Founder and Managing Partner
Yesterday evening, the United States Senate passed the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act.” The bill is expected to be taken up for a vote in the House of Representatives tomorrow morning by voice vote at 9 AM EDT, and President Trump has indicated that he would sign the bill when passed.
Summary of bill as provided by the U.S. Senate
This bill addresses economic impacts of, and otherwise responds to, the COVID-19 (coronavirus) outbreak.
The bill authorizes emergency loans to distressed businesses, including air carriers, and suspends certain aviation excise taxes. With respect to small businesses, the bill
- establishes, and provides funding for, forgivable bridge loans; and
- provides additional funding for grants and technical assistance.
The bill also provides funding for $1,200 tax rebates to individuals, with additional $500 payments per qualifying child. The rebate begins phasing out when incomes exceed $75,000 (or $150,000 for joint filers).
The bill establishes limits on requirements for employers to provide paid leave.
With respect to taxes, the bill
- establishes special rules for certain tax-favored withdrawals from retirement plans;
- delays due dates for employer payroll taxes and estimated tax payments for corporations; and
- revises other provisions, including those related to losses, charitable deductions, and business interest.
With respect to health care, the bill
- provides additional funding for the prevention, diagnosis, and treatment of COVID-19;
- limits liability for volunteer health care professionals;
- prioritizes Food and Drug Administration (FDA) review of certain drugs;
- allows emergency use of certain diagnostic tests that are not approved by the FDA;
- expands health-insurance coverage for diagnostic testing and requires coverage for preventative services and vaccines;
- revises other provisions, including those regarding the medical supply chain, the national stockpile, the health care workforce, the Healthy Start program, telehealth services, nutrition services, Medicare, and Medicaid.
With respect to education, the bill
- temporarily suspends payments for federal student loans; and
- otherwise revises provisions related to campus-based aid, supplemental educational-opportunity grants, federal work-study, subsidized loans, Pell grants, and foreign institutions.
The bill also authorizes the Department of the Treasury to temporarily guarantee money-market funds.
Title 1 of the CARES Act
“Keeping American Workers Paid and Employed Act.”
Title 1 of the CARES Act is referred to as the “Keeping American Workers Paid and Employed Act.” Below are some sections of the “Keeping American Workers Paid and Employed Act” that are of particular note.
Section 1102 – Paycheck Protection Program
In Section 1102, referred to as the Paycheck Protection Program, there is expanded eligibility for SBA loans for specified uses.
Specifically, for the “covered period” from February 15, 2020 to June 30, 2020, the bill authorizes SBA loans to be made to any business concern, private nonprofit organization, or public nonprofit organization (among other organizations) which employs not more than 500 employees in addition to “small business concerns.” (A “small-business concern” is defined in the Small Business Act as including “enterprises that are engaged in the business of production of food and fiber, ranching and raising of livestock, aquaculture, and all other farming and agricultural related industries….”)
It also provides eligibility for businesses in certain industries -- including, among others, automotive repair and maintenance and specified hospitality related business (i.e. business assigned North American Industry Classification System code of 72 or higher) -- with more than one location that employs no more than 500 employees per physical location as well as sole-proprietors, independent contractors and other self-employed individuals.
For purposes of the CARES Act, the term “employee” shall mean those employed on a “full-time, part-time, or other basis.”
The loans may be used for (a) payroll costs, (c) costs related to the continuation of group health care benefits during those periods of paid sick, medical, or family leave and insurance premiums; (c) employee salaries, commissions or other similar compensation; (d) payments of interest on any mortgage obligation, (e) rent (including rent under a lease agreement); (f) utilities; and (g) interest on other debt obligations that were incurred before the covered period.
The maximum amount of the loan available is “the average total monthly payments by the applicant for payroll costs incurred during the 1-year before the date on which the loan made” -- except for employers deemed to be seasonal employers, in which case it shall be the average total monthly payments by the applicant for payroll costs incurred during the 12-week period beginning February 15, 2019 or the period of March 1, 2019 to June 30, 2019, at the election of the applicant (with some accommodations for employers not in business during those periods) -- multiplied by 2.5 – or $10,000,000, whichever is less. Interest on such loans is capped at 4 percent.
Borrowers will be required to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19 to support ongoing operations of the eligible recipient, that they will use the funds to retain workers and maintain payroll or make mortgage or lease payment and/or utility payments and that they are not receiving duplicative funds for the same uses from another SBA program.
In evaluating the eligibility of a borrower for a SBA loan under this section, the lender is to consider whether the borrower -- (i) was in operation on February 15, 2020; and (ii) had employees for whom the borrower paid salaries and payroll taxes and/or had paid independent contractors. Borrowers may be eligible for deferment of loan repayment, including payment of principle, interest and fees, for at least 6 months but not more than 1 year.
