CARES Act Summary

Under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), federal, state, and local officials have pledged to make many resources easily available to help individuals and businesses affected by the COVID-19 (coronavirus) crisis.

The source for this information is primarily H.R. 748, which has been signed by President Trump.

Please check back here frequently as updates will be added, section-by-section, and as the situation progresses.

Title I – Keeping American Workers Paid and Employed Act

Section 1101. Definitions

Defines “small business concern” as the meaning used in section 3 of the Small Business Act.

Section 1102. Paycheck Protection Program (PPP)

During the “covered period” from February 15 through June 30, 2020, authorizes commitments for $349 billion of general business loans under Section 7(a) of the Small Business Act and establishes parameters for 100% federal government guaranteed covered loans up to $10 million per borrower.  The Administrator of the SBA shall have authority to make or guarantee loans and requires that they be registered under the borrower’s TIN within 15 days.

Eligible recipients include 1) small business concerns; 2) sole proprietors, independent contractors, and eligible self-employed individuals who regularly carry on a trade or business and who would be entitled to receive paid leave pursuant to the Emergency Paid Sick Leave Act if the individual were an employee of an employer; 3) IRC Sec. 501(c)(3) nonprofits; 4) IRC Sec. 501(c)(19) veterans’ organizations; 5) Section 31(b)(2)(C) of the Small Business Act Tribal businesses, with not more than the greater of 500 employees (individuals employed on a full-time, part-time or other basis) or the size standard established by the SBA for the industry in which such concern operates. The PPP also 1) expands eligibility to businesses assigned a NAICS code beginning with 72 (accommodation and food services sector) with multiple locations provided each has fewer than 500 employees; 2) waives affiliation rules under the Small Business Act for businesses assigned a NAICS code beginning with 72, franchisees and businesses already receiving financial assistance through a company licensed under section 301 of the Small Business Investment Act (an SBIC), nonprofits and veterans organizations.  Self-employed individuals, independent contractors or sole proprietors must submit necessary documentation to establish their eligibility, including payroll tax filings, 1099s and details of income and expenses from the sole proprietorship.

The maximum covered loan amount is the sum of (i) 2.5 times average total monthly payments for payroll incurred during the one-year period before the date of the loan, except that for seasonal employers, the average monthly payroll is calculated for the 12 weeks beginning February 15, 2019 or March 1, 2019, plus (ii) the outstanding amount of an SBA loan borrowed on or after January 31, 2020 that is being refinanced under the covered loan, but not to exceed $10 million.  The maximum covered loan amount to an otherwise eligible recipient that was not in business during the period starting February 15 and ending June 30, 2020 is the sum of (i) 2.5 times average total monthly payments for payroll incurred during January and February 2020, plus (ii) the outstanding amount of an SBA loan borrowed on or after January 31, 2020 that is being refinanced under the covered loan, but not to exceed $10 million. 

Allowable uses of proceeds may include payroll (salaries, wages, commissions or similar compensation of a U.S.-resident employee of up to $100,000 per year per employee on a prorated basis; cash tips or equivalent; vacation, parental, family, medical, or sick leave (other than qualified sick leave or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act); allowances for dismissal or separation; group health care benefits including insurance premiums; retirement benefits; state or local taxes on employee compensation (other than employer’s share of FICA payroll taxes, railroad retirement act taxes, or other required U.S. income tax withholding at the source); compensation or income of a sole proprietor or independent contractor of up to $100,000 per year on a prorated basis), continuation of group health care benefits during periods of paid sick, medical, or family leave and insurance premiums;  and interest on mortgages and any other debt obligations incurred before February 15, 2020, rent, and utility payments.

Delegates authority to make covered loans to previously approved SBA Section 7(a) lenders and allows the Treasury Department to approve additional new lenders with the necessary qualifications. Requires lenders to consider whether a business was operational on February 15, 2020, had employees for whom the borrower paid payroll taxes or paid independent contractors reported on a Form 1099.  Borrowers must certify that the uncertainty of current economic conditions makes the covered loan necessary to support ongoing operations, that the proceeds will be used to retain workers and make mortgage, rent, and utility payments and that the borrower has not applied for or received a duplicative covered loan for the same purpose.

Borrower guaranty and service fees and prepayment fees are waived for the PPP.  Also waived is the requirement that the borrower is unable to obtain credit elsewhere.  Covered loans will not require collateral or personal guarantees and will be nonrecourse to shareholders, members or partners of the borrower except to the extent of the use of covered loan proceeds for non-allowable purposes. The maximum interest rate is 4%.  Any remaining balance after forgiveness under Section 1106 of the CARES Act will continue to be fully guaranteed for a term of up to ten years from the date the borrower applies for forgiveness.  Covered loans to borrowers in operation on February 15, 2020 will have complete payment deferral (including principal, interest and fees) for a period between six months and one year from the loan date.  Recipients of economic injury disaster loans beginning on January 31, 2020 for purposes other than paying payroll and other allowable costs are not prohibited from receiving covered loans.

Covered loans may be sold into the secondary market with no change in terms.  Regulatory relief is provided to lenders for purposes of risk-based capital requirements and troubled debt restructuring accounting.  Lenders will be paid a processing fee by the SBA of 5% for loans up to $350K; 3% for loans between $350K and $2M; and 1% for loans over $2M and agents who assist borrowers in preparing an application for a covered loan may not collect a fee in excess of the limits established by the SBA.

The “sense of the Senate” is that the PPP is intended to prioritize small businesses and entities in underserved and rural areas, including those owned by veterans and members of the military, and small businesses owned and controlled by socially and economically disadvantaged individuals and/or women as well as businesses in operation for less than 2 years.

Veterans’ fee waivers for the 7(a) Express loan program are made permanent.  The limit for Express loans is increased from $350,000 to $1,000,000 until December 31, 2020.

Rescinds the interim final rule entitled “Express Loan Programs: Affiliation Standards” (85 Fed. Reg. 7622 (February 10, 2020)).

Section 1106. Loan Forgiveness

Borrowers are eligible for forgiveness of up to 100% of a covered loan under the PPP for the costs incurred and payments made by the borrower during an eight-week covered period after the loan origination date for (a) payroll costs (as defined and limited by Section 1102) and additional wages to tipped employees, (b) interest on any real or personal property mortgage incurred prior to February 15, 2020, (c) rent on any lease in force prior to February 15, 2020, and (d) utility payments for electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020.  Amounts forgiven are considered canceled indebtedness under Section 7(a) of the Small Business Act and are not includible in gross taxable income of the borrower.  The SBA will remit the forgiven amount plus accrued interest to the lender within 90 days of the date of forgiveness. 

The amount of loan forgiveness will be reduced (but not increased) by multiplying this amount by the following formula:

Average number of full-time equivalent employees (FTEs) per month for the eight-week covered periodAverage number of FTEs per month from February 15 to June 30, 2019 or January 1 to February 29, 2020

The average number of FTEs is calculated for each pay period in a month.

The amount of loan forgiveness will also be reduced by any reduction in total salary and wages of any employee (who did not receive wages or salary at an annualized rate of more than $100,000 during any single pay period in 2019) during the eight-week covered period in excess of 25% of the total salary or wages of the employee during the most recent full quarter before the covered period.  To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, the amount of loan forgiveness will be determined without regard to a reduction in the number of FTEs or a reduction in employee salaries from February 15 through April 26, 2020 if the reduction in number of FTEs or reduction in salaries has been eliminated by June 30, 2020.

A borrower seeking loan forgiveness must submit an application to the lender including documentation of the number of FTEs and pay rates during the relevant periods; amounts paid for eligible payroll, interest, rent and utilities during the eight-week covered period; and a borrower certification of the accuracy of the documentation provided and that the amount to be forgiven was used for an eligible purpose.  No forgiveness will be made without documentation.  The lender must provide a decision on the application for forgiveness within 60 days of the submission date.  The lenders will be held harmless from enforcement actions or penalties related to loan forgiveness.

Any covered loans not forgiven remain outstanding under their existing terms under Section 1102.

By April 26, 2020, the SBA must issue guidance and regulations to implement this section.

