House sends US$2 trillion in Economic Aid Package to the President to sign

To respond to the coronavirus health crisis and the enormous economic downturn caused by the pandemic, the House of Representatives just now passed by voice vote the CARES Act, the US$2.2 trillion stimulus package that the Senate passed late Wednesday night by a 96-0 vote. The bill now goes to President Trump who has said that he will sign it into law immediately. 

This bill, the third legislative response to the coronavirus crisis, marks the biggest economic rescue package in US history. Passage of the bill marked the end to nearly week-long negotiations between senators, House Speaker Pelosi and the Trump administration.

Among its many provisions, the bill provides US$150 billion in aid for the health care industry. US$100 billion of which will be widely available.to hospitals and providers. It has substantial support for laid off employees, small businesses, non-profits, and numerous other industries that have been reeling from the economic impact of the virus. The wide-reaching bill includes a US$1,200 one-time check for individuals who make up to US$75,000 annually and married up to US$150,000.  It provides US$377 billion in small loan relief loan to numerous businesses, defers federal student loan payments through September 30 and provides US$260 billion in unemployment benefits. 

The bill also includes a US$500 billion infusion into the Treasury Department’s Exchange Stabilization Fund, to be used to make loans, loan guarantees, and other investments to businesses, states, and municipalities in 2020. Of that amount, it would provide as loans and loan guarantees as much as: US$25 billion in direct lending for passenger airlines, ticket agents, and aviation inspection and repair services, US$17 billion for unspecified businesses critical to national security and US$4 billion for cargo airlines.  As much as US$454 billion, and any other unused loan funds, would be available to make loans, loan guarantees, and other investments to support programs or facilities established within the Federal Reserve. Funds could be used to purchase obligations or other interests from businesses, states, or municipalities directly or in secondary markets.

Subject to returning to Washington, DC on 24 hours’ notice, the Senate has now adjourned until April 20 and the House also is not expected to return to DC for at least a comparable period.  We will continue to update you on all legislative and regulatory developments in connection with the COVID-19 crisis.

Click here to download the Senate bill.

Click here to download a section by section summary of the bill.

SECTION BY SECTION REVIEW OF COVID RELIEF BILL

Last night, the US Senate passed what is being dubbed as the Phase 3 COVID-19 Emergency Economic Relief Package. It provides over $2.2 trillion in financial assistance to public and private entities. The Senate has now adjourned until April 20 and the House is scheduled to take up the bill and pass it by a voice vote tomorrow. The President is expected to sign the bill tomorrow evening. Click here to view the bill.

Dentons has assembled a section by section summary of the bill. 

Updates from Washington, D.C. on the Federal Stimulus Package

Dentons Senior Policy Director Gary Goldberg discusses the pending stimulus legislation.

Senate Approves US$350 billion for Small Business Grants

The Senate has passed a bill that will provide up to US$350 billion in forgivable loans to small business concerns, non-profit and veterans organizations and self-employed individuals to cover their expenses during the COVID-19 crisis.

Select Updates

  • Size test is the greater of (a) 500 employees or (b) the size standard by industry sector (NAICS code) established by the SBA
  • Employees defined to include individuals employed full-time, part-time or other basis (includes gig economy workers)
  • Small businesses that were not in business during 2019 can calculate monthly payroll costs using average from January 1, 2020 and February 29, 2020
  • SBA regulations may require affiliated companies’ employees (and their portfolio companies) to be combined for purposes of eligibility.  Implications to VC/PE backed companies.
  • Maximum loan amount remains 250% of monthly payroll costs (including commissions) plus any amount outstanding on an Economic Injury Disaster Loan (EIDL) originated during the period from January 31, 2020 until the date of origination of the new loan
  • Use of proceeds that are permitted now include interest payments on mortgages and/or other debts but not principal payments
  • Previously originated EIDL loans may be refinanced into forgivable loans
  • Eligibility considerations no longer include whether the applicant has been substantially impacted by public health restrictions related to the Coronavirus

Existing Federal Economic Assistance Options for Small Businesses Affected by the Coronavirus (COVID-19): Part 1

This alert focuses on the existing federal economic assistance option with the U.S. Small Business Administration (“SBA”) called Economic Injury Disaster Loans (“EIDLs”).  Dentons will provide updates on the EIDL discussed below, as well as updates on additional economic assistance options, notably the anticipated Small Business Interruption Loan Program (see our most recent client alert on that program here), as new information becomes available. 

