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A Comprehensive Guide to Understanding Coronavirus-Related Federal Assistance Programs: Who is Giving What to Whom

SANFORD MICHELMAN
MARCH 26, 2020


On Wednesday, March 25, the Senate approved a massive $2T economic stimulus package to provide a jolt to an economy reeling from the coronavirus pandemic. This legislation, known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, represents the largest emergency aid package in U.S. history. It will next go to the House of Representatives for a vote, and then if passed there as anticipated—to President Trump for signature, though that is not expected to happen until Friday, March 27, at the earliest.

Between the CARES Act and other measures recently taken at the federal level, there are several relief plans available to small businesses in the U.S. Below, Michelman & Robinson presents an overview of these federal stimulus and Federal Reserve programs. In a separate alert coming tomorrow, we will set forth a guide to certain state assistance packages.

Federal Stimulus Programs


SMALL BUSINESS ASSOCIATION (SBA) ECONOMIC INJURY DISASTER LOAN (EIDL) PROGRAM

The SBA is providing low-interest working capital loans of up to $2M to small businesses and nonprofits affected by the coronavirus.

Benefits: Loans are determined by actual economic injury and can be up to $2M. The applicable interest rate is 3.75% for small businesses and 2.75% for nonprofits. The loans are long­-term, up to 30 years, and can be used to cover accounts payable, debts, payroll and other bills the borrower is unable to pay due to the coronavirus outbreak.

Who Qualifies: Small businesses—defined by the SBA as those that typically make a maximum of $750,000 to $38.5M in annual revenue and have fewer than 100 to 1,500 employees, depending on the industry—are eligible to borrow.

How much can a borrower get: Again, loans are determined by actual economic injury and can be worth up to $2M.

How to obtain loan proceeds: To get a loan, a borrower must be determined by the SBA to be creditworthy. Loans to eligible borrowers that exceed $25,000 must be secured by collateral to the extent possible and, if the business has no collateral to pledge, assets of the business owners may need to be used as security. Small businesses need to apply online by selecting “Economic Injury” on the SBA’s website as the reason they are seeking assistance. They will then need to supply supporting documentation that could include the given business’s most recent tax returns, a personal financial statement, and a schedule of liabilities that lists all current debts.

SBA EXPRESS BRIDGE LOAN PROGRAM

The Express Bridge loan program allows SBA Express lenders to provide expedited financing to small businesses located in declared disaster areas.

Benefits: Express Bridge loans are intended to be interim loans, which are to be used for disaster-related purposes while small businesses apply for and await long-term financing.

Who Qualifies: Only lenders participating in the SBA Express program at the time of the coronavirus outbreak can issue Express Bridge loans, and they may only go to eligible small businesses having an existing banking relationship with an approved lender at the time the disaster was declared. Of note, a qualifying lender can issue an Express Bridge loan to an eligible small business up to six months after the disaster declaration, and it may require the borrower to pay down or pay off the Express Bridge loan with proceeds from long-term disaster financing, if granted.

How much can a borrower get: $25,000.

How to obtain loan proceeds: The SBA has simplified the underwriting process for the Express Bridge program. Qualifying lenders need only consider the following:

  • A minimum acceptable credit score of 140 for the applicant issued by E-Tran (submitted with the loan application for screening)
  • A personal credit score for each guarantor
  • A signed IRS Form 4506-T and an IRS tax transcript. For small businesses in operation prior to the disaster, but not long enough to have been required to file a tax return, lenders must provide an alternative to verify their existence 

Typical terms: The SBA will guarantee up to 50% and the maximum loan term is seven years.

SBA COMMUNITY ADVANTAGE LOAN

The SBA launched the Community Advantage loan program to assist small businesses in underserved markets. Community Advantage provides mission-based lenders access to 7(a) loan guaranties as high as 85% for loans up to $250,000.

Benefits: For businesses that might not qualify for traditional financing, Community Advantage can provide an alternative path.

Who Qualifies: For-profit businesses in underserved markets that can meet the SBA’s size standards. Borrowers must simply prove creditworthiness and their businesses' viability. Unlike traditional lending, qualification for this program is not limited by the size of a borrower’s balance sheet or the amount of collateral.

How much can a borrower get: Up to $250,000.

