The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act officially became law after being signed by President Trump on March 27, 2020. While many misunderstandings of the new relief package have started circulating the internet, it is the goal of Hopkins Centrich Law to educate and counsel our clients on the facts. The CARES relief package encompasses both temporary changes to existing laws, as well as new programs intended to ease the burden on individuals, businesses , and tax-exempt organizations. Please see the below breakdown as it applies to your situation.
The first significant change to discuss is the creation of the Paycheck Protection Program (“PPP”). The CARES Act amends Section 7(a) of the Small Business Act (“SBA”) to create the PPP to distributed up to $349 billion of loans to assist small businesses from February 15, 2020 to June 30, 2020 (“the covered period”).While the existing SBA structure remains largely unchanged, there have been some changes made in order to loosen eligibility requirements in some circumstancesand waive other requirements altogether.
In order to be eligible to apply for these loans, borrowers still need to be operating a “Small Business” as defined in the SBA. This is defined as not more than the greater of:
- 500 employees; or
- If applicable, the existing SBA size standard for the industry in which the borrower operates.
Only SBA-approved lenders may issue these loans, and a list of SBA-approved lenders may be found here:
These PPP loans do have restrictions as far as how the money can be spent. In general, covered expenses include payroll costs, leave benefits, interest on mortgage obligations, rent, utilities, and interest payments on debt obligations incurred prior to the covered period (February 15, 2020-June 30, 2020). The details of the program can be specific, so you should contact an attorney at Hopkins Centrich Law for more details.
Some other factors regarding the PPP loans:
- Will be required to certify that it is the uncertainty of current economic conditions which makes necessary the loan request to support their ongoing operations.
For those familiar with the “affiliations” rule under the SBA – that rule still applies to the new PPP loans with a few notable exceptions:
- Any small business (500 employees or less) in the accommodation and food sectors industry;
- Any small business operating as a franchise that is assigned a franchise identifier code by the SBA; and
- Any business concern that receives financial assistance from a company licensed under Section 301 of the Small Business Investment Act of 1958.
Some clients have asked if these loans can be forgiven? If so, how?
- The answer is partially.
Certain amounts of a PPP may be forgiven so long as a lender expects a borrower to expend during an 8-week period on the sum of any:
- Payroll costs;
- Payments of interest only on any covered mortgage obligations;
- Payments on any covered rent obligation; or
- Covered utility payments.
If you have questions as to whether any amount of your PPP loans are eligible for forgiveness, please reach out to an attorney at Hopkins Centrich Law.
The forgiven amounts, if any, will be considered cancelled indebtedness by the lender and any forgiven amounts will not be taxable to the borrower.
In order to seek loan forgiveness, a borrower must submit an application to their lender that contains the required information and certifications.
SBA Section 7(b)(2) Economic Injury Disaster Loans (“EIDL”) –
Additionally, the CARES Act includes provisions for what are known as “Economic Injury Disaster Loans”. For the duration of the covered period, the requirements for these loans, which can be found in the SBA Section 7(b)(2) are waived.
The CARES Act as a whole has set aside $10 billion towards emergency advances for those that apply for EIDL. These advances (of no more than $10,000), just like the PPP discussed earlier, have limits to what money can be used for – some of which are outlined below:
- Paid sick leave;
- Meeting increased costs to obtain materials unavailable from the applicant’s original source due to supply chain disruptions;
- Making rent or mortgage payments; and
- Repaying obligations that cannot be met due to revenue losses.
An important fact to be aware of regarding repayment:
Emergency Advances are NOT required to be repaid, even if the applicant is denied an EIDL afterwards. These emergency grants terminates at the end of the 2020 calendar year.