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Highlights of Key Financial Assistance Programs and Tax Benefits for Businesses Under the CARES Act

Highlights of Key Financial Assistance Programs and Tax Benefits for Businesses Under the CARES Act Background Decorative Image

Updated April 3, 2020

On April 2, 2020, the Small Business Administration (the “SBA”) issued an Interim Final Rule (the “Rule”) announcing the implementation of the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Rule will become effective immediately, but interested parties may submit comments. The Rule can be found here.

Highlights of the Rule include:

  • PPP loans will be first-come, first-served
  • The SBA intends to promptly issue additional guidance with regard to the applicability of affiliation rules at 13 CFR §§ 121.103 and 121.301 to PPP loans
  • The interest rate of a PPP loan will be 1%
  • The maturity of a PPP loan will be 2 years
  • No payments are required for 6 months following the date of disbursement of the PPP loan; however, interest will accrue during this 6-month deferment
  • Loan forgiveness can be up to the full principal amount of the PPP loan plus any accrued interest
  • Independent contractors do not count as employees for purposes of a business borrower’s PPP loan calculations
  • The SBA will allow lenders to rely on certifications of the borrower in order to determine borrower’s eligibility for a PPP loan and use of loan proceeds and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for loan forgiveness
  • Lenders will be held harmless for borrowers’ failure to comply with program criteria

The Rule also provides further detail and examples on the calculation of both the maximum loan amount and the amount eligible for forgiveness.


First published April 1, 2020

Congress is imminently expected to approve a $2.2 trillion stimulus package known as “The Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” to provide emergency assistance to deal with the 2020 novel coronavirus (“COVID-19”) pandemic. The legislation includes significant aid for businesses, individuals (including direct payments, increased unemployment benefits, and tax relief), assistance to states, assistance to the healthcare industry, and protections for workers.

In this update, we provide a high-level summary of key financial assistance programs and tax benefits that will be available to qualifying United States businesses under the CARES Act as well as certain programs established by the Federal Reserve. Details of application processes for certain loans and grants have not yet been published. Vinson & Elkins is carefully monitoring these developments, and we will be updating our clients as more information becomes available.

Paycheck Protection Program

The “Paycheck Protection Program” (“PPP”) portion of the CARES Act substantially expands the Small Business Administration’s (“SBA”) current business loan program and provides for $349 billion to fund those loans. PPP loans will be available until June 30, 2020. Basic eligibility requirements and loan terms include:

  • Eligible borrowers are businesses that qualify as small business concerns under the SBA’s rules, as well as other businesses with up to the greater of (i) 500 employees or (ii) if applicable, the size standard in number of employees established by the SBA for the industry in which the business operates. Several categories of individuals are also eligible, including individuals who operate under a sole proprietorship or as an independent contractor, as well as certain self-employed individuals. The existing SBA affiliation rules govern how many employees a business is deemed to have, except with respect to businesses in the hotel and food services industries, franchises, and businesses that receive financial assistance from SBICs, for which the CARES Act waives the SBA affiliation rules. Any business subject to the SBA affiliation rules that is controlled by a private equity fund or otherwise under common control or management may not be eligible for PPP loans if the aggregate number of employees of the fund or parent and its controlled portfolio companies or subsidiaries exceeds 500 (or the larger employee-based size standard established by the SBA for the applicable industry).
  • PPP Loans will be available in a maximum amount generally equal to 2.5 times the borrower’s average monthly payroll costs (excluding compensation of any employee in excess of $100,000) incurred during the one year period before the date on which the PPP loan is made, up to a cap of $10 million.
  • Many of the standard SBA lending requirements are waived, including the requirement of collateral or a personal guarantee.
  • The interest rate may not exceed 4%.
  • Fees, interest and amortization payments are deferred for at least six months, and up to one year.
  • There is no prepayment penalty on PPP loans.
  • Loan proceeds may be used for payroll, health care benefits, rent, mortgage interest payments, utilities, and interest on other debt obligations incurred before February 15, 2020.
  • Borrowers will be able to request loan forgiveness in an amount equal to payroll costs, interest on mortgages entered into before February 15, 2020, rent obligations under leases entered into before February 15, 2020, and utility payments for services beginning before February 15, 2020, in each case incurred or paid during the eight weeks after the loan date (the “covered period”). The forgiveness amount will be reduced on a prorated basis for layoffs and certain wage reductions during the covered period.
  • While Vinson & Elkins will be monitoring developments to keep our clients up to date, we expect further information will be posted from time to time on the SBA website at

Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy

The CARES Act allocates $500 billion to the Secretary of the Treasury to provide loans, loan guarantees and other investments in support of eligible businesses, states and municipalities as follows:

  • Up to $25 billion for passenger air carriers, ticket agents and certain other air carrier related businesses;
  • Up to $4 billion for cargo air carriers;
  • Up to $17 billion for businesses critical to maintaining national security (not defined); and
  • Up to $454 billion (plus any amounts not funded under the foregoing allocations) to make loans and loan guarantees to, and other investments in, certain programs or facilities established by the Board of Governors of the Federal Reserve System (the “Fed”) for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, states, or municipalities.

