The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law by President Trump on March 27, 2020. The CARES Act is a $2.2 trillion stimulus law intended to provide financial support to individuals and businesses in response to the coronavirus pandemic.
The CARES Act contains various provisions that are pertinent to Construction companies. As additional clarifications have proliferated over the past few days, we have been diligently working to summarize the parts that we believe to be the most beneficial to our clients and friends in this industry. A couple of central themes have emerged: We have heard an overwhelming desire from owners to take care of their team members as much as possible, and we know you want to access the available financial stimulus benefits that will assist in this effort.
Before we get to the provisions, below are several immediate opportunities and action items to consider:
Ongoing Strategies and Action Steps
- Focus on the next 90 days.
- Create and update a flexible budget and cash flow forecast.
- Monitor the ongoing plans and condition of your customers.
- Stay connected with your vendors and subcontractors.
- Communicate frequently with your bankers, lenders, and sureties.
- Coordinate with your attorney regarding contract terms and risk mitigation.
- Contact your insurance agents to reassess areas of exposure, coverages, and related potential premium adjustments.
- Focus on workplace safety and team member moral.
For the most part, the stimulus programs are targeted at companies with less than 500 employees and are designed to allow you to protect your workforce and continuity of your business through the height of the pandemic. Benefits cannot be duplicated across the various programs.
Small business Administration (SBA) 7(A) Loan Program – Paycheck Protection Program (“PPP”) (Section 1102)
Loan amount equal to the lesser of $10 million or 2.5 times average total monthly payroll costs during the prior year or most recent 12 months. Loan proceeds may be used for the following:
- Payroll costs (limited to $100,000 per employee);
- Health insurance benefits;
- Retirement benefits;
- Interest on a mortgage;
- Rent; and
Interest rate is fixed at 1%, and the loan will mature in 2 years. Payments of principal/interest deferred for 6 months. No personal guarantee or collateral will be required to secure the funds, nor will the SBA impose any borrower or lender fees.
Notably, employers that maintain employment for 8 weeks from the origination date of the loan, or rehire employees by June 30, are eligible for forgiveness of the loan, basically converting the loan into a grant. We believe this is one of the most attractive programs and will be extremely popular. The program is being administered through most banks, and it will be critical to submit your application as soon as possible.
Qualifying financial institutions are expected to begin accepting loan applications on April 3, 2020, but many have already notified customers that they will not be ready to accept applications at that point. Additional guidance regarding this program is available on the U.S. Department of Treasury website, including the borrower’s application.
On April 2, 2020, the U.S. Department of Treasury released an Interim Final Rule which can be found here. Among other clarifications, the Interim Final Rule states that independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation. Additional guidance on loan forgiveness and affiliates are forthcoming.
Economic Injury Disaster Loan (“EIDL”) (Section 1110)
Qualification for the EIDL based on the applicant’s credit score. Loan proceeds can be used for payroll costs, rent, mortgage, or other debt payments. An organization may receive up to $10,000 as an advance, within 3 days of application, if the SBA certifies that the entity is eligible. This provision enables companies to quickly access financial assistance while their loan is being processed. If the loan application is denied, the $10,000 advance is not required to be repaid.
Unlike the PPP loans above, these loans are not forgivable and contain more stringent qualifications and compliance requirements. Nevertheless, the loans can provide supplemental financing for a more extended time, at favorable terms.
PPP and EIDL loans cannot fund the same cost recoveries.
Industry Stabilization Loan Program (ISLP) (Section 4003)
Loan program for companies with between 500 and 10,000 employees. Loans cannot be forgiven, but contain the following favorable terms: (1) an interest rate of no more than 2%; and (2) no interest accrual or repayment for the first 6 months. The funds must be used to retain employees and restore compensation and benefits.
Further guidance is expected imminently on the ISLP.
Employee Retention Payroll Tax Credit (Section 2301)
Refundable payroll tax credit of up to $5,000 for each employee when the employer satisfies the following criteria:
- The operation of its business is fully or partially suspended during the calendar quarter resulting from government mandates limiting commerce, travel, or group meetings due to COVID-19; or
- The gross receipts for the first quarter of 2020 are 50% less than the first quarter in 2019.
Employers that receive a loan under the SBA Paycheck Protection Program are not eligible for the payroll tax credit.
Delayed Payment of Payroll Taxes (Section 2301)
This provision permits delayed payment of the employer portion of payroll taxes – 50% of employment taxes for 2020 are due by December 31, 2021, with the remaining 50% due by the end of 2022. This can provide a significant, more precise benefit to some companies who may not be a fit or qualify for the above programs.
The delay is not applicable to an employer that received loan forgiveness under the SBA Paycheck Protection Program.
Expansion of Unemployment Benefits (Section 2104)
Payments for workers who are furloughed, contractors, or self-employed increased by $600 per week for 4 months, in addition to their state unemployment benefits. Congress’s intent is for the provisions above to prevent and/or delay the need for unemployment filings, but if necessary, the increased benefit supplements will go a long way to assist your employees when you are unable to sustain payments to them.
Amendments to New Paid Leave Requirements (Section 3601 and 3602)
Provides amounts that employers are required to pay for leave under the Families First Coronavirus Response Act (enacted March 19) to a maximum of $511 per day for sick leave and $200 for family leave, as well as immediate reimbursement for these costs through recoupment of payroll taxes starting April 1, 2020.
We can help
Our Construction Team is closely following legislative developments and will provide updates as additional guidance is released.
In the meantime, for additional information, please visit the COVID-19 Resource Center.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change as a result of rapidly evolving legislative developments and government guidance.