On the heels of Wednesday’s passage of the Families First Coronavirus Response Act, the “Coronavirus Aid, Relief, and Economic Security Act” – the “CARES Act” was introduced in the Senate on Thursday, March 19. The CARES Act is intended to provide relief to businesses disproportionately burdened by the closures and economic slowdown brought on by societal efforts to stem the spread of COVID-19. Below are business-related highlights of the proposed CARES Act. We will be tracking this proposed legislation as it moves through the House and Senate; check here for status updates.
Proposed New Small Business Loan Program to Aid in COVID-19 Recovery
From March 1 to December 31, 2020, businesses with less than 500 employees shall be eligible to receive small business loans if they were in business as of March 1 with then-active employees for whom they paid salaries and payroll taxes. Assuming a business qualifies, the loan may be used for the following purposes:
- Payroll (including costs associated with paid sick time, family leave, and benefit continuation related to same)
- Employee salaries
- Mortgage or rent payments
- Other debts incurred during the covered period (March 1 through December 31, 2020)
The maximum loan amount shall be the lesser of the business’s average monthly expenses (payroll, mortgage/rent, other debts) for the preceding year by four OR $10 million. Note that borrowers who receive assistance under the Small Business Act for COVID-19 purposes would not also be eligible to participate in this program. Fees will be eliminated or greatly reduced for loan applications associated with this program.
Proposed Deferment for Existing Small Business Borrowers
The CARES Act also proposes a one-year deferment of payments for preexisting (pending or approved) Small Business Act loans where the borrower was impacted by COVID-19. There is a presumption that a borrower was adversely impacted by COVID-19.
Proposed Forgiveness for Small Business Act Loans from March 1 Through June 30, 2020
If needed, the Act would forgive the amount of the loan necessary for a small business to cover payroll during the covered period (through December 31). Notably, payroll costs for individual employees earning over $33,333 are not eligible for the forgiveness. Further, businesses cannot use this provision along with the credits (sick and family leave) incorporated in the Families First Coronavirus Response Act passed earlier this week. Total forgiveness is limited to the payroll costs and other payments made during the covered period (even if incurred prior to the period). Note that tipped wages may be included for these purposes.
Proposed Grants to Small Businesses Providing COVID-19 Related Preventative Training
The CARES Act also contemplates a grant program aimed at training and education for small businesses on how to limit the spread of COVID-19 by, for example, assisting such businesses in transitioning to remote work or moving certain functions online, preparing for potential supply chain interruptions, or taking advantage of federal funding for access to capital and business resources. Notably, the proposal specifically identifies minority and women-owned businesses as targets of these grants.
Proposed Tax Relief
The CARES Act proposes to postpone estimated tax payments for corporations until October 15, 2020. It also proposes payroll tax offset to defer the impact on businesses for tax year 2020 and modifies rules related to net operating losses and related carrybacks.
Clarification of New Leave Obligations & Tax Credits for Same
The CARES Act would formally adopt the daily and aggregate pay limits referenced in the Families First Coronavirus Response Act for paid leave and allow for the exemption of certain government employees from the leave provisions contained therein. It also clarifies that, for the purposes of the FMLA Amendment, eligible employees include an employee who was laid off by that employer not earlier than March 1, 2020, had worked for the employer for not less than 30 of the last 60 calendar days prior to the employee’s layoff, and was rehired by the employer so as to be eligible for the new leave requirements.
The CARES Act also proposes payroll tax credit for the newly-required paid family and sick leave time.