On Friday, March 27, 2020, the U.S. House of Representatives passed, and President Trump signed into law, House Resolution 748, known as the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act”, which was previously passed by the U.S. Senate, after significant amendment, on Wednesday, March 25, 2020. The full text of the CARES Act is available here.
The CARES Act aims to address the economic disruption caused by the COVID-19 pandemic and authorizes up to $2 trillion in government spending to accomplish that goal. This alert outlines some of the main provisions of the CARES Act that impact U.S. businesses adversely impacted by the COVID-19 pandemic and its resulting restrictions on the activities of individuals and businesses.
Key Provisions of the CARES Act in Short:
- Keeping American Workers Paid and Employed Act. (Comprises Section A of the CARES Act.) (A) Expands certain protections for borrowers under loan programs administered by the Small Business Administration (the “SBA”) under Section 7(a) of the Small Business Act and establishes the Paycheck Protection Program (the “PPP”), which will authorize the SBA to provide guarantees for loans to businesses of not more than 500 employees (“small businesses”) for authorized purposes, including payment of payroll costs, healthcare benefits, insurance premiums, salaries, mortgage interest, rent, utilities, and interest on previously incurred debt obligations. The CARES Act provides for limited loan forgiveness during the stated covered period of payroll costs, mortgage interest, rent obligations, and utility payments. (B) Provides advance payment of up to $10,000 to eligible applicants that have applied for Economic Injury Disaster Loans (“EIDL”), which are to be funded within 3 days of application. These advance payments need not be repaid, regardless of whether an EIDL is awarded. The EIDL eligibility requirements and approval process have also been expanded and expedited. (C) Provides a subsidy available to borrowers who have existing SBA loans, where the SBA will pay the principal, interest and associated fees owed on covered loans for a six-month period starting on the next payment due. (D) Increases the maximum indebtedness limit for companies seeking to become a debtor under the Small Business Reorganization Act under Chapter 11 of the U.S. Bankruptcy Code to $7.5 million and excludes coronavirus-related federal aid from the definition of “income” under Chapters 7 and 11 of the U S. Bankruptcy Code.
- Assistance for American Workers, Families and Businesses. Provides assistance to individual workers, their families and business in multiple ways. Unemployed individuals will receive additional federal unemployment benefits on top of their existing state benefits. The most notable form of individual assistance is that individuals with adjusted gross income up to $75,000 ($150,000 married couple), who are not dependents of other taxpayers and who have a work eligible social security number, are eligible for a $1,200 ($2,400 married couple) rebate with an additional $500 per dependent child. These payments will reduce in phases for individuals making more than $75,000 and will completely phase out for individuals making more than $99,000 ($198,000 married couple). Additionally, assistance will be provided to eligible businesses affected by the COVID-19 crisis in the forms of payroll tax credits and accounting or tax modifications, which are intended to provide access to much needed cash flows and liquidity.
- Economic Stabilization and Assistance to Severely Distressed Sectors of the U.S. Economy. Allocates $500 billion to the Treasury’s Exchange Stabilization Fund (the “Stabilization Fund”) to provide loans, loan guarantees and other investments to businesses, states and municipalities needing economic relief under the COVID-19 pandemic. The Stabilization Fund specifically allocated $46 billion to passenger air carriers, cargo air carriers and businesses important to maintaining national security, with the remaining $454 billion available to fund loans to businesses, states and municipalities needing economic relief.
The timeline for when these programs become available to companies is not yet known. Current thinking is that, over the next couple weeks, the Board of Governors of the Federal Reserve System, the SBA, and others federal agencies will be creating rules and regulations that govern how these loans are administered. These rules and regulations will hopefully answer many questions that exist with respect to this sweeping economic legislation. Additionally, there are still a number of questions on the types of companies that will qualify for each of these programs. Again, without further guidance from the various federal agencies, there is little to go on. Though details and timing are still unclear, there are already discussions about a potential passage of a fourth phase of Congressional legislation to further address and target economic stimulus, but with both houses of Congress now in recess timing and momentum on these efforts are still to be determined.
Read more here for our detailed explanation of these programs.
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