Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Act has many provisions designed to help individuals, the health care system, health care providers, state and local governments, large corporations, medium-sized businesses, small businesses, and other groups. The Act has at least a couple of provisions that credit unions should research and consider discussing with commercial borrowers that they expect to struggle during the pandemic.
First, the CARES Act provides $10 billion in funding for Small Business Administration (SBA) Economic Injury Disaster Loans (EIDLs). EIDLs are not new but provide low-rate, long-term loans with payment deferral features. Part of this program is the ability for a borrower to obtain a $10,000 emergency cash grant, even if the borrower doesn’t qualify for other loans, that can be forgiven if spent on qualified operating expenses.
Second, the CARES Act Paycheck Protection Program Loan Guarantee authorizes SBA-backed loans from participating financial institutions to small businesses of many types (generally with less than 500 employees with some exceptions) up to the lesser of $10 million or 2.5 times average monthly payroll and benefit costs (including wages for employees making less than $100,000). The loans have maximum rates of 4 percent and terms of up to 10-years; require no personal guarantees or collateral; offer payment deferrals; and allow the amounts of the loans spent on payroll (for employees making less than $100,000), benefits, rent, and certain other operating expenses during the first eight weeks after loan origination to be forgiven. The forgiveness is reduced if the business reduces employment or wages during the eight weeks after loan origination. However, the business still can receive the forgiveness if it eliminates the employee or wage reductions by June 30, 2020.
Understanding this Act will help to maximize the benefits available to your members while opening new avenues for opportunity. For more information on the CARES Act, please visit the U.S. Chamber of Commerce at the link below.