The CARES Act

As you may have heard, the U.S. Senate has passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), designed to respond to the economic fallout from the COVID-19 outbreak. The House passed the bill on Friday, March 27th, with President Trump expected to sign it very shortly. Senator Schumer has described the CARES Act as a “Marshall Plan” for the country’s healthcare system. Small businesses, including healthcare practices, can take advantage of the Act’s Paycheck Protection Program (the “Program”). 

The Act allocates $349 billion for small businesses (typically defined as a business with less than 500 employees) to obtain forgivable loans of up to $10 million to be used for payroll, rent, utilities, and mortgage interest expenses. In order to be eligible for a loan under the Program, your business must maintain an average monthly number of employees during the covered period that is no less than the number it had before the crisis began. 

Some key details of the Program are as follows:

• Loans are non-recourse and they do not require a personal guaranty or collateral.
• Interest rates will not exceed 4%.
• The loans are capped at $10 million.
• The permissible loan amount for any business is calculated as  2.5 times its average total monthly payroll costs.
• Each borrower must make a good-faith certification that:
  • The loan is needed to continue operations during the COVID-19 emergency;
  • Funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments (documentation will also need to be provided demonstrating that the funds were properly used);
  • The applicant does not have any other application pending under the Program for the same purpose; and
  • From February 15, 2020, until December 31, 2020, the applicant has not received duplicative amounts under the Program.

A company’s loan will be forgiven, either in whole or in part depending on the satisfaction of the Program’s requirements, such as the employee retention requirement.  A certain amount of the loan proceeds will also be excluded from the company’s gross income for this taxable year.  In the event a company is required to make layoffs, then the Program also provides relief from the forgiveness reduction penalties if the company rehires employees or makes-up for wage reductions by June 30, 2020. 

We are all experiencing these difficult times and the stimulus package is designed to help keep your whole team intact.  We are immensely grateful to our nation’s healthcare providers like you, many of whom are on the front-lines of this pandemic and are continuing to treat patients and serve our community during this time. 

If you would like any further information or would like to pursue obtaining one of these loans, please contact a member of our Health Care Practice Group or Lender Representation Team. 

Our firm is constantly providing updated legal guidance on COVID-19 issues on our website at https://www.kaufcan.com/covid-19-legal-resources/. Please do not hesitate to reach out to any of our firm’s lawyers to discuss how we can assist your practice during this crisis.