COVID-19 Relief Bill
Late last week, Congress passed and the President signed into law a COVID-19 relief bill, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The legislation provides economic support for businesses and individuals negatively impacted by the coronavirus pandemic. The following is a summary of key components of the bill, many of which can offer much needed support to clean energy businesses and their employees during this unprecedented time.
Small businesses have been hit particularly hard by the COVID-19 outbreak. Many have shuttered their physical locations, either shifting to a work-from-home model or suspending operations completely. For small business owners, this stimulus package could buy some much-needed time, but it is not a cure-all. Whether owners use direct individual payments to inject their businesses with capital or apply for small business loans, businesses need to think about their response to this crisis. It’s not easy to plan when you are trying to keep the lights on.
7(a) Small Business Loans
The CARES Act authorized $349 billion in lending for the Small Business Association's (SBA) 7(a) loan program, temporarily raising the maximum loan from $5 million to $10 million. Maximum interest rates for these loans are now set at 4%, and payments can be deferred for six months to a year. Additionally, typical requirements for borrowers to provide collateral will be waived. The loan period ends on December 31, 2020.
7(a) loans are offered by approximately 1,800 banks, credit unions, and other approved financial institutions, all guaranteed by the SBA. Lenders use a formula to determine how much money to offer, taking into account a business’s past payroll expenses.
Eligible entities include small businesses, nonprofits, and veterans organizations with 500 or fewer employees. Sole proprietors, independent contractors, and other self-employed individuals also qualify. However, the program excludes nonprofit organizations that receive Medicaid reimbursements.
The legislation waives affiliation rules for businesses in the hospitality and restaurant industries, franchises that are approved on the SBA’s Franchise Directory, and small businesses that receive financing through the Small Business Investment Company program.
The legislation also authorizes loan forgiveness for businesses that retain their workers or rehire ones laid off during the crisis. Portions of loans used for certain expenses - payroll, rent payment, mortgage obligations, and utilities - may be forgiven.
SBA Emergency Injury Disaster Loan
Under the CARES Act, small businesses are eligible to apply for a separate program that provides low-interest disaster loans directly from the SBA. The Emergency Injury Disaster Loan (EIDL) provides a maximum $2 million, making it a good option for organizations in need of a smaller amount of support. Repayment terms will be determined on a case-by-case basis, up to a maximum of 30 years. However, the administration has approved a one-year deferment on payments. The interest rate is 3.75% for small businesses and 2.75% for nonprofits.
To qualify for this emergency loan, organizations need to demonstrate “substantial economic injury.” The SBA defines this criteria as an inability to meet obligations, pay regular expenses, and obtain credit for more than $350,000 elsewhere.
This loan does require a personal guarantee, such as a lien on the business. Supporting documentation, such as the business’s most recent tax returns, a personal financial statement, and a schedule of liabilities, are also required.
As the lender is the government, not a bank, EIDLs it will likely take longer to approve than a traditional loan. That said, the SBA is working to cut through red tape and some applications are already starting to be approved.
The CARES Act dramatically expands unemployment benefits, including for those who do not typically qualify (gig economy workers, independent contractors, and self-employed individuals, etc). Workers who are furloughed, though not actually laid off, now also qualify. In addition to regular state benefits, the federal government will provide individuals with $600 a week for up to four months. Furthermore, the eligibility period is increased to 39 weeks and the typical seven-day waiting period for benefits is waived.
The legislation also provides unemployment benefits for individuals who are unable to work because of COVID-19, such as those diagnosed with the disease, those awaiting test results, and those with infected family members. Workers scheduled to begin a job but unable to do so because the business was shut down due to the pandemic also now qualify.
Paid Sick and Family Leave
All workers will now receive up to 80 hours of paid sick leave at full pay, capped at $511 per day, with part-time employees receiving a proportionate number of hours. Individuals who are unable to work and/or telework because they are under medical treatment for COVID-19, suspect they have the illness, or are ordered to quarantine at home also qualify for sick leave.
The CARES Act also expands the paid family leave provided for in the Families First Coronavirus Response Act. For businesses with fewer than 500 employees, workers forced to stay home to care for children unable to attend closed schools or daycare centers can now receive up to 12 weeks of family leave, with the first two weeks unpaid. The benefit is equivalent to two-thirds of pay, maximum $200 per day.