How to obtain loan proceeds: Contact a local SBA lender for further information and qualification requirements.

SBA 504 LOAN PROGRAM

The SBA 504 Loan program offers small businesses another avenue for financing, all the while promoting business growth and job creation. The program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. 504 loans are made available through Certified Development Companies (CDCs), SBA's community-based partners for purposes of this lending plan.

Benefits: Loans facilitated by non-profit corporations that promote economic development within their communities through 504 lending.

Who Qualifies: Businesses with a tangible net worth below $15M and average net income below $5M.

How much can a borrower get: Up to $5M ($5.5M for energy efficient manufacturing operations).

How to obtain loan proceeds: Contact a qualified third-party SBA lender. Typically, the business owner puts up 10% of the capital, a lender provides 50%, and a CDC furnishes the rest.

EMERGENCY SBA GRANTS

Emergency grants available for those eligible for the SBA’s 7(a) program (see below) while they apply and await a response in connection with their loan applications.

Who Qualifies: Businesses with 500 or fewer employees (includes non-profits, ESOPs, and agricultural cooperatives).

How much can be obtained: Up to $10,000.

How to get grant proceeds: Apply directly to SBA.

Start date: Upon enactment of the CARES Act.

SBA 7(A) LOAN PROGRAM (AS IMPACTED BY THE CARES ACT)

Payroll protection loans pursuant to the CARES Act that increase the maximum 7(a) loan amount to $10M and expand allowable uses of 7(a) loan proceeds to include payroll support (including paid sick or medical leave), employee salaries, mortgage payments, insurance premiums and any other debt obligations. Details about how the CARES Act impacts employers and employees can be found here.

Benefits: Loans can be used for rent, mortgage, and payroll expenses (including paid sick leave). To the extent loan proceeds are used to fund payroll expenses during the period of March 1, 2020 to June 30, 2020, the loan can be forgiven. However, any reduction in an employer’s workforce will result in a reduction in the amount of forgiveness of the loan.

Who Qualifies: Companies with 500 employees or less, including non-profits. To further determine a small business’s eligibility, the CARES Act will require lenders to determine (1) whether a business was operational on February 15, 2020; (2) whether it had employees for whom it paid salaries and payroll taxes, or paid independent contractors; and (3) whether the business has been substantially impacted by COVID-19. Once signed into law, the legislation will delegate more authority to lenders on eligibility determinations without requiring them to go through all of the usual SBA channels. Note that eligible borrowers will be required to make good faith certification that they have been affected by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations.

How much can a borrower get: Two and a half times the business’s average monthly payroll, up to $10M. Payroll includes all benefits and includes 1099 employees.

How to obtain loan proceeds: Apply through SBA lenders and submit SBA Forms 1919 and 1920.

Additional key terms:

  • A borrower that receives a 7(a) loan for employee salaries, payroll support, mortgage payments, and/or other debt obligations will not be able to receive an SBA EIDL for the same purpose, or to co-mingle funds from another loan for the same purpose.
  • There are exceptions to the SBA’s typical affiliates test to determine the number of employees for food and lodging businesses, franchises, SBIC supported businesses, or those affiliated with a CDC, native entity, or with respect to the ownership of certain nonprofits or tax-exempt type entities, including venture capital operating companies
  • No personal guarantees, collateral, personal resources test, and no credit elsewhere test are required

GOVERNMENT TO MAKE SIX MONTHS OF PRINCIPAL AND INTEREST PAYMENTS ON ALL EXISTING AND NEW SBA LOANS

The CARES Act includes $17B to provide immediate relief to small businesses with standard SBA 7(a), 504, or microloans. With this money, the SBA will cover all loan payments for existing SBA borrowers (including principal, interest, and fees) for six months. The measure also encourages banks to provide further relief to small business borrowers by allowing them to extend the duration of existing loans beyond current limits, and enables small business lenders to assist more new and existing borrowers by providing a temporary extension on certain reporting requirements.

Benefits: Six months of principal, interest, and fee payments on new and existing SBA 7(a) and 504 loans.

Who qualifies: All existing 7(a) and 504 borrowers, and all those that obtain 7(a) and 504 loans in the six months following enactment of the CARES Act.

