prior to the PPP loan.
  • The maximum loan available to each borrower is the lesser of $10,000,000 or 2.5 multiplied by its average monthly payroll costs.
  • SBA-approved lenders must offer a 6-12 month deferment on payment of PPP loan principal, interest and fees.
  • The loan amount shall not have an interest rate exceeding 4 percent.
  • The loan shall have a maximum maturity date of 10 years.
  • In limited circumstances, the CARES Act waives SBA “affiliation rules” with more guidance expected from the SBA. Generally, SBA “affiliation rules” would preclude a foreign or domestic subsidiary from receiving PPP loans and in some circumstances preclude a VC or PE-backed company from also receiving these loans.
  • Borrowers are eligible for loan forgiveness for amounts spent during the 8-week period after the loan origination date. Eligible costs include: certain payroll costs, rent, mortgage interest and utilities. Loan forgiveness can be reduced if borrower reduces employee headcount and payroll costs.

These three programs provide resources for small businesses to weather the COVID-19 storm over the coming weeks and months. While these programs are new and the details are voluminous, business owners should act now to try and secure capital for their businesses.

If you have any questions regarding these programs, please reach out to one of our attorneys:

Shareholders/Of Counsel Associates
Donica Forensich Carmen Aviles
Sepi Ghiasvand Case Collins
Gail Hashimoto Mitesh Patel
Mark Heyl Rayna Sparkes
Brendan Lund
Chiara Portner
Peter Stone

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