The Brewers Association tapped representatives from law firm McDermott Will & Emery to educate members on the $2.2 trillion stimulus package signed into law last week to provide relief during the COVID-19 pandemic.
“This is a time of rather unprecedented uncertainty and grave threat to the industry,” counsel Marc Sorini said at the start of the webinar. “The federal government, in effect, has gone on what can only be described as a wartime footing, and that means mobilizing an enormous amount of assets — in this bill alone over $2 trillion — regardless of cost to help blunt the pandemic and keep the economy afloat while the business of the country shuts down to reduce the risk of infections.”
The historic stimulus package, known as the CARES Act (Coronavirus Aid, Relief and Economic Security Act), contains $350 billion in support for small business owners in the form of U.S. Small Business Administration loans. McDermott partner James Kim gave a detailed presentation on the bill and its Keeping American Workers Paid and Employed title, which establishes the Paycheck Protection Program (PPP) to assist small business owners during an unprecedented time of widespread closures.
Qualified business owners are eligible for loans equal to two and a half months of their companies’ payroll based on one year’s worth of historical data, Kim said. Loans are capped at $10 million and will cover the time between February 15 and June 30.
Loan amounts are calculated using a 12-month average for all employees — full time, part time and contractors — but individuals’ salaries greater than $100,000 annually are capped at that number and employees whose primary residence is outside of the U.S. are excluded. Included in payroll figures are salary, wages, commissions, tips, paid leave, payments toward group health benefits and state and local taxes assessed on compensation.
To disburse PPP loans, the SBA has delegated authority to pre-approved lenders.
“You have to use a bank; it has to be an approved SBA lender, it is a particular program of assistance,” Kim said. “It’s a list that SBA maintains and they approve it, so you can’t just go anywhere.”
Once received, loans can be used to pay for the following expenses:
- Payroll
- Health care benefits
- Mortgage interest costs
- Rent
- Utility bills
- Interest on debt.
Loan interest rates are capped at 4% and borrower and lender fees are waived. Unlike other SBA loans, the SBA’s “credit elsewhere” test and other collateral or a personal guarantee requirements are waived.
“It doesn’t cost you anything to do it; it does cost you time,” Kim said.
PPP borrowers are eligible for forgiveness of the portion of the loan they spent on eight weeks’ worth of payroll and healthcare costs, interest payments on any mortgages incurred before February 15, rent payments toward any lease signed before February 15, and utility payments for any service that began before February 15. Funds spent on other debt interest are not forgivable.
“It is important for you to consider that yes, you can use the money for other purposes, but the coverage for that and forgiveness is limited both by time and by purpose,” Kim said.
Prior to the CARES Act, the government enabled the SBA to offer Economic Injury Disaster Loans (EIDL) to small businesses in areas declared disasters by President Donald Trump. These loans are capped at $2 million per business and have an interest rate of 3.75%. Borrowers who accept both cannot use both funds for the same purpose, and EIDL loans are not forgivable.
“The difference between the two is forgiveness,” Kim said. “The EIDL advantage is speed. You can get an EIDL right now.”
Borrowers who take out an EIDL to pay employees now and apply for a forgivable PPP loan later will have the amount from the EIDL spent on payroll deducted from the maximum amount available under PPP.
Loan forgiveness is dependent upon businesses keeping their staff employed or by rehiring laid off employees by June 30.
“You need to retain employees to maximize forgiveness,” Kim said.
Kim’s presentation, which includes his answers to participants’ questions, is available online. The BA is offering free temporary memberships during the COVID-19 pandemic. Email info@brewersassociation.org for more information.