What the CARES Act Means for Your Small Business

On Friday, March 27, 2020, “The Coronavirus Aid, Relief and Economic Security Act” or the “CARES Act”, a $2.2 trillion stimulus package designed to provide emergency assistance during the 2020 COVID-19 pandemic, was signed into law. With the proliferation of state and local governments mandating that citizens “shelter-in-place” and the related closure of businesses deemed to be non-essential, many small businesses are faced with the economic impact of these measures that could be in place for an indeterminate amount of time.

Below is a high-level outline of the provisions in the new CARES Act that are designed to provide financial aid to small businesses - enabling them to retain their workforce and remain operational:

Paycheck Protection Program Loans (Section 1102)

  • Provides approximately $350 billion for expedited individual loans up to $10 million. [1]

  • Proceeds can be used to cover payments from February 15, 2020 to June 30, 2020 with respect to:

    • payroll support (such as employee salaries and certain benefits, such as healthcare, vacation, family or sick leave);

    • interest on any mortgage obligation;

    • rent;

    • utilities; and

    • interest on any other debt obligation incurred prior to February 15, 2020.

  • All borrower and lender fees are waived.

  • Waiver of requirement that a borrower be unable to obtain credit elsewhere.

  • No personal guarantees or collateral will be required.

  • Maximum interest rate of 4% per annum and maximum maturity of 10 years.

  • Loan payments may be deferred for 6-12 months.

  • Borrowers are eligible for loan forgiveness in certain circumstances with respect to amounts used for eligible expenses incurred during the 8-week period following the origination of the loan (Section 1106). [2]

Emergency EIDL Grants (Section 1110)

The Small Business Association currently provides loans to eligible businesses as a result of a business sustaining a substantial economic injury, known as Economic Injury Disaster Loans (EIDL). The CARES Act expands the availability of these EIDL loans in the event a business is unable to meet its obligations as they become due or pay ordinary and necessary operating expenses, but that could have been met had the COVID-19 crisis not occurred.

  • The Small Business Association (“SBA”) can provide EIDL loans:

    • in amounts up to $2 million;

    • at an interest rate not to exceed 4% per annum; and

    • for a maturity not to exceed 30 years.

  • The CARES Act requires the SBA to waive:

    • any requirement for a personal guarantee;

    • the requirement to be in business for at least 1 year prior to the eligible disaster; however, an entity must have been in business as of January 31, 2020; and

    • the requirement that the borrower be unable to obtain credit elsewhere.

The CARES Act further provides that, if you are eligible to receive an EIDL loan, you may request to receive an emergency grant/advance, in certain circumstances.

  • Advance is paid within 3 days of the request.

  • May not exceed $10,000.

  • Must be used to cover expenses that would be permitted under an EIDL loan.

  • Not required to be repaid, even if subsequently the application for the EIDL loan is denied.

Note: While an entity may be eligible to receive an EIDL Loan and a loan under the Paycheck Protection Program, the proceeds from each loan must be used to cover separate eligible expenses.

In addition to analyzing whether your small business can and should take advantage of the relief under the CARES Act, all companies should be in active discussions with their landlords, lenders and other counterparties regarding the terms of material contracts, such as real estate leases, short and long-term loan agreements and the terms of material contracts that may no longer be economic in the current environment.

If you have questions about how the CARES Act may impact your business or how to evaluate your material agreements in the current environment, please e-mail me at ldean@cornerbishop.com .

1 The maximum amount of any loan is capped at 2.5 months of payroll expenses (subject to a further cap of $100,000 / employee of annual salary).

2 When applying for loan forgiveness, Borrowers must submit documentation supporting that payments were made with respect to eligible expenses and must make a certification as to the accuracy and amounts.

 About CornerBishop
CornerBishop is a boutique firm uniquely positioned to partner with management teams and companies to take on the many challenges they face. Together, we can evaluate what actions to take, and when to take them, to effectively and efficiently position the company for success. Combined with CornerBishop’s extensive expertise, our partnership can serve as a force multiplier to leverage your business potential.

Katie Rogers