CARES Act: Summary of provisions for midsized and large businesses

The CARES Act has provided some much-needed relief for larger businesses. Title IV of the CARES Act is titled “Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy.” While the CARES Act focuses heavily on airlines and related industries impacted by COVID-19, numerous other industries are eligible for relief under the Act. If you believe you may be eligible to obtain relief under the CARES Act or have questions regarding its interpretation, McDonald Hopkins is prepared to assist no matter the industry or relief sought.

Who is eligible to obtain relief under Title IV of the CARES Act?

Title IV defines an eligible business as an air carrier or a United States business that has not otherwise received adequate economic relief in the form of loans or loan guarantees provided under the CARES Act. States and Municipalities may also be eligible to obtain relief under the CARES Act.

What kind of aid does Title IV of the CARES Act provide?

The CARES Act provides a total of $500 billion to the Treasury.

Of this amount, $46 billion is given to the Department of the Treasury to provide loans, loan guarantees, and other investments to eligible businesses, to be distributed as follows:

  • $25 billion to passenger air carriers; eligible businesses that are certified under part 145 of title 14, Code of Federal Regulations, and approved to perform inspection, repair, replace, or overhaul services; and ticket agents (as defined in section 40102 of tile 49 United States Code).
  • $4 billion for cargo air carriers.
  • $17 billion for businesses important to maintaining national security.

The CARES Act also provides that $454 billion is given to the Department of the Treasury for loans, loan guarantees, and investments in support of the Federal Reserve’s lending facilities to eligible businesses, states, and municipalities.

Additional criteria for direct lending:

  • Alternative financing must not reasonably be available to the business.
  • The loan is sufficiently secured or is made at an interest rate that reflects the risk of the loan and, to the extent possible, is not less than the interest rate based on market conditions for comparable obligations before the COVID-19 outbreak.
  • The duration of the loan shall be as short as practicable and shall not exceed five years.
  • Borrowers and their affiliates must agree to a twelve (12) month ban on stock buybacks unless contractually obligated, and agree not to pay dividends until the loan is no longer outstanding.
  • Until September 30, 2020, the borrowers shall maintain its employment levels at amounts consistent with amounts as of March 24, 2020, to the extent practicable and, in any case, shall not reduce its employment levels by more than 10% of what they were as of March 24, 2020.
  • Borrowers must certify that they are created or organized under the laws of the United States or have significant operations and a majority of their employees based in the United States.

Midsized Businesses

Because midsized business are likely to be excluded from the Paycheck Protection Program Small Business Administration 7(a) loans, the CARES Act provides a separate program geared toward midsized businesses. The CARES Act provides that the Secretary of the Treasury shall use the $454 billion provided by subsection b(4) of the act to provide financing to banks and other lenders that make direct loans to eligible businesses including, to the extent practicable, nonprofit organizations, with between 500 and 10,000 employees. Those direct loans are to have interest rates that do not exceed 2% annually. Further, for the first six months after any such direct loan is made, or for such longer period as the Secretary of the Treasury may determine in his discretion, no principal or interest shall be due and payable.

An eligible borrower applying for a direct loan under this program shall make a good-faith certification that:

  • The uncertainty of economic conditions as of the date of the application makes the loan request necessary to support the ongoing operations of the borrower.
  • The funds it receives will be used to retain at least 90% of the borrower’s workforce at full compensation and benefits, until September 30, 2020.
  • The borrower intends to restore not less than 90% of the workforce that existed as of February 1, 2020, and to restore all compensation and benefits to its workers no later than 4 months after the termination date of the public health emergency declared by the Department of Health and Human Services in response to COVID-19.
  • The borrower is an entity or business that is domiciled in the United States with significant operations and employees located in the United States.
  • The borrower is not a debtor in a bankruptcy proceeding.
  • The borrower is created or organized in the United States or under the laws of the United States and has significant operations and the majority of its employees based in the United States.
  • The borrower will not pay dividends while the direct loan is outstanding except as required by a contractual obligation already in effect at the CARES Act’s date of enactment.
  • The borrower will not outsource or offshore jobs for the term of the loan and two years after completing repayment of the loan.
  • The borrower will not abrogate existing collective bargaining agreements for the term of the loan and two years after completing repayment of the loan.
  • The borrower will remain neutral in any union organizing effort for the term of the loan.  
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