Risk & Business Magazine Spectrum Insurance Spring 2020 | Page 29

CARES ACT
O
n March 27, 2020,
President Donald Trump
signed into law the
Coronavirus Aid, Relief,
and Economic Security
Act (CARES Act). The CARES Act
is the third phase of government
relief in the wake of the 2019 novel
coronavirus (COVID-19) pandemic
and associated economic decline. The
CARES Act amends Section 7(a) of the
Small Business Act to add a Paycheck
Protection Program (PPP) under which
some businesses may be eligible to
receive a loan of up to $10 million
on favorable terms, including total
forgiveness in the event businesses
maintain or restore their payroll,
essentially converting the loan into a
government grant. The loans will be
available through US Small Business
Administration (SBA)-approved lenders
until June 30, 2020.
Eligible businesses should immediately
contact their bank to determine if
they will be offering PPP loans and
the expected timing for processing
and approving applications. If your
bank is not an SBA-approved lender,
Godfrey & Kahn attorneys can assist
you in identifying SBA-approved
lenders. These loans will be critical for
businesses that are evaluating layoffs
to stay viable in light of the economic
impact of the COVID-19 pandemic.
ELIGIBILITY FOR A PPP LOAN
Businesses meeting the following
criteria will be eligible to receive a PPP
loan:
•
•
Any business that qualifies
as a small business concern
based on SBA’s size standards.
Businesses can assess their
size using SBA’s table of size
standards.
Any business concern,
501(c)(3) nonprofit
organization, 501(c)(19)
veterans’ organization, or
tribal business with 500 or
fewer employees (including
individuals employed on a full-
time, part-time, or other basis).
• Any business with 500 or
fewer employees per physical
location that is assigned a
NAICS code beginning with
72 (Accommodation and Food
Services), which includes
hotels, restaurants, and other
accommodation and food service
businesses.
• Sole proprietorships, independent
contractors, and certain other
self-employed individuals.
SBA rules generally prevent affiliated
businesses (by ownership or control)
from being eligible to receive an SBA
loan. However, these affiliation rules are
waived under the PPP for the following
businesses:
•
•
•
Businesses with not more than
500 employees that are assigned a
NAICS code beginning with 72.
Businesses operating as a franchise
that are assigned a franchise
identifier code by the SBA.
Businesses that receive financial
assistance from a small business
investment company (SBIC).
• The maximum principal amount
of a loan is limited to the lesser
of $10 million or 2.5 times the
average total monthly payments
for payroll costs during the one-
year period prior to the date of
the loan. Payroll costs include
salaries, wages, commissions,
separation payments, payments
for group health and retirement
benefits, and payments of state
or local employment taxes and
compensation, but it excludes
compensation of an individual
employee in excess of $100,000.
• Economic injury disaster loans
(EIDLs) made directly by SBA can
be refinanced with the proceeds
of a PPP loan.
• All payments will be deferred for
a period of six months up to one
year.
• The maximum maturity of the
principal balance not forgiven is
10 years.
•
•
PPP LOAN TERMS
The following are the terms for SBA’s PPP
loans:
The proceeds of the loans may be
used for the following:
•
•
SBA affiliation rules have historically
prevented businesses owned by private
equity sponsors or backed by venture
capital investors from receiving SBA
financial assistance. These rules require
the aggregation of employees, or annual
receipts, of all of the sponsor’s or
investor’s controlled companies.
However, if an eligible business owned
by a private equity sponsor or backed by
venture capital investors also receives
financial assistance from an SBIC,
whether as a lender or an investor, SBA
affiliation rules will not apply to that
business. Additionally, it is possible
that SBA may issue further interpretive
guidance on the applicability of the
affiliation rules to PPP loans generally.
The interest rate will not exceed
four percent.
•
Payroll costs;
Costs related to continuation
of group health benefits
during periods of paid sick,
medical, or family leave, and
insurance premiums;
• Employee salaries,
commissions, or similar
compensation;
•
•
•
• Mortgage interest payments;
Rent;
Utilities; or
Interest on other existing
debt obligations.
SBA guarantee increases to
100 percent through December
31, 2020. After that date, the
guaranteed portion will return
to 75 percent for loans over
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