The CARES ACT
The anxiously awaited CARES Act was approved by Congress and signed by the President on Friday March 27. The Act is a complicated 854 pages long, with many ambiguities and gaps which will need clarification in the coming days as the responsible agencies issue regulations, guidelines and interpretations.
The Act contains numerous programs which are designed to aid businesses in connection with the economic losses and stress from the Covid-19 crisis. This potentially available federal assistance includes:
The Paycheck Protection Loan Program. Generally, this makes low-interest (not to exceed 4%) loans of up to 2.5 times average monthly payroll costs (based on the trailing 12 months, and in any event not to exceed $10M, with certain exclusions) available to employers with not more than 500 employees (or more if permitted under SBA size standards for their specific industry) to cover payroll costs, employee salaries, group health and certain other benefits (payment for vacation, sick leave, family or parental leave), rent, utilities, and interest payments on mortgage and other debt obligations (which were incurred prior to February 15, 2020). Eight (8) weeks of eligible costs may be forgiven.
Expansion and relaxation of rules for the Emergency Economic Injury Disaster Loan Program. This program provides low-interest (not to exceed 4%) loans of up to $2M to businesses with not more than 500 employees located in a “disaster area”, designated by the SBA. Funds may be used to:
- Provide paid sick leave to employees unable to work due to the direct effect of the COVID-19;
- Maintain payroll to retain employees during business disruptions or substantial slowdowns;
• Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
• Making rent or mortgage payments; and
• Repaying obligations that cannot be met due to revenue losses.
Loan funds may not be used to refinance indebtedness incurred prior to the disaster event, or make payments on account of other loans owned by a federal agency or a Small Business Investment Company, to pay certain tax obligations or penalties, to repair physical damage, or pay dividends or other disbursements to owners. Applicants may also seek up to $10,000 in emergency grant funding, which funds are not subject to repayment but may impact the amount forgiven for a payment protection program loan.
Mid-Sized Businesses Loan Program. Makes low interest loans available to business of 50-10,000 employees, subject to some additional restrictions.
Employee Retention Employment Tax Credit Program. This allows employers to take credits against employment taxes.
New Programs From New Jersey Economic Development Authority
In addition, New Jersey businesses may benefit from new programs established by the NJ Economic Development Authority (NJEDA) last Thursday. These include:
- Small Business Emergency Grant Program. This provides grants of up to $5,000 for certain types of businesses of 1-10 employees for payroll and working capital support.
- Small Business Emergency Loan Program. This provides for no/low interest loans from EDA of up to $100,000 to be used for operating expenses by businesses with annual revenues less than $5M.
- Small Business Emergency Guarantee Program. This program provides EDA guarantees of working capital loans from one of 24 specified lenders for businesses with annual revenues less than $5M.
NJEDA has also established a loan guarantee program in support of, and made additional funds for loans available to, 5 Community Development Financing Institutions to which small businesses may apply for relief.
It is important to act to determine if your business can benefit from any of these programs and strategically which ones best address your needs. Some of these programs are mutually exclusive so it is important for you to come up with an overall game plan now.