How much will the SBA cover: Up to full amount of the SBA debt.

How to obtain the payment relief: SBA lender will obtain payments directly from the federal government.

Start date: Upon enactment of the CARES Act.

DEFERMENTS ON EXISTING SBA DISASTER LOANS

The SBA has agreed to defer payments on existing SBA disaster loans.

Who qualifies: Applies to any SBA disaster loan issued to borrowers as a result of previous disasters.

How much can be deferred: All payments on existing SBA disaster loans are deferred through December 31, 2020.

How to obtain the payment relief: Deferments are automatic.

GRANTS FOR REIMBURSEMENTS FOR CANCELLED TRADE SHOWS

If a business receiving trade expansion grants from the federal government has expenses relating to the cancellation of a foreign trade show or trade mission, such entity may apply for reimbursement of certain related expenses from the U.S. Treasury.

Who qualifies: Companies receiving trade show expansion grants that have experienced cancellation of a foreign trade show.

How much will be reimbursed: Presently, the amount is to be determined.

How to obtain reimbursement: As of this writing, the process is unclear, though it is anticipated that business must apply through the Commerce Department.

U.S. TREASURY LOAN PROGRAM

The U.S. Treasury is making available $500B in loans and loan guarantees as follows: $25B for passenger air carriers, $4B for freight air carriers, $17B for defense/national security, and $454B for other businesses.

Who qualifies: The Secretary of the Treasury is to determine eligibility based on a showing of (1) other credit not being reasonably available to the borrower; (2) the necessity of the loan being applied for; and (3) the loan being sufficiently secured. Also, Treasury’s senior status of the debt is required; Treasury may require security interests; and it must receive equity/warrants in addition to loan repayment. Loan conditions can include (1) executive (any person who earned $425K in 2019) pay freezes (for two years); (2) caps on total compensation for any employee of $3M plus 50% of the difference between $3M and total 2019 compensation (for two years); (3) limited severance pay; and (4) other industry specific conditions.

How much can a borrower get: There are no specific limits on individual loans.

How to obtain loan proceeds: As of this writing the process is unclear, though the U.S. Treasury is expected to issue guidance.

Start Date: 10 days after enactment of the CARES Act.

LOAN SUPPORT FOR MID-SIZED BUSINESSES

The U.S. Treasury will support/guarantee 2% loans to mid-sized businesses, with no payments due for six months.

Who qualifies: Companies with 500 to 10,000 employees. As a condition to this lending benefit, employers must agree to retain 90% of their current workforce through September 30, 2020, and to rehire 90% of those laid off since January 2020. Other conditions include commitments not to outsource employees and an agreement to “remain neutral in any union organizing event.”

How much can a borrower get: There are no specific limits on individual loans.

How to obtain loan proceeds: By contacting a lender who deals with U.S. Treasury guarantees and support.

Start date: As of this writing, the start date is not yet known.

RESOURCES FOR BUSINESS COUNSELING SERVICES

The CARES Act stimulus provides $275M in grants to the nation’s network of Small Business Development Centers (SBDCs) and Women’s Business Centers (WBCs), as well as the Minority Business Development Agency’s Business Centers (MBDCs), to provide mentorship, guidance, and expertise to small businesses. The funding will allow SBDCs, WBCs, and MBDCs to hire staff and provide programming to help small businesses and minority-owned businesses respond to COVID-19. The bill also provides funds for the associations that represent SBDCs and WBCs to create a joint platform that consolidates information and resources related to COVID-19 in order to provide consistent, timely information to small businesses.

Federal Reserve Programs


PRIMARY DEALER CREDIT FACILITY (PDCF)

The Federal Reserve is providing up to 90-day loans to large banks and other financial institutions known as “primary dealers.” These loans are designed to enable these entities to have additional liquidity and lending capacity to consumers and businesses.

Who Qualifies: Primary dealers that offer eligible collateral to the Fed.

How much can a primary dealer get: They can receive loans equal to the value of the eligible collateral pledged.

How to obtain loan proceeds: Primary dealers must request funds from the PDCF through their clearing bank, which will verify the amount of the eligible, pledged collateral and notify the Fed. Once the collateral has been posted, the Fed transfers the loan proceeds.

