Late on March 26th, the Senate passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which would allow small to medium-sized businesses to receive federal loans (some forgivable) to cover payroll and other expenses. It also expands unemployment benefits for workers impacted by the outbreak, while extending unemployment eligibility to many who are otherwise not regularly entitled to receive such benefits.  This Bill is not yet law; and the House is expected to vote on it Friday, March 27th.  If passed, it would then have to be signed by President Trump before it would become law.

Small Business Loan Parameters

  • Loans will cover payroll and other expenses from February 15th through June 30th;
  • Generally, businesses with less than 500 employees will be eligible (although there will likely be some limited exceptions for hospitals);
  • The loans may be used for payroll costs, healthcare, rent, utilities, and other debts incurred by the business;
  • Loan amounts will be available based on a formula.  The amounts available will be the lesser of: Average monthly payroll costs during the prior year x 2.5; or $10 million;
  • The federal government will forgive the loans in an amount equal to the amount of qualifying costs spent during an eight-week period after the origination of the loan. These qualifying costs include payroll costs (except of wages above $100,000 per employee), interest on secured debt obligations, and rent and utilities in place prior to February 2020.
  • The amount of the forgiveness for the loans will be reduced if the employer: reduces its workforce during the eight-week period compared to prior periods; or reduces the salary or wages paid to an employee by more than 25% during the 8-week period after loan origination(compared to the most recent quarter).

Additional Loans to Mid-Size Businesses

While not eligible for paycheck protection loans, mid-size businesses – those with 500 to 10,000 employees – are also eligible for direct loans under the Emergency Relief and Taxpayer protections portion of the CARES Act. For a business to receive this type of loan under the Act, it must make a “good-faith certification” that it will comply with certain requirements listed in the CARES Act. This certification will likely occur on a form provided as part of the application for the loan and the failure to comply with the certifications could result in the rescission of the loan.

Unemployment Insurance Provisions

The CARES Act also expands unemployment assistance by creating a Pandemic Unemployment Assistance program through December 31, 2020. For weeks of unemployment, partial unemployment, or inability to work caused by COVID-19 between January 27th and December 31st, the Act provides covered individuals with unemployment benefit assistance when they are not entitled to any other unemployment compensation or waiting period credit. For this, the weekly benefit amount is generally the amount determined under state law plus an additional $600 for up to 39 weeks (which is notably longer than the typical 26 weeks in most states).

The Act also expands unemployment to also cover those who traditionally are not eligible to receive such benefits. Specifically, this provision also covers those who are self-employed (like independent contractors), who are seeking part-time employment, who do not have enough work history, or otherwise would not qualify for regular unemployment or extended benefits if they meet a qualifying reason.

Stay Tuned for further updates on this legislation as it winds its way towards becoming law.