The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, provides significant relief provisions for small businesses. This client alert briefly summarizes certain provisions of a newly-created loan program—the “Paycheck Protection Program”—which may help your business weather this storm. Given this subject’s urgency and the complexity of the Act, this is simply a short summary to provide you a starting point for exploring relief which may be available to you. Check with your attorney at ECJ for the critical details governing any aspect of the CARES Act which may be helpful to you. 

NOTE: Other loans may be available to your business under the CARES Act’s expansion of the Economic Impact Disaster Loans program, which is summarized in a separate client alert available here: CARES Act: Economic Injury Disaster Loans 

The Paycheck Protection Program provides loans, on favorable terms and with repayment deferrals and limited forgiveness, which can be used during the period from February 15 through June 30, 2020 (the “Covered Period”) for employment and other qualified costs:

• Eligible Businesses: In general, any company that employs 500 or fewer employees (or more for industries with larger SBA size standards). 
• Use of Loan Proceeds: For certain qualified costs, including: (i) payroll costs (e.g., vacation, parental, family, medical, sick leave; allowances for dismissal or separation; payments for group health care benefits; retirement benefits), (ii) compensation (excluding individual’s salary amounts over $100,000 annually), (iii) continuation of health care benefits, (iv) rent, (v) utilities, and (vi) interest (not principal) on mortgage and other business debt existing before the Covered Period.
• Maximum Loan Amount: The lesser of (i) 2.5 X the average total monthly payroll costs incurred during the 1-year period before the loan date (not counting any portion of an employee’s salary over $100,000 annually), or (ii) $10 million.
• No Guarantee, No Collateral: No personal guarantees or collateral are required. These loans are government-guaranteed.
• Terms: Interest rate of no more than 4.0%; no borrower fees; maturity date up to 10 years.
• Debt Service Deferral: Debt service payments may be deferred for at least six months, and up to one year in accordance with SBA Guidelines to be published by late April.
• Loan Forgiveness: Borrowers are eligible for loan forgiveness equal to the amount incurred and spent during the eight weeks following the origination date on (i) payroll costs (for those making more than $100,000, not including amounts over that limit), (ii) rent, (iii) utilities, and (iv) interest on a mortgage. BUT, to get the full forgiveness, the business must generally maintain the same number of employees during the covered period (subject to certain exceptions) and must not reduce the wages of any employee making less than $100,000 per year in excess of 25% for any employee; otherwise, the amount forgiven will be ratably reduced. Pursuant to preliminary guidance issued by the Treasury Department, it is anticipated that a maximum of 25% of the forgiven amount may be for non-payroll costs.
• Underwriting: No credit history or testing, tax returns or financial statements required. Two criteria: business (i) was operating on February 15, 2020, and (ii) paid payroll and payroll taxes.
• Where to Apply: The SBA will expand beyond its existing Section 7(a) lenders to include additional lenders, but that’s in process so check with your bank.