Typical terms: Loans will accrue interest at the “primary credit” rate currently at 0.25% per annum.

COMMERCIAL PAPER FUNDING FACILITY (CPFF)

The Commercial Paper Funding Facility is intended to purchase commercial paper in the U.S. This is a means to provide liquidity to companies that issue commercial paper and to increase the liquidity of short-term funding markets, leading to greater availability and accessibility of credit for businesses and individuals. To facilitate these transactions, a special purpose vehicle (SPV) has been established by the Fed.

Benefits: Companies and municipalities may be able to sell three-month U.S. dollar-denominated commercial paper to the SPV.

Who Qualifies: U.S. issuers of commercial paper, including municipalities, and issuers with a foreign parent company.

What the SPV will buy: The SPV will only purchase U.S. dollar-denominated commercial paper (including asset-backed commercial paper (ABCP)) that is top-tier rated at least A1/P1/F1 by a major nationally recognized statistical rating organization (NRSRO) or, if rated by multiple major NRSROs, is rated at least A1/P1/F1 by two or more major NRSROs, in each case subject to review by the Fed.

Limitations for downgraded issuers: An issuer that, on March 17, 2020, was (1) rated at least A1/P1/F1 by a major NRSRO or, if rated by multiple major NRSROs, was rated at least A1/P1/F1 by two or more major NRSROs, and (2) is subsequently downgraded to at least A2/P2/F2 by a major NRSRO or, if rated by multiple major NRSROs, is rated at least A2/P2/F2 by two or more major NRSROs, in each case subject to review by the Fed (“Downgraded Eligible Issuer”), will be able to make a one-time sale of commercial paper so long as the issuer is rated.

Excluding ABCP purchases from inactive issuers: The SPV will not purchase ABCP from issuers that did not issue ABCP to institutions other than the sponsoring institution for any consecutive period of at least three-months during the period from March 16, 2019 to March 16, 2020.

How much commercial paper may be sold: The most that can be sold is the highest dollar value of commercial paper an issuer has outstanding on any given single day between March 16, 2019 and March 16, 2020.

The SPV will not purchase additional commercial paper from an issuer whose total commercial paper outstanding to all investors (including the SPV) equals or exceeds the issuer’s limit.

For a Downgraded Eligible Issuer, the maximum amount of the issuer’s commercial paper that the SPV will purchase is the amount of U.S. dollar-denominated commercial paper the issuer had outstanding the day before it was downgraded.

How to access the CPFF: As of this writing, the process is unclear, though we expect future guidance on utilizing this credit facility.

MONEY MARKET MUTUAL FUND LIQUIDITY FACILITY (MMMFLF)

This facility has been established to create liquidity to money market mutual funds by loaning proceeds to banks that offer assets purchased from such funds as collateral.

Benefits: These loans by the Federal Reserve Bank of Boston enable liquidity for money market mutual funds that may be experiencing substantial outflows from large corporate and institutional depositors that are desperate to raise cash.

Who Qualifies: All commercial banks, savings and loan associations, savings banks, and credit unions, including U.S. branches and agencies of foreign banks offering certain assets bought from money market mutual funds as collateral.

Eligible Collateral: Collateral that may be pledged under the MMMFLF must be one of the following types:

  • U.S. treasuries and securities issued by fully guaranteed agencies or U.S. government-sponsored entities
  • Top-rated asset-backed or unsecured commercial paper from a U.S. issuer
  • Certain U.S. municipal short-term debt

In addition, the MMMFLF may accept receivables from certain repurchase agreements.

How much can be lent: The principal amount of the advance will equal the value of the collateral. Value of collateral will be determined by amortized cost except for collateral listed above (e.g., U.S. Treasuries), which may be determined by amortized cost or fair value.

How to obtain loan proceeds: As of this writing, the process is unclear, though we expect future guidance on utilizing this credit facility.

Typical terms: Loans secured by eligible collateral accrue interest at the “primary credit” rate currently at 0.25% per annum. Loans secured by municipal short-term debt accrue interest at 25 bps more than the “primary credit” rate. All other loans accrue interest at the “primary credit” rate plus 100 bps.