An “eligible business” is either 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.

Loans to Air Carriers and National Security Businesses

The CARES Act authorizes loans or loan guarantees to air carriers or national security businesses in the discretion of the Secretary of the Treasury meeting the following criteria:

  • Credit is not otherwise reasonably available to the borrower;
  • The loan is “sufficiently secured”, or has an interest rate appropriate for the risk (if practicable, determined as the market interest rate for a similar loan that would have prevailed prior to the COVID-19 emergency);
  • A tenor of no more than 5 years (or shorter, if practicable);
  • Either the Secretary of the Treasury must receive a warrant or equity interest in the borrower or, if the borrower’s equity is not publicly traded or the borrower cannot issue a warrant or other equity, a senior debt instrument issued by the borrower;
  • Neither the borrower nor any of its affiliates may purchase an equity security issued by the borrower or its parent entities that is listed on a national securities exchange (other than in satisfaction of contractual obligations in place on the date the CARES Act is enacted) or pay dividends or make distributions in respect of the common stock of the borrower, during the term of the loan and for a year after the loan is repaid in full;
  • To the extent practicable, the borrower must maintain March 24, 2020 employment levels until September 30, 2020, and in any case not reduce such employment levels by more than 10%;
  • The borrower must be a United States entity and have “significant operations” in, and a majority of its employees based in, the United States; and
  • The continued operations of the borrower must be jeopardized as a result of the COVID-19 emergency.

The following additional conditions apply for the period from the date of the loan through the first anniversary of the date on which the loan is repaid in full:

  • Compensation of any officer or employee of the borrower whose total compensation exceeded $425,000 in 2019 capped at such amount during any 12 consecutive months, and severance pay or other benefits upon termination of employment of such officer/employee capped at twice such amount;
  • Compensation of any officer or employee of the borrower whose total compensation exceeded $3 million in 2019 capped during any 12 consecutive months at $3 million plus 50% of such excess compensation; and
  • Total compensation for this purpose includes salary, bonus, award or stock and other financial benefits provided by the eligible business.

The Secretary of the Treasury will publish procedures for application and minimum requirements (which may be supplemented afterward) for participation in the loans and loan guarantees available to air carriers and national security businesses within 10 days after the CARES Act is enacted.1

Additional Assistance for Airline Industry

Under a separate section on relief for aviation workers, the CARES Act provides additional financial assistance to the airline industry. These amounts must be used exclusively to pay employee wages, salaries and benefits. The Act provides $25 billion for passenger air carriers, $4 billion for cargo air carriers, and $3 billion for contractors. This financial assistance comes with strings attached, including certifications of wages paid and assurances that the recipient will not conduct furloughs or reduce wages or benefits before September 30, 2020.

Assistance for Mid-Sized Businesses

The CARES Act requires the Secretary of the Treasury to “endeavor to seek the implementation” of a program or facility that provides financing to banks and other lenders that make direct loans to eligible businesses with between 500 and 10,000 employees, with such loans being subject to an annualized interest rate that is not higher than 2% per annum. The Secretary of the Treasury is authorized to defer the first six months of principal and interest.

Any borrower applying for a direct loan under this program must certify, among other things, as follows:

  • Uncertain economic conditions make the loan necessary to support ongoing operations;
  • The proceeds of the loan will be used to retain at least 90% of the workforce at full compensation and benefits until September 30, 2020;
  • At least 90% of the workforce that existed on February 1, 2020 will be restored with all compensation and benefits no later than 4 months after termination of the COVID-19 public health emergency;
  • The borrower is not a debtor in bankruptcy;
  • The borrower will not pay dividends with respect to its common stock or repurchase any equity security listed on a national security exchange while the loan is outstanding (except to the extent contractually required on the date the CARES Act is enacted);
  • The borrower will not outsource or offshore jobs for the term of the loan and for two years after repayment in full;
  • The borrower will not abrogate existing collective bargaining agreements for the term of the loan and for two years after repayment in full; and
  • The borrower will remain neutral in any union organizing effort for the term of the loan.

Main Street Lending Program

The CARES Act makes clear that nothing in the CARES Act will limit the discretion of the Fed to establish a main street lending program or other similar program or facility that supports lending to small and mid-sized businesses on terms and conditions as the Fed may set consistent with applicable law.

