On Friday, March 27, 2020, President Trump signed into law H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act of 2020 (or “CARES” Act). The CARES Act – the largest stimulus or rescue package in U.S. history – provides more than $2 trillion in emergency economic relief for businesses, families and individuals affected by COVID-19.
The CARES Act provides an estimated $560 billion in relief to individuals, $500 billion in relief to large corporations, $377 billion in relief to small businesses, $340 billion in relief to state and local governments, and $223 billion in relief to public health, education, and other sectors. This article addresses provisions of the CARES Act that apply to small businesses, which are employers with 500 or fewer employees.
One of the most important sections of the CARES Act for small businesses is the Paycheck Protection Program. Under the Program, the Small Business Administration is able to guarantee $350 billion in loans to small businesses via a network of hundreds of banks. The Program allows low-interest loans (loans payable over a maximum of ten (10) years, with interest capped at no more than 4%) to small businesses seeking support given the current economic conditions. The loans are intended to cover those small businesses’ payroll costs, paid sick leave, employee salaries, health-insurance premiums, mortgage payments, rent, utilities, and supply-chain disruptions.
The maximum loan amount is $10 million, and the loan amounts themselves are determined by a formula tied to the business’s average payroll costs the previous 12-month period. Most importantly, these loans are forgivable by the lender in an amount equal to the borrowing business’ spending during the 8-week period beginning on the origination date of the loan on certain categories of expenses. In other words, small businesses taking out the loans may be forgiven from repaying the loan so long as the small business is able to show that the loan was used within the allowable categories of spending.
Allowable categories of spending under the CARES Act’s Paycheck Protection program include payroll costs, payment of interest on any covered mortgage obligation (for mortgage indebtedness which was incurred before February 15, 2020), payment on any covered rent obligation (for rent obligated under a leasing agreement in force before February 15, 2020), and any covered utility payment. Covered utility payments specifically include those payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
In other words, the Program generally allows small businesses to obtain low-interest loans through banks in order to mitigate the effects of COVID-19, such loans are to be used for payment of certain categories of business expenses, and such loans may be forgiven to the extent that the loaned funds are used over the 8-week period after the origination date of the loan to pay allowable categories of expenses.
Please be advised, however, that a number of potential exceptions and limitations may apply to the Program’s loan and forgiveness provisions. For instance, the forgivable portion of a loan under the Program may be reduced proportionately if the average number of full-time equivalent employees per month by the borrower during the 8-week period is lower than the average number of full-time equivalent employees per month in an earlier time period (either the period from February 15, 2019 through June 30, 2019 or the period from January 1, 2020 through February 29, 2020, with the borrower selecting which period is used).
As a result of the complexity of the CARES Act as a whole and the Program specifically, small business owners are strongly encouraged to perform or obtain a thorough analysis of the Program and CARES Act with respect to their business specifically in order to fully assess the expected benefits of a loan under the Program. Health care employers interested in such an analysis or with questions regarding the CARES Act are encouraged to contact their accountant/CPAs and legal counsel. Our firm is available to discuss the CARES Act and advise clients and/or health care professionals or small business entities seeking advice or representation on it.
Lowe & Evander, P.A., understands the hard work and sacrifices it takes to become a health care professional or provider, and we aggressively defend health professionals in protecting their license, practice, career, assets and reputation. Using our experience and expertise, we navigate the obstacles our clients face, serving not only as their attorneys but also as their legal strategists, trusted advisors and protectors of their rights and interest against government investigations and lawsuits when necessary. Lowe & Evander, P.A., helps chart a course for its clients through the maze of state and federal health care laws, rules and regulations.
Our best to all of you out there taking care of employees and patients and protecting us in these difficult and unsettling times. Stay safe!
The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information and content in this article are intended to convey general informational only and may not constitute the most up-to-date legal or other information. Readers of this article should contact their attorney to obtain advice with respect to any particular legal matter. No reader of this article should act or refrain from acting on the basis of information in this article without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.
Brian C. Evander, Esquire , and Michael R. Lowe, Esquire, a Florida board-certified health law attorney, are partners at Lowe & Evander, P.A. Mr. Evander and Mr. Lowe regularly represent providers, physicians and other licensed health care professionals, and facilities in a wide variety of health care law matters.