TERM ASSET-BACKED SECURITIES LOAN FACILITY

This lending program authorizes loans of up to $100B intended to address consumer and small business credit needs. It addresses market conditions of asset-backed securities (ABS), generally. To facilitate these transactions, a special purpose vehicle (SPV) has been established by the Fed.

Benefits: Loans to lenders having eligible collateral consisting of ABS.

Who Qualifies: All U.S. companies that own eligible collateral and maintain an account with a primary dealer.

Eligible Collateral: ABS, so long as the underlying credit exposures are one of the following:

  • Auto loans and leases
  • Student loans
  • Credit card receivables (both consumer and corporate)
  • Equipment loans
  • Floor plan loans
  • Insurance premium finance loans
  • Certain small business loans that are guaranteed by the SBA
  • Eligible servicing advance receivables

Eligible collateral also includes U.S. dollar denominated cash ABS that have a high credit rating. Credit exposures underlying eligible ABS must have been originated by a U.S. company, and eligible ABS must be issued on or after March 23, 2020.

How much can be lent: The amount is dependent upon the total collateral pledged.

How to obtain loan proceeds: As of this writing, the process is unclear, though we expect future guidance on utilizing this credit facility.

Key loan terms: Loans will mature in three years and are non-recourse. Interest rate varies from 100 bps above the two-year LIBOR swap rate for securities with a weighted average life less than two years, or 100 bps above the three-year LIBOR swap rate for securities with a weighted average life less than three years.

PRIMARY MARKET CORPORATE CREDIT FACILITY (PMCCF)

This facility is designed to be a funding backstop for corporate debt. To facilitate transactions, a special purpose vehicle (SPV) has been established by the Fed.

Benefits: The SPV will purchase corporate bonds from, or make loans to, U.S. companies headquartered and primarily operating in the U.S. and not expected to receive federal assistance from other programs.

Who Qualifies: All U.S. companies that own eligible collateral and maintain an account relationship with a primary dealer. A U.S. company is defined as a U.S. business entity organized under the laws of the United States or a political subdivision or territory thereof (including such an entity that has a non-U.S. parent company), or a U.S. branch or agency of a foreign bank.

How much can be obtained: The maximum amount of outstanding bonds or loans to an eligible issuer that borrows from the PMCCF may not exceed the applicable percentage of the issuer’s maximum outstanding bonds and loans on any day between March 22, 2019 and March 22, 2020. This applicable percentage ranges from 140% for issuers with strong credit to 110% to those with weak credit.

How to obtain proceeds: As of this writing, the process is unclear, though we expect future guidance on utilizing this credit facility.

Key terms: Interest rates for loans or bonds to be determined by market conditions. That being said, interest during the first six months may be paid in-kind at the borrower’s election. Also, the commitment fee is 100 bps, and bonds or loans may be redeemed or prepaid.

SECONDARY MARKET CORPORATE CREDIT FACILITY

This facility is designed to buy corporate bonds on the open market. To facilitate transactions, a special purpose vehicle (SPV) has been established by the Fed. 

Benefits: The SPV will purchase corporate bonds from the secondary market.

Who Qualifies: Eligible issuers for direct purchases of individual corporate bonds on the secondary market will be U.S. businesses with material operations in the U.S., but excluding companies that are expected to receive direct financial assistance under pending federal legislation.

How much can be obtained: The maximum amount of bonds that the facility will purchase from any eligible issuer will be capped at 10% of the issuer’s maximum bonds outstanding on any day between March 22, 2019 and March 22, 2020. The facility will not purchase more than 20% of the assets of any particular ETF as of March 22, 2020.

How to obtain proceeds: As of this writing, the process is unclear, though we expect future guidance on utilizing this credit facility.

Key Terms: Bonds will be purchased at the fair market value on the secondary market.

ANTICIPATED: MAIN STREET BUSINESS LENDING PROGRAM

The Federal is expected to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses (likely those with less than $5B in annual revenues), complementing efforts by the SBA. No further details are available at this time, but we will continue to monitor the Fed’s announcements.


We are working diligently to keep our clients up to date on coronavirus-related developments. Nevertheless, these developments are changing daily and, in some cases even hourly, so it is important that you make sure you are dealing with the most current information. That being said, this alert is not offered, and should not be relied on, as legal advice. You should consult an attorney for guidance and counsel regarding any specific concern or situation.