Blog

The CARES Act Series: Title I - Keeping American Workers Paid and Employed Act

Posted by Rachael J. Leah | Apr 13, 2020 | 0 Comments

This post is part of the CARES Act Blog Series that I have put together to guide small businesses and workers through the CARES Act and help them understand what it means for them. I will do my best to include everything that I think will be relevant to the readers, but keeping in mind that, if you wanted to read something that was hundreds of pages long you would be reading the 335-page CARES Act itself, not this blog post. Where possible, I will add links to the websites of federal and state government and agencies that are implementing the parts of the CARES Act that are in Title I. 

Please note: The CARES Act is a lengthy and detailed document. It also very new and may be modified by the US Congress later on. In fact, the US Congress came close to voting on a new law that would modify the terms of the CARES Act or make other changes that would indirectly impact the CARES Act. Because of this, please keep in mind that this CARES Act Series is intended as a general guide only and not as legal advice or assurances. Please consult the agency responsible for carrying out the programs or contact a licensed attorney or other professional who can help you given your particular circumstances. 

Title I of the CARES Act creates a couple of programs and expands other programs in order to help lift up small businesses and workers. Here are some of the programs that are most immediately relevant and in high demand:

  1. The Paycheck Protection Program
  2. Emergency Economic Injury Disaster Loans (EEIDL) and Grants 
  3. Loan Forgiveness Program for (7)(a)(36) loans made under the Small Business Act (I'll explain this in detail below)

These programs are all administered by the Small Business Administration. For some of these programs (like the Paycheck Protection Program), lenders (banks) may sign up with the Small Business Administration to become a service provider for that specific program. More information on the role of banks in these programs this can be found here (scroll to the section titled "Lender Forms and Guidance"). 

Paycheck Protection Program

How Do I Apply for the Program?

Qualifying businesses can apply by clicking on the "Find a Lender" button on the Small Business Administration's website (hereor by contacting their bank directly. Even if you do not think that your business is eligible for the program, the general consensus is that it would be a good idea to try to apply for the Paycheck Protection Program or any of the other programs being offered under the CARES Act. 

What Is the Filing Deadline?

As of the date of this post, the Paycheck Protection Program is available until June 30, 2020. The "covered period" for the program is February 15, 2020 through June 30, 2020. 

Who Can Apply?

The Paycheck Protection Program (PPP) was created to give small businesses access to low interest loans to cover payroll costs.

To be eligible for the Paycheck Protection Program relief funds, the business must have been affected by COVID-19 and fall into one of three categories or "types." The three "types" of businesses that are covered by the PPP are:

Type 1: Small business concerns. Small business concerns are those that are independently owned and operated and are not dominant in the field in which it operates. For example, Walmart would likely not be covered under this Paycheck Protection Program, because it is a dominant player in the supermarket, grocery store industry. An independently owned and operated local supermarket (a "Ma and Pop" grocery store), however, would likely be covered under this program. 

Type 2: Any business concern, nonprofit organization, veterans organization, or Tribal business concern described under Section 31(b)(2)(c) of the Small Business Act. This "Type 2" business must either (a) employ 500 employees or less or (b) meet the particular size standards given by the Administration for the industry in which the business concern operates. 

Type 3: Sole proprietors, independent contractors, and self-employed persons. Here, please note that restrictions may apply and that not all of these "Type 3" businesses may be covered under the PPP. For example, one of the criteria is that the "Type 3" business have been operating for a certain amount of time leading up to the President's Emergency Declaration. 

Please note, the CARES Act does not use the "Type 1, 2, or 3" designations that I have used here. The "Type 1, 2, and 3" titles that I have used here are something I created to help the reader better understand the content. 

Is it A Loan or a Grant? If It's a Loan, Is There Any Way For the Loan to be Forgiven? 

The funds being given under the Paycheck Protection Program are typically classified as a low-interest loan. That said, in some situations, a portion of the loan may be forgiven if certain conditions are met under the Loan Forgiveness Program discussed below. In that way, the funds may be similar to grant money. 

What Can I Use the Funds For?

