Congress Proposes Keeping Workers Paid and Employed Act to Protect Small Businesses
On Monday, March 23, Congress is expected to vote on the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) designed by a group of United States Senators to support our economy while the country’s businesses and citizens deal with uncertainty stemming from the COVID-19 pandemic.
Division A of the CARES Act, the “Keeping Workers Paid and Employed Act”, is an approximately $300 billion stimulus package designed to provide small businesses with emergency economic relief to make payroll and cover other expenses during this time of disruption. We have summarized highlights from the proposed legislation and will continue to provide updates as the stimulus package or any proposed alternatives move forward:
Small Business Loans
- Provides cash-flow assistance through 100% federally guaranteed loans to small businesses (500 employees or fewer).
- Borrowers who receive loans would be eligible for loan forgiveness in an amount equal to their payroll cost and costs related to debt obligations for the period of March 1, 2020 through June 30, 2020.
- The size of the loans would be tied to an applicant’s average monthly payroll, mortgage, rent and utility payments, and other debt obligations over the previous year. The maximum amount per business would be $10 million. The proposed bill would provide $300 billion to support these loans.
- The amount of each loan eligible for forgiveness will be reduced proportionately by the number of employees laid off during the four-month period relative to the borrower’s prior employment levels.
- For the purposes of determining forgiveness amounts, payroll costs will exclude the compensation of any employees in excess of $100,000 in annualized compensation and qualified sick leave and family leave wages enacted by the Families First Coronavirus Response Act.
Loan Guaranty Program
- Expands the allowable uses for 7(a) loans to facilitate payroll support (including paid sick leave, supply chain disruptions, employee salaries, mortgage payments and other debt obligations) to provide immediate access to capital for small businesses who have been impacted. The 7(a) loan program is the primary program of the United States Small Business Administration (SBA) for providing financial assistance to small businesses.
- Increases the maximum 7(a) loan amount to $10 million. Defines the covered loan period as beginning on March 1, 2020 and ending on December 31, 2020. Eligible businesses are those with 500 employees or fewer.
- Provides delegated authority, which is the ability for lenders to make determinations on borrower eligibility and creditworthiness without going through all of the SBA’s channels, to all current 7(a) lenders who make these loans to small businesses, and provides that same authority to lenders who join the program and make these loans.
- Increases the government guarantee of 7(a) loans to 100% through December 31, 2020, at which point guarantee percentages will return to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.
- Waives both borrower and lender fees for 7(a) loans.
- SBA Express loans for working capital expenses will also be increased from $350,000 to $1 million in order to facilitate revolving lines of credit for borrowers.
- Provides $240 million in grants for SBA Small Business Development Centers and Women’s Business Centers for counseling, training and related services for small business owners affected by COVID-19.
- Authorizes $25 million for the SBA to provide grants to associations representing resource partners to establish an online platform that consolidates resources across federal agencies and a training program to educate small business counselors on those resources to ensure counselors are appropriately directing small businesses.
- Provides $10 million in grants for Minority Business Development Agency’s Minority Business Centers to offer small business owners impacted by COVID-19 counseling, training and technical assistance.
View a complete copy of the CARES Act.
*Please note that the CARES Act did not pass the Senate on Sunday, and debating continues into today.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Co-authors Matthew M. McDonald, partner and Elizabeth Bucilla, associate are both members of the Corporate & Securities Department at Klehr Harrison.