U.S. Small Business Administration – Economic Injury Disaster Loan

While the SBA’s EBILs have existed for some time, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123) increases the amount made available to the SBA to use for EBILs to $197.2 million. 

What Is The EIDL?

The EIDL is a low-interest federal disaster loan of up to $2 million offered by the SBA to small businesses, as well as private, non-profit organizations to help alleviate economic injury directly caused by the coronavirus in certain approved areas. 

Which States Are Eligible?

As of March 23, 2020, small business owners in the following designated states are eligible to apply for a loan: Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Illinois, Indiana, Louisiana, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, and West Virginia.

Certain contiguous counties located in the following states are also eligible: Alabama, Arizona, Arkansas, Idaho, Iowa, Kentucky, Mississippi, Missouri, North Dakota, Oregon, Texas, Vermont, Wisconsin, and Wyoming.

The most current list of states and contiguous counties can be found here.

What Is An Eligible “Small Business?”

There unfortunately is no single SBA guideline when it comes to size of the business.  Factors taken into account vary by industry and may include:

  • Average annual revenue (depending on the industry, annual revenue may not exceed $1 million or $30 million); or
  • Average annual number of employees (depending on the industry, the maximum number of employees might be 250 or 1,500).

See 13 C.F.R. § 121.201 (setting forth a table of SBA size standards identified by North American Industry Classification System (NAICS) codes).  Moreover, when calculating the size of your business, the SBA requires including the revenue and employees of any affiliates (i.e., a business that controls or has the power to control another, or a third party that controls or has the power to control both businesses).  The SBA offers online a Size Standards Tool for prospective applicants to check if their organization qualifies as a small business.

Additionally, a “business concern” for the purposes of EIDL is: (1) a business entity organized for profit; (2) with a place of business located in the United States; and (3) which operates primarily within the United States, or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.”  13 C.F.R. § 121.105(a).  The business concern may be:

  • An individual proprietorship;
  • A partnership;
  • A limited liability company;
  • A corporation; or
  • A joint venture, association, trust, or cooperative, except that where the form is a joint venture there can be no more than 49% participation by foreign business entities in the joint venture.

13 C.F.R. § 121.105(b). 

Importantly, your organization is not eligible for the EIDL if, for example, your organization is:

  1. Engaged in lending, multi-level sales distribution, speculation, or investment (except for real estate investment with property held for rental when the disaster occurred);
  2. A non-profit or charitable concern, other than a private non-profit organization;
  3. A consumer or marketing cooperative;
  4. Deriving more than one-third of gross annual revenue from legal gambling activities;
  5. A loan packager which earns more than one-third of its gross annual revenue from packaging SBA loans;
  6. Principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs, whether in a religious or secular setting; or
  7. Primarily engaged in political or lobbying activities.

13 C.F.R. § 123.301. 

Use of EIDL Proceeds?

EIDL proceeds are working capital loans and may be used to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid due to the impact of the coronavirus.  See 13 C.F.R. § 123.303(a).

Importantly, loan proceeds may not be used to:

  • Refinance existing debt;
  • Repay other SBA loans or loans from another federal agency;
  • Pay, directly or indirectly, any taxes, fines or penalties;
  • Repair physical damage; or
  • Pay dividends or other disbursements to owners, partners, officers or stockholders, except for reasonable remuneration directly related to their performance of services for the business. 

13 C.F.R. § 123.303(b).

What Are The Conditions?

  • The interest rate is 3.75% for small businesses and 2.75% for private, non-profit organizations. 
  • The SBA offers loans with long-term repayment options, up to a maximum of 30 years; however, the term ultimately will be determined on a case-by-case basis, depending on the borrower’s ability to pay. 

The Application Process and Timing?

The application for the EIDL is a three-step process:

  • Apply for a loan;
  • Verify property and make loan processing decision; and
  • Close loan and disburse funds. 

The timing of the first step is largely in the control of the applicant as it consists of filling out the forms listed below.  With respect to the second step, it has historically taken the SBA loan officers up to three weeks to make a decision.  As to the third step, the SBA will prepare and send loan closing documents for signature upon approving the application.  Once the loan closing documents are received, an initial disbursement of $25,000 has historically been made within five days.  The loan will be fully disbursed in subsequent disbursements pursuant to a schedule determined by a case manager assigned to work with the borrower. 

When Do I Need To Apply By?

  • The deadline to apply for the EIDL is nine months from the date of the state governor’s disaster declaration. 
  • While the deadline may seem like months away, if your organization needs access to capital immediately, your organization may wish to consider applying for the EIDL sooner, rather than later, because processing applications may take a considerable amount of time.  
  • Prospective applicants should also be mindful that the SBA likely will experience significant backlog in processing applications, or that the SBA could deny the application, which would delay relief.

