Tag: CARES Act

Start Preparing Your Business For Economic Assistance

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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.

What You Need To Know About Section 4001 Of The CARES Act

Posted on by info

On March 27, Congress passed the $2 trillion “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) in order to provide “emergency assistance and health care response for individuals, families and businesses affected by the 2020 coronavirus pandemic.” The largest rescue package in American history, this historic piece of legislation includes a number of programs designed to offset the severe economic losses incurred from the COVID-19 global pandemic.    

Section 4001 of the CARES Act authorizes the Secretary of the Treasury to make loans, loan guarantees, and other investments of up to $500 billion to eligible businesses operating in severely distressed sectors of the economy, states, and municipalities. The $500 billion will be allocated as follows:

  • $25 billion for passenger air carriers
  • $4 billion for cargo air carriers
  • $17 billion for businesses “critical to maintaining national security”
  • $454 billion for other eligible businesses, U.S. states, and municipalities

Unlike the CARES Act’s forgivable loan program for small businesses, these loans must be paid back and come with public disclosure requirements.

Key Terms and Conditions of the Loans

This legislation does provide specific terms and conditions related to any loan, loan guarantee, or other investment(s) provided to entities. Economic aid may be provided under this section of the CARES Act if the Secretary of the Treasury determines (at its discretion) that each of the following have been met:

  • The eligible business is created or organized in the U.S. with a majority of its employees based in the U.S.
  • The eligible business has, or is expected to, incur covered losses such that its continued operations are jeopardized.
  • The applicant is an eligible business for which credit is not reasonably available at the time of the transaction.
  • The intended obligation by the applicant is prudently incurred.
  • The loan or loan guarantee is sufficiently secured or is made at a rate that reflects the risk of the loan or loan guarantee.
  • The duration of the loan or loan guarantee is no longer than 5 years.
  • The eligible business cannot do the following with loan proceeds for a period of 12 months after the date of the loan or loan guarantee:
    • Buy back its own stock.
    • Pay dividends or make other capital distributions.
  • The eligible business must maintain its employment levels that existed as of March 24, 2020 through September 30, 2020 (to the extent practicable) and not reduce levels by more than 10% during this period.

Procedures for Applying

The specific procedures to apply for these loans have not yet been disclosed, but, according to the legislative text, will be published within 10 days after it is enacted.  The Secretary of the Treasury will also release more detailed requirements for eligibility.

Oversight

The President will appoint a Special Inspector General for Pandemic Recovery who will be responsible for conducting, supervising, and coordinating audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary under this legislation. The Special Inspector General may also obtain services from experts and consultants in connection with carrying out its administrative duties. 

Insights

  • We can anticipate that the loan application process will require companies to provide the loan administrator with a number of documents, schedules, and analyses.  This may include an analysis to demonstrate the economic losses sustained from the COVID-19 disruption and continuing operations are at risk. Other documents may include, among others, financial statements, employee headcount details and payroll records. The application may also call for companies to show that the requested loan is sufficiently secured through company assets or other collateral as well as company financial projections demonstrating the ability to repay the loan within 5 years.    
  • How the Treasury deems what businesses are “critical to managing national security” is likely to align with the 16 critical infrastructure sectors as outlined in the Cybersecurity and Infrastructure Security Agency Act (CISA) of 2018. The Act defines critical infrastructure as any business “vital to the United States that their incapacitation or destruction would have a debilitating effect on security, national economic security, national public health or safety.”
  • While many of the requirements for eligibility are currently unknown, we expect this will be a very far reaching loan program with a significant percentage of the market being able to apply for and secure loans.