On March 27, 2020, “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” was signed into law by the President. This CARES Act provides approximately $2 trillion in relief to address the widespread economic harm caused by the COVID-19 pandemic. This follows enactment of two previous coronavirus relief bills—an $8.3 billion measure for health agencies signed in early March and a roughly $100 billion bill aimed at, among other things, providing free coronavirus testing, some paid leave, and unemployment benefits—as well as additional Medicaid funding and food assistance (signed on March 19, 2020). Attached is the federal Stimulus Summary information put out by SBA.
As a practical matter, our IDA clients and company clients are all focusing on the health of employees and friends and family, health of their business and short, medium and long term planning for cash flow. If you have access to capital keep it available. Many banks are offering a 90 day deferral (not forgiveness but a useful cash flow tool). Most banks can also offer the new expanded SBA 7(a) loan program which can be forgiven at a later date (see below). If local businesses lay off employees you should be aware that Unemployment formulas are generally driven to a max weekly benefit of $500/week in NYS. The stimulus provides an additional $600/week (although NYS Website has yet to clarify that you can take this federal benefit). This means an employee paid up to $55k/annum can receive as much under unemployment as they can by going to work. The 7 day wait period is waived and the benefits can run for 6 months. Ideally all are rehired before the 6 months benefit period expires but businesses will have to be very conservative to survive this historic event. There are many rules to consider but “laid off” and “furloughed” employees both can result in the employee receiving unemployment benefits with furloughed generally meaning the employer continues to pay benefits whereas laid off or position eliminated may necessitate the employee electing COBRA to continue health benefits at his or her own cost.
Small business should: (1) protect cash positions and inquire on relief options from those on payables list, (2) maintain access to bank credit; (3) inquire if a deferral is being offered by their bank (some up to 90 days); (4) if they need additional debt capacity they should inquire about the new SBA 7(a) loan to grant program. The SBA 7(a) program is handled at the bank without a lot of process time and has few strings attached of concern.
The CARES Act also includes $500 billion that the Treasury Department can provide in the form of loans, loan guarantees, and investments. That portion of the bill—called the Coronavirus Economic Stabilization Act—specifically allocates $25 billion in assistance for passenger air carriers, $4 billion for cargo air carriers, and $17 billion for companies that work in the national security industry. The Treasury Department is afforded wide discretion to distribute the rest of the roughly $454 billion as loans to businesses, states, and municipalities. These other forms of stimulus involve more direct loan relief but have significant strings and should only be pursued after a full understanding of what you are getting into. This additional program is somewhat like the old TARP and will have covenants on employment and need based representations that can later be used to prosecute applicants who apply for inappropriate relief.