CARES Act – What Small Businesses and Government Contractors Need to Know
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2.2 trillion emergency relief bill passed by Congress on March 27, contains certain provisions specifically targeted to small businesses and federal government contractors. The most significant help for these companies are: 1) partially forgivable loans through the SBA’s 7(a) program to support business operations; and 2) a provision allowing agencies to reimburse contractors for paid leave they provide their employees who are unable to work at government facilities due to the Coronavirus crisis.
- 1102, the Paycheck Protection Program (PPP), establishes a new $349-billion Small Business Administration (SBA) lending program, with a 100% government guarantee, modifying and expanding the traditional SBA 7(a) loan regime.
These covered loans will be made available to small businesses, nonprofits, tribal business concerns, and veterans’ organizations that employ no more than 500 employees (or the applicable industry size standard as provided by the SBA). Businesses designated as NAICS 72 (lodging and hospitality, food and beverage retailing and catering services) are eligible if they employ no more than 500 employees at any physical location. Franchisees operating under an SBA assigned franchise identifier code also eligible, as are sole proprietors, self-employed individuals and independent contractors.
The loan period, which runs until June 30, 2020, offers a maximum loan of:
- (The business’ 12-month payroll costs x 2.5) + the outstanding amount of SBA loans made under subsection (b)(2) between January 31, 2020, until the date when the new loan is available to be refinanced, or
- $10,000,000
The maximum loan amount will be the lesser of 1 & 2, above.
PPP loans may be used to cover:
- Payroll Costs, a broad category including:
- Gross wages, bonuses, commissions
- Employer group healthcare benefits and retirement plan contributions
- State payroll taxes
- Payments for vacation, parental, family, medical, or sick leave
- Payroll Costs do not include individual employee compensation in excess of $100,000 (prorated for the covered period), compensations for employees whose principal place of business is outside the United States, or sick leave that is already entitled to a credit under the FFCRA
- Interest payments on mortgage obligations or other debt obligations incurred before February 15, 2020
- Rent
- Utilities
- 1102 contains a number of other provisions about which small businesses should be aware. No personal guarantee will be required to receive funds, and no collateral needs to be pledged. Additionally, small businesses must certify that the loan is necessary because of the uncertainty of current economic conditions; that they will use the funds to retain workers, maintain payroll, or make lease, mortgage, and utility payments; and that they are not receiving duplicative funds for the same uses. The SBA Administrator will have no recourse against borrowers except in the case of unauthorized use of funds.
SBA is directed to issue regulations to carry out § 1102 within 15 days of enactment of the law. The notice requirements under the Administrative Procedures Act for such rulemakings will be waived.
A PPP sample application form can be found on SBA’s website.
For federal government contractors, § 3610 of the Act provides relief to those whose employees:
- Cannot perform work on a site that has been approved by the Federal Government during the COVID-19 public health emergency due to facility closures or other restrictions, and
- Cannot telework because their job duties cannot be performed remotely.
If those requirements are met, the agency may use available funds to modify the terms and conditions of a contract (without consideration) to reimburse the contractor for any paid leave or sick leave that the contractor provides to keep its employees or subcontractors in a ready state.
This authorization, which is in effect until September 30, 2020, provides that reimbursements may be made “at the minimum applicable billing rate not to exceed 40 hours per week…” Contractors should also be aware that any reimbursement it receives under this provision will be reduced by the amount of any credit it receives pursuant to Division G (“Tax Credits for Paid Sick and Paid Family and Medical Leave”) of the Families First Coronavirus Response Act, which we wrote about on March 19.
Critically, contractors should understand what this section is, and what it is not. § 3610 is an authorization, not a mandate. This section does not guarantee relief, and its permissive language could lead to inconsistent adoption and application across agencies. Contractors whose projects have been affected by this public health crisis should discuss these legislative developments with their government partners and keep an eye out for further guidance from individual agencies.
Please contact your Ward & Berry attorney if you would like any advice or assistance in taking advantage of these programs.