Any direct loans made available under facilities and programs established by the Fed will be subject to the equity repurchase, dividend and distribution restrictions and compensation limitations set forth above under “Loans to Air Carriers and National Security Businesses”.

The details of the programs that may be available to access the $454 billion described above are largely left to the discretion of the Secretary of the Treasury to be announced in the coming weeks.

Federal Reserve Programs and Facilities

To date, in addition to assistance available under the CARES Act, the Fed has announced extensive measures to promote the stability of the United States financial system amidst the COVID-19 emergency. Among those measures include the Primary Market Corporate Credit Facility (“PMCCF”) and the Secondary Market Corporate Credit Facility (“SMCCF”). The PMCCF and the SMCCF, together with other measures announced by the Fed, will provide up to $300 billion in new financing.

The PMCCF and the SMCCF provide credit to large employers – the PMCCF for new bond and loan issuance and the SMCCF to provide liquidity to purchase certain outstanding corporate bonds and ETFs. The facilities are available to borrowers that are:

  • United States companies headquartered in the United States and with material operations in the United States;
  • Rated at least BBB-/Baa3 by a major nationally recognized statistical rating organization (“NRSRO”) and, if rated by multiple major NRSROs, rated at least BBB-/Baa3 by two or more NRSROs, in each case subject to review by the Federal Reserve; and
  • Not expected to receive direct financial assistance under pending federal legislation.

Under the PMCCF, the maximum amount of outstanding bonds or loans of an issuer may not exceed the applicable percentage of the issuer’s maximum outstanding bonds and loans on any day between March 22, 2019 and March 22, 2020:

  • 140 percent for eligible assets/eligible issuers with a AAA/Aaa rating from a major NRSRO;
  • 130 percent for eligible assets/eligible issuers with a AA/Aa rating from a major NRSRO;
  • 120 percent for eligible assets/eligible issuers with a A/A rating from a major NRSRO; or
  • 110 percent for eligible assets/eligible issuers with a BBB/Baa rating from a major NRSRO.

Interest rates will be informed by prevailing market rates, and interest will be paid-in-kind for the first six months of the loan. The bonds or loans will have a maturity of four years or less.

Under the SMCCF, the maximum amount of bonds subject to purchase from an issuer will be capped at 10% of the issuer’s maximum outstanding bonds on any day between March 22, 2019 and March 22, 2020. Any such bonds must have a maturity of five years or less.

Both programs will terminate on September 30, 2020.

Tax Relief Provided by the CARES Act

The CARES Act provides for certain tax relief provisions as well:

  • NOLs incurred in tax years beginning in 2018, 2019, and 2020 are allowed to be carried back five years instead of one year. However, the carryback may not reduce any transition tax inclusion amount (i.e., Tax Cuts and Jobs Act income from untaxed foreign earnings of certain specified foreign corporations). The CARES Act also lifts the 80% taxable income limitation on the use of NOLs in tax years beginning before 2021. This change is applicable to partnerships and other flow-through entities as well as corporations.
  • The business interest expense limitation is increased to 50% (from prior 30%) of adjusted taxable income (i.e., effectively EBITDA) for tax years beginning in 2019 and 2020. For tax years beginning in 2020, taxpayers may use their 2019 adjusted taxable income to determine the limitation amount; taxpayers may elect out of the increased limitation. The increased limitation does not apply to partnerships for tax years beginning in 2019, but partners allocated excess business interest in 2019 may elect to deduct 50% of the allocated amount in the following tax year.
  • Employers who retain employees during the COVID-19 emergency will receive a tax credit equal to 50% of payroll (subject to limitations) for wages paid during the emergency (applicable first against payroll taxes, and refundable for any credit amount in excess of the payroll taxes). This credit applies only to employers whose gross receipts declined by more than 50% as compared with gross receipts for the same quarter in the prior year or whose operations were fully or partially suspended due to a COVID-19-related shutdown order. For employers with more than 100 full-time employees, this credit is based only on wages of employees affected by a shutdown order. The credit is not available to employers that have received a PPP Loan. The maximum amount of qualified wages per employee that can be taken into account is $10,000 per year.
  • Taxpayers can claim any remaining AMT credit refunds immediately (accelerating refunds otherwise available in tax years ending through tax years ending in 2021).
  • The employer social security payroll tax payment due date for calendar year 2020 is changed to December 31, 2021 (first half) and December 31, 2022 (second half).

The following associates contributed to the development of this article: Erin Brown, Matt Fiorillo and Eyad Saqr.

Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.

1 Certain additional requirements apply to air carriers seeking to avail themselves of this relief.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.