On March 27th, 2020, Congress passed, and the President signed into law, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in response to the Global COVID-19 pandemic. This $2 trillion emergency funding package is designed to inject immediate liquidity into the economy on several fronts.
Of critical importance to large organizations are the provisions that allocate $500 billion in loan and other support for distressed businesses in affected areas and economic sectors.
The specific programs, applications and rules are to be implemented by the US Treasury Department within 10 days of the Bill’s signing. The Treasury Secretary has publicly targeted Friday April 3, 2020 for the start of the application process.
The application process appears to be on a first come first serve basis that requires a proactive filing application and documentation process by affected companies.
This is a rapidly evolving situation, and exact details may not be known for a short period of time, but it appears that all of these stimulus packages will likely be tied to employee retention.
We will continue to monitor these programs and advise you as they solidify. In the interim, the following are several steps a company can take to prepare for both the Federal and oncoming State application processes:
Steps You Can Take Now
- Assemble copies of the most recent pre-crisis and existing headcount records, including wages. Typically, your previously filed state quarterly wage reporting and unemployment insurance returns will suffice.
- Keep track of all lost business income and revenue.
- Compile corporate audited financial statements and documentation of any emergency expenditures.
By having the necessary documents and schedules in hand, your business can be ready to quickly file a claim for economic assistance under the CARES Act, in addition to having a clear picture of the current state of the business.
Requirements for Stimulus Under the CARES Act
Organizations will also need to show that the business was viable before the COVID-19 outbreak, because the stimulus is a relief package but not a rescue package for previously distressed companies. That is partly why necessary information includes reporting about current headcount and revenues, as well as those details from the previous quarter. A Special Inspector General for Pandemic Recovery will also be appointed by the president and confirmed by the Senate, who will oversee audits of loans and investments by the Treasury Department.
The conditions for an eligible business to accept stimulus also include requirements for employee retention and payroll maintenance, such that employment levels between March 24 and September 30, 2020, may not be reduced by more than 10%. Also, loan duration will be a maximum of five years, and a business cannot use loan proceeds for stock buybacks or dividend payments for one year from the loan date. By understanding the specific requirements and conditions for loans under the CARES Act, you can plan accordingly to overcome the current challenges.