Bold Response to a Crisis
By Scott Foster
The CoronaCrisis has been a roller coaster for business owners. Starting almost a month ago, the rumblings of disruption began and have now erupted into complete and utter chaos. Business owners have been forced to make stark decisions — restaurant owners laying off their entire workforce; ‘non-essential’ businesses shutting down on 36 hours notice; whether and how to support employees facing three, then six weeks of cancelled school; supply-chain disruptions; canceled orders; canceled events; and more. Business owners have openly wondered, ‘how will my business survive?’
Fortunately, once the legislation pending in the U.S. Senate becomes law, which is widely expected, business owners — including sole proprietors and gig-economy workers — will be receiving a lifeline from the federal government that is unprecedented in scope, speed, and breadth.
Coined the Keeping American Workers Paid and Employed Act, the proposed provisions would appear to apply to every for-profit business with fewer than 500 employees (again, including sole proprietors). The act would allow these businesses (whether a corporation, LLC, partnership, or some other form of entity) to obtain a loan to cover payroll costs, including healthcare premiums and paid time off, rent, utilities, mortgage payments (interest, not principal), and interest on other pre-existing loans for an eight-week period falling between Feb. 15 and June 30, with a maximum loan amount of $10 million. The loan would be non-recourse, require no security or personal guarantees, and bear interest of only 4% with a repayment period of 10 years.
But this is not like any other loan ever offered. This loan would be forgiven in an amount equal to the sum of payroll costs, payments of interest on any covered mortgage, payments on any covered rent obligations, and covered utility payments. The amount to be forgiven would be reduced if the business reduced its workforce, and the forgiveness would not apply to payroll costs of any employees who were paid more than $100,000 in 2019. And the best part, unlike other debt that is forgiven by the lender, any amount forgiven under this program will be excluded from gross income.
To summarize, if you are a business and are willing to keep your employees on the payroll, pay your rent or mortgage, and stay in business, the federal government is prepared to pay your rent, your utilities, and your payroll (for employees making under $100,000 annually) for eight weeks, and the payment is tax-free. It sounds too good to be true, but the public policy is sound — the easiest and best way to get financial support to the most Americans is through their employers (especially in this time of historically low unemployment).
We would expect loans under this program to start being processed by late April or early May, with funding happening as soon as the loans can be closed. The program is relying on banks and commercial lenders to aggressively participate as the primary lenders under the program, so you should be able to continue working with your current bank.
Given the tight timeframe and the unprecedented scope of this program, Bulkley Richardson is preparing for an unusually high level of lending in the local market and will be prepared to help our clients navigate this new program, get the necessary loans, and submit the backup needed to qualify for the forgiveness.
Scott Foster is a partner at Bulkley Richardson.