How To Prepare?

Review the following forms and collect information prior to starting the application:

Gather the following information or documents:

  • Year-end and current profit and loss statements;
  • A monthly breakdown report of sales; and
  • Complete copies of the business’s most recent Federal income tax returns (typically the last three).

Where Can I Apply?

Prospective borrowers may submit an online application here.  While the SBA prefers online applications, prospective borrowers can also call contact the SBA disaster assistance customer service center at (800) 659‑2955 (TTY: (800) 877‑8339) or e-mail disastercustomerservice@sba.gov and request a paper application by mail. 

Small Business Loan/Grant Support working its way through Congress

Negotiations ongoing for currently proposed US$350 Billion in loans as part of the Third Economic Relief Bill

  • Who – US small businesses and certain other organizations who employ no more than 500 employees. Also independent contractors and self-employed individuals.
  • What – Forgivable loans up to 2.5 times monthly payroll expenses, capped at $10 million
  • When – Bill signing expected before March 27, 2020 with funds available TBD in April
  • Where – Anywhere in the United States
  • Why – To support small businesses, non-profits, veterans organizations, independent contractors and self-employed individuals through the COVID-19 crisis.
  • For What – Funds to be used to retain workers, maintain payrolls and/or make mortgage, lease and utility payments.
  • Loan Forgiveness – Up to 100% of the loaned amount may be forgiven under certain circumstances if workers are retained through June 30, 2020

Executive Summary

The coronavirus outbreak and resulting quarantine measures have led to widespread business disruptions in the United States. As part of the federal response, the Congress is expected to approve this week a bill that would provide relief of up to $350 billion in forgivable loans to small business concerns, non-profit and veterans organizations and self-employed individuals to cover their expenses during the crisis.

This alert is based on draft legislative language as of March 22, 2020 and remains subject to revisions during the legislative process. There will most certainly be changes and revisions to the current proposal, as negotiations are ongoing with respect to, among other things, size and scope, before the Congress considers and passes the third economic relief bill.

Stay tuned for further developments.  We will be hosting a briefing call
Thursday, March 26, 2020 at 2 p.m. EST. Please RSVP here.

As soon as the bill becomes law, we can work with you to identify SBA-approved lenders and assist in the preparation and submission of a business interruption loan application. It is critical to leverage our experienced public policy experts in D.C. to best position applications for success, including guiding them through the approval process, given the expected intense competition for limited resources, as well as working with you to sort through the interplay with business interruption insurance, existing credit arrangements and other related complexities. We will keep you posted as the bill moves through the Senate, the House and then as it is signed into law, and provide further details so you may access the program, if you are eligible.

Details

Eligibility

Any small business concern, non-profit organization or veterans organization1 is eligible provided that it employs no more than 500 employees and was in operation on February 15, 2020.2 In addition, any applicant that meets certain size standards established by the SBA may be eligible. All prospective borrowers are presumed to have been adversely impacted by COVID-19.

Self-employed individuals, sole proprietors and independent contractors are also eligible if they have documented payroll tax filings with the IRS. In addition, business concerns with more than one (1) physical location are eligible if they employ not more than 500 employees per physical location and they operate in the hotel, restaurant and/or bar sectors.3

Maximum Amount

The maximum loan amount to be guaranteed is an amount equal to two and a half (2.5) times the borrower’s total monthly payments for payroll (calculated as an average per month over the 12 months prior to the date of the applicable loan)4, capped at $10,000,000.00 per borrower. The SBA will waive all fees or reduce fees to the maximum extent possible.

Payroll costs are defined as the sum of all payments for compensation, including salary, wage, cash tips, paid time off (vacation, parental, sick leave), severance, health care benefits, state or local taxes. For sole proprietors or independent contractors, payroll costs are defined as the sum of all compensation payments including wages, commissions or similar compensation capped at $100,000 per year. Payroll costs shall not include compensation of any individual employee in excess of $100,000, any compensation of an employee whose principal place of residence is outside the United States, or any sick leave or family leave covered under the Families First Coronavirus Response Act.

Use of Proceeds

The loan proceeds can be used to provide payroll support, including paid sick leave, group health care benefits, employee salaries, mortgage payments, rents, utilities and payments on other debt obligations. The SBA will require lenders to provide complete payment deferment relief for a period of not more than 1 year.5 The program covers the period from February 15, 2020 through June 30, 2020.