Section 1110. Emergency EIDL Grants

Sets aside $10 billion to expand eligibility for access to Economic Injury Disaster Loans (EIDL) under Section 7(b)(2) of the Small Business Act during the period from January 31 to December 31, 2020 to include businesses, cooperatives, ESOPs and tribal small business concerns with less than 500 employees and individuals operating as a sole proprietor or an independent contractor.   Small business concerns, private non-profit organizations and small agricultural cooperatives are also eligible for EIDL.

During that period, personal guarantees for loans of up to $200,000 in addition to the requirement to have been in business for at least one year before the disaster (other than for businesses that were not in operation on January 31, 2020) and the inability to obtain credit elsewhere requirements are waived.   Loans may be approved based solely on an applicant’s credit score or alternative appropriate methods to determine an applicant’s ability to repay, and will not require an applicant to submit tax returns.

An applicant who self-certifies eligibility may request an Emergency Grant advance of up to $10,000 that must be distributed within three days.  The advance may be used for any allowable purpose for a Section 7(b)(2) loan, including to provide paid sick leave to employees unable to work due to COVID-19, maintain payroll during business disruptions or substantial shutdowns, meet increased costs to obtain materials due to interrupted supply chains, make rent or mortgage payments or repay obligations that cannot be met due to revenue losses.  The applicant will not be required to repay the advance even if denied a loan.  However, if the applicant is approved for a Section 7(a) loan, the advance amount will be reduced from the loan forgiveness amount for payroll costs.

Establishes that an emergency involving federal primary responsibility determined to exist by the President under Section 501(b) of the Stafford Disaster Relief and Emergency Assistance Act qualifies as a new trigger for EIDL loans.  On March 13, 2020, the President declared an emergency for COVID-19 under Section 501(b).

Section 1112. Subsidy for Certain Loan Payments

Sets aside $17 billion for the SBA to pay the principal, interest and any associated fees that are owed on existing Section 7(a) (including the Community Advantage Pilot Program), title V or 7(m) loans in a regular servicing status for a six-month period starting on the next payment due date (reflecting any existing deferment periods) or on the first payment due date of any such loans made between March 27 and September 27, 2020.  The SBA will begin making payments within 30 days of the due date and the borrower is relieved of the obligation to pay those amounts.  The SBA will also coordinate with bank regulators to implement these provisions.

Section 1114. Emergency Rulemaking Authority

The SBA must establish regulations to carry out Title I of the CARES Act within 15 days of March 27, 2020.

Title IV, Subtitle A – Coronavirus Economic Stabilization Act of 2020

Section 4003. Emergency Relief and Taxpayer Protections

Authorizes $500 billion of loans, loan guarantees and other investments in support of eligible businesses, states and municipalities. 

Funds are apportioned as follows:

1. $25 billion for passenger air carriers and approved inspection, repair, overhaul, and ticket agent businesses
2. $4 billion for cargo air carriers
3. $17 billion for businesses critical to maintaining national security
4. $454 billion and any remaining unused amounts apportioned above to provide the subsidy amounts necessary to support the lending programs and facilities established by the Federal Reserve.

Loans, loan guarantees and investments under this section will be made under terms and conditions and containing covenants, representations, warranties and requirements (including requirements for audits) as determined to be appropriate.  Loans will be at a rate to be determined based on risk and the current average yield of treasury securities of comparable maturity.  The Treasury Department will publish procedures for applications and minimum requirements no later than April 6, 2020.

Loans or loan guarantees will be made to eligible businesses under the following conditions:

1. Credit is not reasonably available to the applicant at the time of the loan;
2. The intended obligation is prudently incurred;
3. The loan is sufficiently secured or is made at an interest rate commensurate with risk that, to the extent practicable, is not less than the market rate for comparable obligations prior to the outbreak of COVID-19;
4. The loan term will be as short as practicable, not to exceed five years;
5. Until 12 months after the loan or loan guarantee is no longer outstanding, the borrower and any affiliates (a) may not purchase any equity securities of the borrower or its parent listed on a national securities exchange except to the extent required under a contractual obligation in effect on March 27, 2020, (b) may not pay dividends or other capital distributions with respect to common stock or (c) must comply with the limitations on compensation in Section 4004;
6. Until September 30, 2020, the borrower must maintain its March 24, 2020 employment levels to the extent practicable and must not reduce its employment levels by more than 10%;
7. The borrower must be created or organized under U.S. laws and have significant operations and a majority of its employees based in the U.S.; and
8. All applicable requirements under Section 13(3) of the Federal Reserve Act with respect to loan collateralization, taxpayer protection and borrower solvency shall apply.