The funds received from this program can be used to cover payroll costs. Payroll costs include payments of any employee compensation that falls into these categories:

  • Salary, wage, commission, or similar compensation
  • Cash tips,
  • Leave (vacation, parental, family, medical, sick),
  • Allowance for dismissal or separation,
  • Group health care benefits and insurance premiums,
  • Retirement benefits, or
  • Payment of State or local taxes assessed on the compensation of employees (i.e., employment taxes)

If the employer is entitled to a credit for qualified sick leave under the Families First Coronavirus Response Act (FFCRA), then the leave is not included in the calculation of payroll costs for the PPP. I discuss the credits and new laws under the FFCRA in another series that can be found here

Emergency Economic Injury Disaster Loans (EEIDL) and Grants 

How Do I Apply for the Loans and Grants?

Qualifying businesses can apply for Emergency Economic Injury Disaster Loans and Grants by clicking on the "Get Disaster Assistance" button on the Small Business Administration's website (hereor by contacting their bank. Based on what I have read and heard in researching administration of the CARES Act, the general recommendation seems to be that businesses are encouraged to first apply for the assistance directly from the Small Business Administration's website.

Note: Even if you do not think that your business is eligible for the program, the general consensus is that it would be a good idea to try to apply for the loans and grants or any of the other programs being offered under the CARES Act. 

What Is the Filing Deadline?

As of the date of this post, the Emergency Economic Injury Disaster Loans and Grants are available until December 31, 2020. The "covered period" for the program is January 31, 2020 through December 31, 2020. 

Who Can Apply?

The Emergency Economic Injury Disaster Loans and Grants programs were created to give small businesses access to working capital through low interest loans (or "advances"). 

To be eligible for the EEIDLs and Grants relief funds, the business must have been affected by COVID-19 and fall into one of four categories or "types." The four "types" of businesses that might qualify include:

Type 1: A business with not more than 500 employees (e.g., 500 employees or less). 

Type 2: Any individual who operates as a sole proprietor or as an independent contractor. A sole proprietor does not need to have one or more additional employees in order to qualify. business concern, nonprofit organization, veterans organization, or Tribal business concern described under Section 31(b)(2)(c) of the Small Business Act. This "Type 2" business must either (a) employ 500 employees or less or (b) meet the particular size standards given by the Small Business Administration for the industry in which the business concern operates. 

Type 3: An ESOP with not more than 500 employees

Type 4: A tribal small business concern with not more than 500 employees. The tribal small business concern must meet the description under Section 31(b)(2)(C) of the Small Business Act.

Please note, the CARES Act does not use the "Type 1, 2, 3, or 4" designations that I have used here. The "Type 1, 2, 3, and 4" titles that I have used here are something that I created to help the reader better understand the content. 

Is it A Loan or a Grant? If It's a Loan, Is There Any Way For the Loan to be Forgiven? 

The funds being given under the EEIDLs and Grants relief programs are typically classified as an advance or a low-interest loan. That said, depending on the type of funding being provided, a portion of the loan may be forgiven if certain conditions are met or the loan is being given without expectation that it be repaid. In that sense, the advance or loan may be similar to a grant. 

What Can I Use the Funds For?

Broadly speaking, these funds received from the Small Business Administration may be used to fund the operations of the business (i.e., the funds may be used to pay for the business' expenses) so long as they are used for "allowable purposes." If the loan is given as a "7(b)(2)" loan, then allowable purposes include things like sick leave, payroll, cost of obtaining materials, rent or mortgage payments, repaying other debts, and other related expenses.

The CARES Act expands the "allowable purposes" for which a loan can be used to compensate businesses for extraordinary costs and unexpected disruptions in supply chains due to COVID-19.

Please note that, if the funds are used to pay for payroll costs (discussed above) and the business has also received or is seeking to receive funding under the Paycheck Protection Program, the amount of the funding may be reduced.

Loan Forgiveness Program for (7)(a)(36) Loans Made Under the Small Business Act

How Do I Apply for this Program? Do I Need to Apply, or Is This Automatic?