Other Matters

The proposed bill provides other details, including with respect to loan forgiveness, an increase in SBA guarantee to 100% until January 1, 2021 and eligibility details.

In order to qualify for full loan forgiveness, a borrower must maintain, during a period beginning on February 15, 2020 and ending on June 30, 2020 an average monthly number of employees that is not less than the average monthly number of employees for the same period in 2019.

The bill is still under negotiation and this summary does not describe all of the details that may be applicable to any specific borrower. Please reach out to your Dentons contact for information specific to your circumstances.

Illustrative Example

By way of illustration, a company applies for a loan with fewer than 500 employees, $200,000 in monthly payroll and $100,000 in monthly rent and utilities. Its total loan may be for 2.5 times the company’s payroll, or in this instance, $500,000. If workers are retained, lender will be required to forgive an amount determined pursuant to a formula that takes into account the number of employees retained, equal to up to eight weeks of the companies expenses, including payroll, rent, mortgage and/or utilities (approximately $600,000). By retaining employees, the company would not have to repay the loan and the lender will be covered by the SBA’s guarantee.


1 As defined in Section 501(c)(19) of the Internal Revenue Code.

2 A small business is ineligible under this program if it already receives assistance under section 7(b)(2) of the Small Business Act relating to COVID-19. A non-profit organization is ineligible if it qualifies under Medicaid for payments for certain items and services furnished under a State plan.

3 Business concerns are eligible if they are assigned a North American Industry Classification System code beginning with 72 at the time of disbursal. https://www.bls.gov/iag/tgs/iag72.htm

4 Seasonal employers will average payroll expenses by month over the period from February 15, 2019 or March 1, 2019 through June 30, 2019.

5 Subject to guidance from the SBA to be drafted no later than 30 days after passage of this legislation.

US Federal Coronavirus Update Administration Blueprint for Third Economic Relief Package

On March 18, the Department of the Treasury released a term sheet describing key terms of a proposed coronavirus economic relief package. The blueprint is broad by design, leaving considerable room for Congress to make changes.

For its part, Congress continues to speed forward in response to the pandemic with the Senate passing the Families Coronavirus Relief Act and Senate Leader McConnell announcing that the Senate will not leave Washington until it has finished work on the next package.

To that end, Leader McConnell announced the formation of three republican task forces to examine major aspects of any economic relief legislation and draft a bill that can then be negotiated with Senate democrats and the House.

Treasury Term Sheet

  1. $200 billion for the Treasury Department’s Exchange Stabilization Fund
    • $50 billion for an Airline Industry Secured Lending Facility for U.S. passenger and cargo air carriers at a private interest rate and other terms and conditions determined by the Treasury Department
    • $150 billion for secured lending or loan guarantees to assist other critical sectors of the US economy experiencing severe financial distress due to the COVID-19 outbreak.
  2. Temporary Permission to Use The Treasury Exchange Stabilization Fund to Guarantee Money Market Mutual Funds
    • The proposal would temporarily suspend the statutory limitation on the use of the Exchange Stabilization Fund for guarantee programs for the United States money market mutual fund industry with a sunset on the authority to establish any new money market mutual fund guarantee program upon the conclusion of the March 13th Coronavirus National Emergency declaration
  3. Economic Impact Payments
    • This provision would authorize and appropriate funds for two rounds of direct payments to individual taxpayers, to be administered by the IRS and Bureau of the Fiscal Service.
    • Payment amounts would be fixed and tiered based on income level and family size.
      • $250 billion to be issued beginning April 6
      • $250 billion to be issued beginning May 18
    • Each round of payments would be identical in amount.
  4. A $300 Billion Appropriation for a Small Business Interruption Loan Program
    • To provide continuity of employment through business interruptions, this provision would authorize the creation of a small business interruption loan program and appropriate $300 billion for the program
    • The US government would provide a 100% guarantee on any qualifying small business interruption loan
    • Qualifying loan terms:
      • Eligible borrowers: Employers with 500 employees or less (phased out)
      • Loan amounts: 100% of 6 weeks of payroll, capped at $1540 per week per employee (approx. $80,000 annualized)
      • Borrower requirement: Employee compensation must be sustained for all employees for 8 weeks from the date the loan is disbursed
      • Lender: US financial institutions
      • Streamlined underwriting process: Lender verifies the previous 6-week payroll amount and later verifies that the borrower has paid 8 weeks of payroll from date of disbursement.
      • Authority for the Treasury Department to issue regulations establishing appropriate interest rate, loan maturity, and other relevant terms and conditions