Client Alert: The Senate Passes the Coronavirus Aid, Relief and Economic Security Act
On March 25th, the Senate passed the bill entitled, the “Coronavirus Aid, Relief and Economic Security Act” (the “CARES Act”). This legislation is now before the House of Representatives. The CARES Act is intended to infuse approximately $2 trillion into the economy and provide relief to businesses and individuals. As of this writing (March 27th), the CARES Act is not yet law and we plan to track developments. For now, we would like to highlight a few features of the CARES Act that may be of interest to our clients:
Expansion of the Small Business Administration 7(a) Loan
- Expanded borrower eligibility for business with less than 500 employees
- Increase in maximum loan amount from $5 million to $10 million
- Loan forgiveness based on payroll costs
- Waiver of requirement for personal guarantees and collateral
- Interest rate not to exceed 4%
- Waiver of SBA regulations on entity affiliations for businesses that receive financial assistance from a small business investment company (SBIC). However, the Senate bill does not appear to contain a waiver of the SBA affiliation rules with respect to traditional venture capital investors.
Keep in mind that once the CARES Act is law, the SBA will then need to implement rules that incorporate the applicable portions of the CARES Act. The Senate bill requires that the SBA enact such regulations no later than 15 days after the CARES Act is enacted into law.
Given anticipated interest in the updated loan program, we suggest that companies that are interested in such programs proceed with the application process as soon as possible. To start the process, you would apply through banks, credit unions and other SBA-approved lenders. We expect the SBA to update its website with more information about the process, but for now, you can find out more information here. Among other things, you’ll see that in addition to the standard 7(a) loan program, the SBA also offers smaller loan programs, including the Economic Injury Disaster Loan Program (which provides small businesses with working capital loans of up to $2 million). The Disaster Loan Program is offered directly by the SBA and may make sense for businesses in need of less debt capital.
Expanded Unemployment Insurance for Gig-Economy Workers
- If such workers are not otherwise covered by state unemployment compensation laws or if such workers have exhausted state unemployment compensation benefits, then such worker is eligible to receive the same unemployment compensation benefits that regular employees receive under the applicable state’s unemployment compensation laws.
- Participating states can add an additional $600 per week benefit through the end of July and an additional 13 weeks of benefits beyond what the state typically allows.
- This expansion in unemployment benefits expires at the end of 2020.
Tax Relief for Workers, Families, Small Businesses and Distressed Industries
- Provides for a one-time advance tax rebate check of $1,200 per individual and $500 per child (which starts to phase out for individuals making $75,000 or $150,000 for joint filers, and is eliminated for filers making more than $99,000 ($198,000 for joint filers)); this payment is available to non-taxpayers as well (such as individuals on Social Security who do not file tax returns).
- Employers whose businesses are fully or partially suspended as a result of government orders due to the coronavirus crisis and that continue to pay furloughed employees may be eligible for a 50% credit against payroll tax on up to $10,000 of wages paid to those employees.
- Employers would be able to delay the payment of their 2020 payroll taxes, with half due by December 31, 2021 and the remaining amount due by December 31, 2022.
- Businesses will be able to carry back net operating losses from 2018, 2019 and 2020 to the previous 5 years.
- The 80% of taxable income limit on net operating loss carryovers for three years would not apply to tax years beginning in 2018, 2019 and 2020.
We plan to track the legislation through enactment and eventual rulemaking and publish updated client alerts as appropriate.
If you have questions or would like additional information, please feel free to contact Amalie Tuffin at firstname.lastname@example.org, Frances-Ann Criffield at email@example.com, Ashley Pittman at firstname.lastname@example.org or Dan Fuchs at email@example.com.
This Alert is provided for informational purposes only and is not intended to be, nor should it be construed as, legal advice on any specific matter, nor does it represent any undertaking to keep recipients advised of all relevant legal developments. This Alert does not create or constitute an invitation to create an attorney-client relationship, nor should it be construed as an advertisement or solicitation for legal services. This material may be considered Attorney Advertising in some states. Prior results do not guarantee a similar outcome.
© 2020 Hutchison PLLC