A Closer Look at the CARES Act Midsize Loan Program
The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed by the President on March 27, 2020 and includes several different provisions to provide aid to individuals and businesses, including nonprofit organizations.
Some of the provisions are only available to businesses and nonprofit organizations with less than 500 employees. However, Title IV of the CARES Act is aimed at mid-sized businesses and nonprofit organizations with 500 to 10,000 employees.
Summary of the Midsize Business Loan Provisions
Title IV of the CARES Act provides $500 billion to provide liquidity to eligible businesses, states and municipalities. The $500 billion is allocated into two funds. The first is a $46 billion fund administered by the Treasury Secretary to provide direct loans for a short list of distressed, industry-specific and essential companies, including air carriers and businesses critical to maintaining national security. The second fund will be at least $454 billion and will be available to programs or facilities established by the Board of Governors of the Federal Reserve System that support lending to states, municipalities, and eligible businesses. Such funds may be used to (i) purchase obligations or other interests directly from issuers of such obligations or other interests; (ii) purchase obligations or other interests in secondary markets or otherwise; or (iii) make secured and unsecured loans.
This $454 billion fund will be used, in part, to provide direct low-interest loans for eligible businesses and nonprofit organizations.
Who is Eligible for Midsize Business Loans?
Midsize Business Loans may be provided to (i) “eligible businesses” and (ii) nonprofit organizations (to the extent practicable), with between 500 and 10,000 employees.
“Eligible Businesses” are defined to include:
- Air carriers (though such amount is limited); or
- A United States business “that has not otherwise received adequate economic relief in the form of loans or loan guarantees under [the CARES Act]”
Borrowers are required to make several good-faith certifications and must meet several other eligibility conditions. Potential borrowers should review the components of the good-faith certification in Section 4003(c)(3)(D) and other eligibility conditions prior to beginning the loan application process.
What are the Repayment Terms?
Loans made pursuant to Title IV of the CARES Act are not forgivable. Loans will carry a maximum interest rate of 2% per year. Payments of principal and interest are deferred for at least 6 months from the date the loan is made. The loan term may not exceed five years.
How does an Eligible Business or Nonprofit Organization Apply for a Midsize Business Loan?
In accordance with Section 4003(c)(B) of the CARES Act, the Secretary shall publish procedures for application and minimum requirements for the loan program within 10 days of the date of enactment of the CARES Act, which was on March 27, 2020.
Jones & Roth is committed to providing additional information as it is released. In the meantime, interested businesses and nonprofit organizations are encouraged to review the CARES Act eligibility requirements and self-certifications for the program in preparation for the loan application process.
Refer to the CARES Act website for the most current information released by the Secretary of the Treasury.
You should consult with your tax advisor as to whether any of the tax provisions from the CARES Act apply to you and your business.