The Treasury Department will seek the implementation of a program or facility to assist mid-sized businesses (which may include the Federal Reserve’s Main Street Lending Program under Section 13(3) of the Federal Reserve Act) that provides financing to lenders for direct loans to eligible businesses and non-profit organizations with between 500 and 10,000 employees with annualized interest rates of up to 2% per annum and for which no principal or interest will be payable for at least the first six months.  Eligible borrowers under this program will be required to make a good faith certification that:

1. The uncertainty of economic conditions makes the loan request necessary to support the borrower’s ongoing operations;
2. The proceeds will be used to retain at least 90% of the borrower’s workforce at full compensation and benefits through September 30, 2020;
3. The borrower intends to restore at least 90% of the workforce that existed as of February 1, 2020 and restore all compensation and benefits to workers no later than four months after the termination of the public health emergency declared on January 31, 2020;
4. The borrower is domiciled in the U.S. with significant operations and employees located in the U.S.;
5. The borrower is not a debtor in possession in a bankruptcy proceeding;
6. The borrower is created or organized under U.S. laws and has significant operations and a majority of its employees based in the U.S.;
7. While the loan is outstanding, the borrower will not pay dividends with respect to its common stock or repurchase any equity securities of the borrower or its parent listed on a national securities exchange except to the extent required under a contractual obligation in effect on March 27, 2020;
8. The borrower will not outsource or offshore jobs for the term of the loan and for two years after completing repayment;
9. The borrower will not abrogate existing collective bargaining agreements for the term of the loan and for two years after completing repayment; and
10. The borrower will remain neutral in any union organizing efforts for the term of the loan.

Loans under this program are not eligible for forgiveness and will not be made unless the Treasury Department receives a warrant or equity interest in the borrower (if listed on a national securities exchange) or a warrant, equity interest or senior debt instrument, at the discretion of the Treasury Department (if not listed on a national securities exchange).  These warrants, equity interests or senior debt instruments will be issued under terms and conditions to be established by the Treasury Department and are designed to provide a reasonable participation by the taxpayers in equity appreciation or a reasonable interest rate premium.  Any such instruments may be sold, exercised or surrendered by the Treasury Department and no voting rights will be exercised with respect to any shares of common stock acquired.

Up to $100 million of the funds set aside may be used for costs and administrative expenses associated with the loans, loan guarantees and other investments.  The Treasury Department is authorized to designate financial institutions as agents to perform all reasonable duties necessary to respond to COVID-19.

Any loans made or guaranteed under this section shall be treated as indebtedness under the Code.  The Treasury Department will prescribe regulations or guidance as necessary to implement this section.  Any equity securities issued under this Section do not result in an ownership change under IRC Section 382.

Section 4004. Limitation on Certain Employee Compensation

Loans under Section 4003 can only be made if borrowers agree that during the period the loan is outstanding and for one year thereafter:

1. No officer or employee whose total compensation in calendar 2019 exceeded $425,000 (other than an employee whose compensation is determined through a collective bargaining agreement entered into prior to March 1, 2020) will receive total compensation during any 12 consecutive months greater than their 2019 compensation or will receive severance pay or other termination benefits which exceeds twice their 2019 compensation.
2. No officer or employee whose total compensation in calendar 2019 exceeded $3,000,000 will receive total compensation during any 12 consecutive months greater than the sum of $3,000,000 and 50% of the excess of their 2019 compensation in excess of $3,000,000.

For purposes of this section, compensation is defined as salary, bonuses, stock awards and other financial benefits provided by the borrower to the officer or employee.

Average number of full-time equivalent employees (FTEs) per month for the eight-week covered period.

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