March 31, 2020

CARES Act: Business Financing Opportunities

Perhaps one of the most challenging aspects of the COVID-19 emergency Atlanta businesses are facing is the search for additional working capital and financing sources. The abrupt and unexpected issuance of business closure and stay at home orders have wreaked havoc on many area businesses. This has left management with vendor payments, rent, employee payroll costs, benefit expenses and utilities with little to no revenue. To help business, President Trump recently signed the Coronavirus Aid, Relief and Economic Security (CARES) Act, (the Act) that created $2T in relief including tax modifications and updates, new rules for benefit plans and new financing opportunities. Given the comprehensive nature of the Act and number of changes, Wilson Lewis has provided a summary of financing opportunities below.

Paycheck Protection Program (PPP)

This is a new Small Business Administration (SBA) Section 7(a) loan program designed to help eligible businesses manage expenses throughout the COVID-19 emergency. Unlike existing loan options offered by the SBA, the PPP is 100% guaranteed by the federal government, whereas other loan options are only 75% government guaranteed.

Program eligibility includes small businesses, 501c3 nonprofits, tribal businesses, and veterans’ organizations that have less than 500 employees, operate as sole proprietors, self-employed or independent contractors, and food and beverage retailing with no more than 500 employees at a single location. The maximum loan amount is $10M and the covered period is from February 15, 2020, through June 30, 2020. It’s also important to note loan forgiveness is possible when certain conditions are met.

The loan rate maximum is 4% and business owners are not required to provide any personal guarantees. There are no non-recourse actions as long as loan funds are spent on payroll costs, healthcare benefits, interest on mortgages or other fixed debt obligations, and rent or utility payments. It’s also important to note there is no collateral requires, no credit elsewhere tests, and no SBA guarantee fees.

Loan forgiveness is equal to the amount expected to be spent over the immediate eight-week period following issuance for payroll costs, interest on mortgages, utility expenses, and payments on rent obligation (assuming the lease was in place prior to February 15, 2020).  The amount is determined by dividing the average number of full-time employees (FTEs) employed during the covered period by either the average number of FTEs employed through the coverage period or the FTEs employed from January 1, 2020, through February 29, 2020.

Economic Disaster Injury Loans (EDIL)

The EIDL program has been offered by the SBA for years but the CARES Act has changed many of the requirements designed to make it easier to qualify. These changes include:

• Personal Guarantees – The requests for personal guarantees for loans of $200,000 or less issued between January 31, 2020, and December 31, 2020, have been waived.
• Business Duration – The requirement of an applicant to have been in operation for the 1-year period before the disaster, but still requires a business to have been in operation as of January 31, 2020.
• Credit Availability – The Act removed the requirement that a business can not receive credit from other sources.
• Tax Return Documentation – The requirement for applicants to provide their tax returns as part of the loan application has been waived. Lenders may approve an applicant based on their credit score or other methods.
• Location – Removes the requirement that a business must be located in a county or state that received an economic injury disaster declaration from the SBA.

EIDL Emergency Grants

Since many businesses who want to take advantage of EIDLs do not have time to wait for the normal processing period, the SBA permits an emergency grant when needed. The grant applies to companies that apply between January 1^st and December 31^st, 2020. Eligible companies can receive the $10,000 grant 3 days after the application receipt. In order to receive the grant, an applicant must meet EIDL eligibility criteria and have been operating since January 31, 2020. Usage of funds is restricted to:

• COVID-19 paid sick leave programs
• Payroll expenses
• Managing increased supply chain costs
• Mortgage or rent payments, and,
• Paying outstanding debt due to revenue disruption

Since the grant does not have to be repaid even if the SBA denies the EIDL application, it stands as an attractive financing option for those in immediate need of working capital.

Economic Stabilization & Assistance Loans

The CARES Act has also directed the Treasury to make loans available to mid-size businesses with between 500- and 10,000 employees. Loan interest rates are capped at 2% and offer payment deferral of at least six months. In order to qualify an applicant must meet the following conditions,

• Economic uncertainty is required to fund operations
• Any funds received will be used to retain 90% of the company’s workforce at current compensation and benefits through September 30, 2020.
• Agreement to restore at least 90% of the workforce (as of February 1, 2020) including compensation no later than four months after the declared end of the public emergency.
• The company is not currently in any bankruptcy proceedings.
• Agreement to refrain from outsourcing or offshore jobs for the term of the loan and an additional two years.
• The company will remain neutral in any union organizing efforts for the loan term.
• The company will not buy back stocks unless contractually obligated or pays dividends until the loan is repaid.

Contact Us

There are a number of new and expanded financing opportunities available through the CARES Act. The loosened rules and changing qualifying criteria make these opportunities accessible to a broader applicant base. If you have questions about the information outlined above or need assistance evaluating financing options, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.