$2 Trillion CARES Act Passed into Law – What Does It Mean for You and Your Business?
27 Mar 2020
The “Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Act”) was signed into law on March 27, 2020. The 880-page CARES Act provides more than $2 trillion in federal aid to support business continuity for small businesses, increase unemployment benefits, provide immediate cash payments to individuals, boost public health spending, and provide federal stimulus to stabilize specific industries.
As the federal government moves to implement this “Phase 3” relief package in response to the COVID-19 pandemic, individuals and small businesses in Colorado should be immediately aware of the following provisions within “Division A” of this new law:
Title I – Paycheck Protection and Loan Forgiveness
The CARES Act establishes a new $349-billion SBA loan program to help small businesses (with fewer than 500 employees) maintain staffing levels and keep their doors open for the covered period from February 15 to June 30, 2020. Although this is a loan program, if the funds are used for certain eligible expenses (certain payroll costs, employee benefits, mortgage interest, rent, and utilities) the loans are completely forgivable with no obligation to repay. Sole proprietors, independent contractors, and self-employed individuals are also eligible if they can meet basic documentation requirements.
To obtain a loan, businesses need only make a good-faith certification that:
- The loan request is necessary to support ongoing operations given the uncertainty of current economic conditions;
- The funds will be used to pay for eligible business expenses;
- The borrower has not applied for another loan through the new program for the same purpose; and
- The borrower has not received duplicative amounts under the program.
The maximum loan amount is 2.5 times the total of the business’s average monthly payroll, with a cap of $10 million. Businesses may use the loan for payroll costs (but not for individuals compensated more than $100,000 per year), group healthcare benefits, mortgage interest, rent, utilities, or interest on existing debt obligations.
In addition to the new business continuity loan program described above, the CARES Act expands and loosens the SBA’s existing disaster loan program. For instance, the Act waives personal guarantee requirements for advances and loans under $200,000, waives the requirements that applicants have been in business for one year and cannot find other credit. Loans may be approved based solely on credit score and without submitting tax documents. Applicants can also seek an emergency advance for COVID-19 reasons of up to $10,000 that does not need to be repaid and is to be distributed within three days of filing the application. Some existing disaster loans may also be immediately refinanced into the new business continuity loan program such that qualifying loans may be forgiven.
Title II – Unemployment Insurance and Tax Relief
The CARES Act expands unemployment insurance assistance to cover individuals who are self-employed (including freelancers and gig economy workers) who are unable to work due to COVID-19, including public health quarantines. For all covered individuals, unemployment benefits are immediately enhanced by an additional $600 per week for up to four months and by an additional 13 weeks of benefits.
The CARES Act provides for immediate one-time cash payments (in the form of an advance refundable tax credit) in the amount of $1,200 for individual tax filers and $2,400 for joint tax filers with an additional $500 for each child. The amounts of these payments are phased out for individuals with an AGI of more than $75,000 and joint filers with an AGI of more than $150,000. The income limits may be adjusted depending on the number of children, but the individual payments phase out completely for individuals with an AGI of more than $99,000 and joint filers with an AGI of more than $198,000. All income limits are based on tax filings from 2018 or 2019 (whichever AGI is less).
Any person with a Federal income tax return or Federal income tax payment with a due date of April 15, 2020, has been automatically postponed to July 15, 2020. “Person” includes any type of taxpayer, such as an individual, a trust, an estate, a corporation, or any type of unincorporated business entity. The payment due refers to both 2019 Federal income tax payments (including payments of tax on self-employment income) and 2020 estimated Federal income tax payments (including payments of tax on self-employment income), regardless of the amount owed. The return or payment must be due on April 15, 2020 – this relief does not apply to Federal income tax returns and payments due on any other date. Please contact us if you would like additional information.
Title III – Health Care Coverage and Paid Sick and Family Medical Leave
The CARES Act expands the types of COVID-19 testing that health insurers must provide with no cost-sharing and similarly requires health insurance to cover preventative measures (including any future vaccine(s)) used to mitigate COVID-19 at no cost to the insured. The Act also includes additional minor changes to the Families First Coronavirus Response Act (the “Phase 2” relief package signed into law on March 18, 2020).
All loan and interest payments on federally owned student loans are deferred through September 30, 2020 without interest or penalty. This does not apply to private student loans.
Title IV – Stimulus to Distressed Industries
The CARES Act provides $500 billion for the Federal Reserve to make loans, loan guarantees, and investments in air carriers, businesses that are critical to national security, large nonprofits (with more than 500 employees), and other businesses as well as state and local governments. To obtain this loan, a business (and the majority of its employees) must be based in the US and must demonstrate that alternative financing is not reasonably available. For the duration of the loan and an additional 12 months thereafter, businesses that receive these loans are prohibited from buying back stock, paying dividends or distributions, reducing workforce by more than 10 percent, or increasing executive compensation beyond 2019 pay.
This section also requires forbearance (without penalties, interest, or fees) on federally-backed residential mortgages for up to 360 days. Multifamily borrowers with a federally-backed multifamily mortgage loan can request forbearance for up to 90 days. All foreclosure actions involving federally-backed mortgages are prohibited through at least May 17, 2020.
Title V – Coronavirus Relief Funds
The CARES Act provides $150 billion for states, territories, tribal authorities, and local governments to respond to the pandemic. These funds will be dispersed and administered by the Treasury Department.
What is written here is intended as general information and is not to be construed as legal advice. If legal advice is needed, you should consult an attorney.
Ireland Stapleton attorneys Sarah W. Benedict, Eric R. Benson, Benjamin J. Larson and James R. Silvestro contributed to this article. Our attorneys continue to review the CARES Act and all legal developments surrounding the COVID-19 pandemic. We are operating remotely at full-capacity and stand ready to provide any needed counsel as individuals and businesses continue to navigate these uncertain times. If you have questions about how the CARES Act impacts your business, please contact your Ireland Stapleton attorney directly.