Our attorneys closely studied the “Coronavirus Aid, Relief and Economic Security Act” or the “CARES Act” before it was passed by the Senate on March 26, 2020. Please read forward if you are a small business owner or franchise company looking for financial relief during this global pandemic:

Main Features of the CARES Act

The main features of the CARES Act for small businesses are emergency grants and an expansion of the SBA loan program. Within approximately one week, the Department of Treasury is expected to roll out the application process to allow for small businesses and franchise companies with less than 500 employees to receive Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) loans.  During the “covered period” of February 15, 2020 through June 30, 2020, the loan monies received will be forgiven by the federal government for:

• Payroll costs
• Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums;
• Employee salaries, commissions, or similar compensations;
• Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
• Rent (including rent under a lease agreement);
• Utilities; and
• Interest on any other debt obligation that were incurred before the covered period.

Eligible payroll costs do not include compensation to employees that earn more than $100,000 in wages or any compensation to employees who reside outside of the United States. The bill also provides emergency grants up to $10,000 to provide emergency funds for small businesses to cover immediate operating costs and relief for existing loans that already are using SBA loans.

Maximum Loan Amount Calculation

The maximum loan amount during the covered period is generally, with some exceptions, going to be calculated by multiplying the monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made (except that, in the case of an applicant that is seasonal employer, as determined by the Administrator, the average total monthly payments for payroll shall be for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019) by 2.5.

Application Process

The application process is not yet known but it is anticipated that any SBA lender will be able to process loan applications which should be funded quickly. With regard to loan forgiveness for payroll costs and rent, the CARES Act provides that a decision will be made not later than 60 days after the date on which the lender receives an application for loan forgiveness. An eligible recipient seeking loan forgiveness under the CARES Act shall submit to the lender the following:

• Documentation verifying the number of full time equivalent employees on payroll and pay rates for the covered period including (A) payroll tax filings reported to the IRS and (B) State income, payroll, and unemployment insurance filings;
• Documentation, including cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments;
• A certification from a representative of the eligible recipient authorized to make such certifications that the documentation presented is (A) true and correct and (B) the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments; and
• Any other documentation the Administrator determines necessary.

Small businesses and franchise companies need to prepared to provide this information. No eligible recipient shall receive loan forgiveness without submitting to the lender that is servicing the covered loan the documentation required above.

Franchise SBA Affiliation Rules Waived

The CARES ACT waives the SBA affiliation rules set forth in 13 CFR 121.103. SBA affiliation is a complex topic but generally franchise companies with less than 500 employees should be eligible to receive covered loans and benefit from the loan forgiveness for rent and payroll.

If you have any questions on applying for the CARES Act in this unprecedented time, please contact us at (561) 693-3234 and one of our attorneys will be available to speak with you immediately.

About Wasch Raines LLP

Wasch Raines LLP is a franchise and business law firm providing a comprehensive range of services to emerging and established businesses and franchise companies in a variety of industries. Through its unique business model, the firm offers its clients the benefits of having a cost-efficient in-house general counsel and a full service litigation team.

Wasch Raines LLP has has provided this article for general informational purposes only. It is not intended as professional counsel and should not be used as such. You should contact your attorney to obtain advice with respect to any particular issue or problem.