CARES Act guidance for small businesses

Attorney shares details of first wave of resources as nation waits for additional stimulus funds.
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Editor’s note: The Paycheck Protection Program covers the period from Feb. 15 to June 30 until the funds are gone. As of Sunday, April 12, lenders had approved PPP loans totaling $205 billion, according to the ABA Banking Journal. There were 820,000 loans made by a little more than 4,400 lenders. This leaves $145 billion to be lent under the program.

A local attorney recently shared guidance on the resources available for small businesses in the CARES Act stimulus package and recommended entrepreneurs keep a close eye on the news and consult their legal counsel as further assistance potentially emerges.

Matt Johnson — an attorney and partner with Grand Rapids-based Warner Norcross + Judd who represents closely held and family-owned businesses and chairs the firm’s business practice group — spoke to the Business Journal April 6 on aspects of the CARES Act designed to address the needs of small businesses and entrepreneurs during the COVID-19 pandemic.

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) that was signed into law March 27 includes two divisions. Division A includes programs to benefit individuals, companies and the health care system affected by COVID-19. Division B describes the supplemental appropriations to help the government respond to COVID-19.

Title I of Division A, called the Keeping American Workers Paid and Employed Act, includes the Paycheck Protection Program (PPP), Disaster Loan Program, SBA Express Loan Program, Entrepreneurial Development Programs and State Trade Expansion Program.

Johnson cited a CARES Act summary published by Warner Norcross on March 29 that noted the PPP amended the Small Business Act to create a program that runs Feb. 15 to June 30, 2020, in which the U.S. Small Business Administration (SBA) may provide, directly or in cooperation with banks, 100% federally backed loans of up to $10 million, forgivable if used for certain expenses, to eligible businesses out of a $350 billion fund.

According to the Warner Norcross summary, the loans “will not require security or a guarantee, will not require that an applicant be unable to obtain financial assistance elsewhere, and the SBA is waiving all loan application fees for borrowers.”

Regarding eligibility for loan forgiveness, according to an interim final rule the SBA issued on the PPP on April 2, the loans are forgivable if 75% of the approved amount is used by the business for payroll. The remaining 25% may be used for rent, utilities and mortgages during the eight weeks after origination of the loan. The amount forgiven will not be included in gross income for tax purposes. If the funds are used for unauthorized purposes, the borrower will be on the hook for full repayment.

Lenders will be able to defer payments on the principal and interest of the loan for six months, the interim final rule said.

The interest rate for the loans is set at 1% and will continue to accrue during the deferment period.

A summary of the SBA interim guidance on the PPP eligibility is available at bit.ly/wnjSBAinterimrule, but Johnson cautions the guidance is evolving, and small business proprietors should continue to watch the news for changes and clarifications and stay in contact with their legal counsel about how to proceed.

“The federal and state governments are under an extensive burden, and guidance is coming out on a daily basis from the Small Business Administration on the Paycheck Protection Program,” Johnson said.

Johnson said another component of Title I, Entrepreneurial Development Programs, could be a boon to small businesses.

“The CARES Act provides additional grants and funding to the Small Business Development Centers and Women’s Business Centers to offer education, training, counseling and assistance to small businesses affected by COVID-19,” he said.

“The Small Business Administration already makes grants to these centers, and the funding under the CARES Act is additional funding for a specific purpose. Small businesses that can benefit from this funding are small businesses that experience supply chain disruptions, closures, staffing changes or a decrease in gross receipts or customers due to COVID-19. The SBA may also provide grants to organizations affiliated with a center to establish a centralized hub for COVID-19 information.”

He added the CARES Act also empowers the U.S. Department of Commerce, through the Minority Business Development Agency, to provide grants and funding to Minority Business Centers to provide education and training on how to access federal resources.

These funds granted under the CARES Act are to be used for the following education and training purposes:

  • Accessing and applying for resources provided by the SBA and other federal resources relating to access to capital and business resiliency.
  • Information on the hazards and prevention of the transmission and communication of COVID-19 and other communicable diseases.
  • The potential effects of COVID-19 on the supply chains, distribution and sale of products of covered small business concerns and the mitigation of those effects.
  • The management and practice of telework to reduce possible transmission of COVID-19.
  • The management and practice of remote customer service by electronic or other means.
  • The risks of and mitigation of cyber threats in remote customer service or telework practices.
  • The mitigation of the effects of reduced travel or outside activities on covered small business concerns during COVID-19 or similar occurrences.
  • Any other relevant business practices necessary to mitigate the economic effects of COVID-19 or similar occurrences.

Goals and metrics for these grants under the CARES Act are being jointly developed between the centers and the SBA, Johnson said.

He added a framework was expected to be announced any day on Division A, Title IV, Subtitle A of the CARES legislation — the Coronavirus Economic Stabilization Act of 2020, which promised an additional $500 billion in assistance for larger corporations, including air carriers.

At press time, the guidance had not yet been issued. Readers can check wnj.com/publications for updates.

Warner Norcross also is continuing to monitor other developments regarding potential additional stimulus funding that was still being considered by Congress at press time. Johnson recommends business proprietors stay in touch with their attorneys to keep tabs on those developments.

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