This section of the bill also provides for a waiver of requirements for personal guarantees or collateral for the loans. This section also waives the requirement that the applicant show they were unable to obtain credit elsewhere.
Section 1106 – SBA Loan Forgiveness
In Section 1106, the bill provides for loan forgiveness, with specified limitations, equal to the amount spent by the borrower during an 8-week period after the date of the loan on payroll costs, mortgage interest payments (on a mortgage incurred prior before February 15, 2020), payment of rent on any lease (which was in effect before February 15, 2020) and payment on any utility (for services that began before February 15, 2020). Amounts forgiven may not exceed the principal amount of the loan.
The amount that can be forgiven will be reduced as a result of a reduction in personnel and or employee compensation. In particular, the amount of the forgiveness will be reduced “by the quotient obtained by dividing the average number of full-time equivalent employees per month employed by the eligible recipient during the covered period” by (at the election of the borrower) either “the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019;” or “the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on January 1, 2020 and ending on February 29, 2020…”
The amount of loan forgiveness under this section shall also be reduced “by the amount of any reduction in total salary or wages of any employee… during the covered period that is in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.” (An “employee” within the meaning of this provision is “any employee who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.”)
However, the bill creates an exception to the above loan forgiveness reductions to encourage employers to rehire any employees who have been laid off or their salaries reduced due to the COVID-19 crisis, in the period of February 15, 2020 until 30 days after the enactment of the bill, provided the employer “has eliminated the reduction” in employees or salaries prior to June 30, 2020.
Forgiveness of loans pursuant to this provision will not be included as taxable income to the borrower.
Section 1110 – Access to Economic Injury Disaster Loans (EIDL)
In Section 1110, the bill provides eligibility for access to Economic Injury Disaster Loans (EIDL) to “eligible entities” (defined to include, among other entities, businesses, cooperatives, ESOPs and tribal small business concerns with fewer than 500 employees as well as any sole proprietor or independent contractor) during the covered period (January 31, 2020 to December 31, 2020).
This section of the bill provides for a waiver of personal guarantees on any EIDL advances and loans below $200,000. This section also waives requirements that the applicant “be in business for the 1-year period before the disaster” (provided it was in business prior to January 31, 2020) and waives the requirement that the applicant show they were unable to obtain credit elsewhere.
During the covered period, this section allows SBA to approve and offer EIDL loans based solely on an applicant’s credit score, without requiring the submission of tax returns, or use an alternative appropriate alternative method for determining applicant’s ability to repay.
Applicants who seek an EIDL loan due to the COVID-19 crisis may request an advance on that loan of not more than $10,000, which the SBA must distribute within 3 days, provided that the advanced funds are used for specified allowable purposes. Applicants shall not be required to repay advance payments even if they are subsequently denied an EIDL loan.
Section 1112 – Subsidy for SBA Loan Repayments
In Section 1112, the bill sets up a “subsidy” for certain SBA loan repayments, including loans issued up to six months after enactment of the bill, but specifically excludes the loans issued pursuant to the above Section 1102.
The “subsidy” provision provides for the SBA to pay the principal, interest and any associated fees owed on the covered loans for a period of 6-months beginning with the next payment due. Loans that are already on deferment will receive 6 months of payments by the SBA, beginning with the first payment after the deferral period.
Title 2 of the CARES Act
“Relief For Workers Affected By the Coronavirus Act”
The “Relief for Workers Affected by the Coronavirus Act,” which is a part of the stimulus package, expands who is eligible for unemployment, the time period benefits are available, and the amount of benefits that will be paid.
The period of eligibility for unemployment benefits is expanded from 13 weeks to 39 weeks.
The amount that individuals receive has been substantially increased for four months of the eligibility period, with individuals receiving an extra $600 a week on top of the unemployment benefits their state provides.
After the four month period the payments will be at the level that state unemployment provides for.
The legislation also expands the scope of those that are eligible to receive benefits to include those previously employed part-time and the self-employed. Including the self-employed captures gig economy workers such as Uber and Lyft drivers.
In addition to unemployment benefits this act includes the much talked about one-time payment of $500 for each child under the age of 18, and $1,200 per adult for those making less than $75,000 as an individual, and couples making less than $150,000. Those amounts are reduced progressively, with those making more than $99,000 as an individual receiving nothing.
The CARES Act is on its way to the House for a vote and the President promised to sign it. However, the bill is still subject to change. We will keep you updated on any changes and how they will impact you and your dealership.