Title IV of the Coronavirus Economic Stabilization Act of 2020 (CARES) moves $500 billion into Treasury’s Exchange Stabilization Fund to provide liquidity to eligible businesses, states and municipalities.

Under certain conditions and with appropriate certifications, your business may be eligible under the CARES Act to receive a loan through the federal government to help you through the Covid-19 crisis. Although funds under Title IV have not yet been distributed, guidance for borrowers has been issued in preparation for the funding flow to be initiated.

Am I eligible?

Under one specific provision of Title IV, midsize businesses and nonprofit organizations (to the extent practicable) with 500 to 10,000 employees will be eligible for the program. As additional guidance becomes available, we will continue to post the most updated information.

How will the Federal Government help me with liquidity for my midsized business?

Title IV of the CARES Act authorizes a $500 billion relief program to include at least $454 billion for eligible midsize businesses (500 to 10,000 employees) states and municipalities for losses incurred as a result of coronavirus. Relief will come in the form of loans, loan guarantees and other investments.

However, please note that as of this posting, regulations are being prepared that will implement the program, including the process of how to apply for a loan. The specific timeline for launch of the program has not been finalized.

We will provide updates as they become available and can assist businesses in determining their eligibility for the program, as well as the loan application and approval process.

What’s the interest rate for loans?

Interest rates on loans to midsize businesses in this program are capped at 2%. For the first six months, no principal or interest is due and payable. Unlike some other relief loans under the CARES Act, these loans are not forgivable.

What certifications do I need to make?

In order to secure a loan, the Act requires that eligible businesses participating must be able to certify that:

• Your loan request to support ongoing operations is a result of the uncertainty of economic conditions as of the date of your application.
• You are an entity or business domiciled in the United States with significant operations and employees located in the United States.
• You will use funds to retain at least 90% of your workforce, at full compensation and benefits, until September 30, 2020.
• You intend to restore not less than 90% of your workforce in place as of February 1, 2020, and to restore all compensation and benefits to your employees no later than four months after the termination of the public health emergency declared by the Secretary of Health and Human Services.
• You are not a debtor in a bankruptcy proceeding.
• You may not outsource or offshore jobs for the term of the loan and two years after completing repayment of the loan.
• You may not revoke existing collective bargaining agreements for the term of the loan and for two years after completing repayment of the loan and will remain neutral in any union organizing effort for the term of the loan.

What restrictions are in place?

• The borrower will not be permitted to pay dividends or other capital distribution on its common stock or purchase an equity security of the company or a parent company listed on a national securities exchange while the direct loan is outstanding, except to the extent required under a contractual obligation in effect as of the date of enactment.
• The borrower must agree to certain defined compensation limits for all employees with compensation greater than $425,000 (including salary, stock, and bonuses) for a period ending one year after the loan is repaid.
• Conflict of interest provisions are in place as defined

What are the loan repayment terms?

Loans are provided at a maximum interest rate of 2% per year, with automatic payment deferment for at least 6 months or longer per the Treasury Secretary’s discretion.

How will these loans be treated from a tax treatment perspective?

Loans will be treated as indebtedness for tax purposes.

Assistance and Guidance from Freed Maxick

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If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel.