The CARES Act, frequently referred to as Covid III, is the third bill in three weeks passed by Congress to address the coronavirus crisis in the U.S. These acts have significant ramifications, both beneficial and problematic, for seasonal commercial outfitters:
The Families First Coronavirus Response Act, HR 6201, focuses on protecting the American worker by expanding federal benefits, such as paid sick leave and extended family and medical leave.
The Coronavirus Aid, Relief, and Economic Security Act, the CARES Act (HR 748) which passed on March 27, 2020, focuses on increasing the scope, size, and accessibility of disaster assistance loans to small businesses, allows partial loan forgiveness for payroll expenses, and increases the unemployment benefit for a four-month period.
The Small Business Administration has 15 days to issue regulations based on the CARES Act. Outfitters may want to hold off on applying for a loan until the SBA has a chance to update its application process to fit the coronavirus response and the more broadly available loans.
Understanding the CARES Act
Borrowed from Bryan Cave Leighton Paisner, LLC
For eligible small businesses, sole proprietors, independent contractors, and other self-employed individuals, the CARES Act provides $349 billion through federally backed loans under a modified and expanded Small Business Administration (SBA) 7(a) loan guaranty program. Borrowers are eligible for loan forgiveness for the first 8 weeks of the loan. The SBA’s existing 7(a) program will see an increase in maximum loan amount to $10 million, a much larger lending pool, and an expansion of allowable uses for loans to include:
Certain borrowers would be eligible for loan forgiveness equal to the amount spent during an eight-week period after the origination date of the loan to offset expenses incurred for:
Interest payment on any mortgage incurred before Feb. 15, 2020;
Rent on any lease in force before Feb. 15, 2020; and
Utilities for which service began before Feb. 15, 2020.
The amount forgiven will be lowered in proportion to a reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of the prior year’s compensation. Borrowers that rehire workers previously laid off will not be penalized for having reduced payroll at the beginning of the period.
An outfitter who was denied an SBA loan last week may be eligible for a new loan this week. Though credit ratings, proof of profitability, and other requirements remain the same, the CARES Act relaxes other requirements:
Loan forgiveness will be limited to the payment of certain types of permitted expenses incurred before the covered period started and paid after the loan was secured. Rental payment under a lease in effect as of January 1, 2020, would be eligible for forgiveness while rental payment under a lease effective as of March 15, 2020, would not. Eligible payroll costs do not include compensation above $100,000.
Any loan amount not forgiven at the end of one year is carried forward as an ongoing loan with a maximum term of 10 years and a maximum interest rate of 4%. Detailed accounting and complete and accurate recordkeeping will be vital to taking advantage of these provisions.
Maximum Loan Amount
The maximum loan amount is the lesser of $10 million or the product obtained by multiplying average total monthly payments for payroll costs during the 1-year period before the loan is made by 2.5. So, if the loan was made on April 1, 2020, and average monthly payroll costs for the period April 1, 2019, to April 1, 2020, were $1,500,000, the maximum loan amount would be $3,750,000. The loan can also include the outstanding amount of a loan made under the SBA’s Disaster Loan Program between January 31, 2020, and the date on which such loan may be refinanced as part of this new program.
Under the CARES Act, the loan period for this program would begin on February 15, 2020, and end on December 31, 2020, during which time an application must be submitted. The program would cover businesses with fewer than 500 employees.
For those who lost employment because of the pandemic, the measure provides robust unemployment insurance, including for self-employed, independent contractors, and those with limited work history. The assistance will include an additional $600 per week for each recipient and provides an additional 13 weeks of benefits to those who remain unemployed after state unemployment benefits are no longer available.
Source: Breakdown of the COVID-19 Relief Bill Passed in the House
Families First Coronavirus Response Act and the Family Medical Leave Act
Payroll also factored significantly into the second coronavirus relief bill that passed on March 18, 2020. Within it, small businesses with 500 employees or less are directed to offset payroll costs with a tax credit. In addition, federal sick leave and family medical leave programs are significantly expanded.
FMLA is typically unpaid leave, but the Families First Coronavirus Response Act provides 80 hours of paid coronavirus-based leave. The first 14 days of leave may be unpaid, but an employee can choose to substitute accrued vacation leave, personal leave, or other medical or sick leave during the leave. The employer cannot force an employee to use their accrued paid leave.
As we gain more insight into the nuance of the work for Congress, we will be sharing that information broadly. If you have a resource that you think would benefit your fellow outfitters, send it to America Outdoors and we will add it to our ever-growing collection of community resources.
Department of Labor Wage & Hour Division Pandemic Resources
Outdoor Recreation Roundtable Resource Page
America’s Small Business Development Center Network Coronavirus resource page
SBA Disaster Loans