Assistance for Mid-Sized Businesses
CARES Act Assistance for Companies with 500-10,000 Employees
OVERVIEW
Many businesses with between 500 and 10,000 employees may not qualify for the Paycheck Protection and Economic Injury Disaster Loan Programs, which were established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").
Those businesses, however, soon may be able to seek relief under Title IV, Subtitle A of the CARES Act, which is the Coronavirus Economic Stabilization Act of 2020 ("CESA"). CESA established a loan program aimed specifically at assisting businesses with between 500 and 10,000 employees (the "Assistance for Mid-Sized Businesses Program"). To date no guidance has been issued, and loan applications are not yet being accepted; however, guidance or regulations on the implementation of this $454 billion program is expected within the next few weeks.
WHO WILL BE ELIGIBLE TO APPLY?
Businesses with between 500 and 10,000 employees that have not otherwise received adequate economic relief under other provisions of the CARES Act.
WHAT ARE THE LOAN TERMS?
Loans will be subject to maximum interest rate of 2 percent per annum. No principal or interest will be due and payable for the first 6 months, or for such longer period as may be determined by the Department of Treasury. The duration of these loans cannot be extended beyond the end of 2025 at the latest. Unlike loans available under the Paycheck Protection Program, no part of these loans will be forgiven.
WHAT RESTRICTIONS WILL APPLY?
Borrowers must make the following self-certifications:
- the uncertainty of economic conditions necessitates the loan to support the ongoing operations;
- funds received will be used to retain at least 90 percent of the borrower's workforce, at full compensation and benefits, until September 30, 2020;
- the borrower intends to restore not less than 90 percent of its workforce (as of February 1, 2020), and to restore all compensation and benefits no later than 4 months after termination date of the COVID-19 public health emergency;
- the borrower is domiciled in the U.S., created or organized in the U.S. or under the laws of the U.S., has significant operations in and a majority of its employees based in the U.S.;
- the borrower is not a debtor in a bankruptcy proceeding;
- the borrower will not pay dividends on common stock, or repurchase an equity security listed on a national securities exchange (either of the borrower or its parent company) while the loan is outstanding, except to the extent required under a contractual obligation in effect as of March 27, 2020;
- the borrower will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan; and
- the borrower will not abrogate existing collective bargaining agreements for the term of the loan and 2 years after completing repayment of the loan, and agrees to remain neutral in any union organizing effort for the term of the loan.
It remains unclear whether compensation restrictions will apply to loans granted under the Assistance for Mid-Sized Businesses Program.
CONSIDERATIONS
We continue to monitor the Department of Treasury and the Federal Reserve for updates. In the meantime, eligible businesses should consider their financial needs and the restrictions that will be imposed on borrowers under this program, so those desiring to apply will be in a position to do so when the Assistance for Mid-Sized Businesses Program is implemented.