As I understand it, "covered loans" (discussed below) may be automatically enrolled in the Loan Forgiveness Program. To be on the safe side, however, I recommend that businesses contact their lender and the Small Business Administration (here). The reason that I emphasize this is because:

  1. The lender or the SBA may require additional action or information from you
  2. It's important that you make sure that you are not paying more than you are required to or less than you are required to under the new law, and
  3. Even if your loan is considered a "covered loan," payments may be deducted from your account. Your lender and the SBA will be able to look at your file and explain to you what payments, if any, you are still required to make and what you may be able to do in order to stop those payments under the Loan Forgiveness Program. 
What Loans Are Covered? 

In broad terms, "covered loans" are the loans given to eligible businesses under the Paycheck Protection Program (discussed above). Based on the Small Business Administration's guidance issued to lenders (found here at page 3), the Small Business Administration either is or has the option to guarantee loans given under the Payment Protection Program. Among other things, this means that the Small Business Administration will act as a cosigner and, under the Loan Forgiveness Program, may make payments on behalf of the business.

How Much of the Loan May Be Forgiven?

The Loan Forgiveness Programs allows for all or portion of a business' "covered loan" to be forgiven. In other words, the amount that the business owes will be reduced and the Small Business Administration will pay the principal, interest, and fees associated with the "covered loan." 

A business that received a 7(a)(36) loan (e.g., one given under the Payment Protection Program) is eligible to have all or a portion of the loan forgiven. To calculate the amount of the loan that will be forgiven, the following four types of costs and payments may be added together:

Type 1: Payroll costs (based on the definition given by the Paycheck Protection Program). 

Type 2Interest payments on a "covered mortgage obligation." To be a "covered mortgage obligation," it must be a debt that was taken on in the ordinary course of business and that meets three criteria:

      1. It is a liability of the borrower. This means that it must be a debt taken on by the person or entity that is seeking to have that debt forgiven. 
      2. The debt must be for real property (e.g., a building, field, or other real estate) or personal property (e.g., a tractor, bulldozer, or utility van). 
      3. The debt must have been taken on before February 15, 2020

Type 3: Any payment on any "covered rent obligation."  A rent obligation is covered if the rent is due based on a lease or other agreement that was in effect before February 15, 2020. 

Type 4: Any "covered utility payment." Utility payments are covered if the utility service was being given before February 15, 2020, and the service includes the following:

      1. Electricity
      2. Gas
      3. Water
      4. Transportation
      5. Telephone
      6. Internet access

The total of four "Types" of costs and payments is the base amount of the loan that may be forgiven, but note that the base amount may be increased or decreased depending on a number of things. Things that can change the total amount of the loan that is forgiven include things like the conditions of the loan, how the loan funds were spent, or to offset reduction in salary or wages of certain employees. 

Please note, the CARES Act does not use the "Type 1, 2, 3, or 4" designations that I have used here. The "Type 1, 2, 3, and 4" titles that I have used here are something that I created to help the reader better understand the content. 

Please note: The CARES Act is a lengthy and detailed document. It also less than a month old and may be modified by the US Congress later on. In fact, the US Congress came close to voting on a new law that would modify the terms of the CARES Act or make other changes that would indirectly impact the CARES Act. Because of this, please keep in mind that this CARES Act Series is intended as a general guide only and not as legal advice or assurances. Please consult the agency responsible for carrying out the programs, a licensed attorney, or other another qualified professional who can help you given your particular circumstances. 

Last updated: April 13, 2020

About the Author

Rachael J. Leah

WHAT THE PRACTICE OF LAW MEANS TO ME What motivates and guides me in the client-centered practice of law is my curiosity, compassion, and critical thinking. I thrive in situations where I systematically identify, research, and strive to solve client issues. By keeping the human element in the practice of law, I am mindful of where you - the client - are, and am always aware that what I do impacts your life. My job as a lawyer is not merely academic; it is to assist clients to achieve their individual goals and have a positive impact on their lives.

Comments

There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Initial Consultations

The Law Office of Rachael J. Leah, LLC offers a no-obligation 60-minute initial consultation for just $25. For more information, visit the "About My Firm" page on the website.

Contact My Office

Telephone: (630) 696-2442
Or you can send me a message using the “Contact My Office” form on the website.