The day after the U.S. Senate passed an emergency relief bill for coronavirus impacts on American citizens and businesses, total deaths in the U.S. reached 1,000, with over 65,000 confirmed cases.
After a remarkable week when Congress actually seemed to be working across political aisles, the Senate passed the $2 trillion emergency Coronavirus Aid, Relief and Economic Security Act (CARES). The House must now vote, with President Trump pledging to sign the final bill as soon as it hits his desk.
Some House representatives are taking positions against the big-business-bailout portions of the bill—Democrats insisted on strict oversight into how the Treasury Department administers bailout money—while others think the escalation of social supports (expanded unemployment benefits including for independent contractors) may encourage some workers to not return to work, or encourage employers to lay off employees.
The House plans to vote on the bill Friday, even as they work out how to accomplish that with a number of representatives at home in locked-down states, or in quarantine with COVID-19 or symptoms of sickness.
What’s in the bill?
Per the New York Times, $367 billion in federally guaranteed small business loans will be available through community banks to qualified businesses to bridge impacts of coronavirus over the next 10 weeks. Qualified businesses—fewer than 500 employees—can apply for loans provided they pledge not to lay off workers or to rehire workers already laid off; and do not reduce employee wages during that time. While termed as “payroll protection,” businesses may also apply portions of the loan to covering mortgage interest, rent and utilities without jeopardizing loan forgiveness providing they meet certain requirements.
Loans would only be available through June 30 of this year and expire at the end of 2020; loan forgiveness will be contingent on businesses continuing to pay workers through the coronavirus crisis. More details are laid out in this Forbes article along with some insights into related tax issues. (Scroll down to “Small Business Loans.”)
The U.S. Small Business Administration had previously established a Coronavirus portal with some information on applying for low-interest disaster relief loans. No information has yet been posted about the new relief loans, nor any information as to when or how applications will begin. It’s all pending until the House votes.
Note also that the 2020 deadline for filing taxes has been pushed to July 15.
What should you do now?
This is all unfolding rapidly but if you want to start the process of understanding the options available to your business, reach out to your banker. If you have multiple relationships, contact your SBA Preferred banker first. The more you know now, the quicker you'll be able to react once things are finalized. We’ll keep you updated as new information is made available.
The U.S. Chamber of Commerce has also published a Coronavirus Emergency Loans: Small Business Guide & Checklist outlining what you need to know about how to apply for relief under the CARES Act, including eligibility, requirements and application guidelines.
Update Friday, March 27: The CARES Act has been approved by Congress and will be signed by the President by 4 p.m. ET. Even after the CARES bill is signed, it could take at least two weeks to start cash flowing to small businesses applying for the relief loans, which promise more favorable terms than S.B.A. disaster loans. But the S.B.A. online application process has been hampered by heavy user traffic; the S.B.A. is asking people to download applications and submit them by mail or email. That will further draw out application processing. (The fact that many U.S. agencies are partially shut down for their own employees’ safety makes this whole relief effort even more complicated.)
For many small businesses, predicted delays could be the difference between continuing to pay employees, laying off most staff, or shutting for good. Pending today’s expected passage of the CARES Act by the U.S. House of Representatives, the federal government is encouraging local banks to start approving loans to small businesses now. Local lenders will work with the S.B.A. for reimbursement. But even that approach means delays, as local lenders will want to wait for S.B.A. approval and guarantee of reimbursement before releasing cash to local businesses,
A few additional details about the emergency loan program:
Per the New York Times: “Unlike other S.B.A.-backed loans, business owners won’t have to provide personal guarantees or use all their available assets — from real estate to equipment — as collateral. There are no fees, and interest rates are capped at 4 percent.
“The program comes with restrictions: Loans are limited to $10 million, to businesses with 500 employees or less. Businesses that have recently laid off workers would be required to repay a larger portion of their loans, and loans covering salaries of over $100,000 a year wouldn’t qualify for forgiveness.
“Businesses would not have to repay loans covering up to eight weeks worth of payroll expenses. That means that once businesses receive their loans, a new clock will begin to tick: They’ll have to use the money within two months to avoid repaying it.”