CARES Act offers unprecedented relief for New Hampshire businesses

A rundown of the provisions in the new federal law

During this time of a global healthcare crisis and related disruptions, New Hampshire businesses are confronted with the task of quickly deciphering and applying for emergency loan programs and grant relief.

The most prominent piece of federal legislation recently enacted to help businesses negatively affected by COVID-19 is called the Coronavirus Aid, Relief, and Economic Security, or CARES Act, enacted March 27 to provide emergency assistance and a healthcare response for individuals, families and businesses affected by the pandemic.

Here’s a summary of the act’s provisions that have the broadest applicability to New Hampshire’s small to medium-sized business community.

Small Business Administration loan program expansion

The CARES Act provides economic assistance to businesses in the form of loans, grants and debt relief. Most important to New Hampshire businesses, the bill authorizes $349 billion through June 30 to expand the existing SBA Section 7(a) loan program. The change incentivizes employers to continue to employ workers and pay employee benefits even when those businesses may be under severe economic hardship due to the pandemic.

Loan amount: Qualified borrowers are eligible to receive a loan amount equivalent to 2.5 times their average monthly payroll costs (including taxes and benefits expenses) or $10 million, whichever is less.) The calculation of “payroll costs” (including a number of limitations and exclusions), could require, depending on the size and nature of the business, consultation with an accountant or attorney. Borrowers are able to use the loan funds for payroll (including vacation, parental, family, medical or sick leave, insurance premiums and retirement benefits), mortgage payments (other than principal), rent and utilities, and any other interest on previously incurred debt.

Business eligibility: To qualify for the loans, the borrower must make a good faith certification that current economic conditions caused the borrower to request support; the loan will be used for approved uses; and that the borrower is not also seeking or received an SBA 7(a) loan for the same purposes. However, unlike traditional SBA loans, there are no revenue restrictions for eligibility, and the SBA will not require collateral or personal guaranties. Businesses that employ 500 or fewer employees are eligible to receive these loans.

The definition of “employees” includes part-time, full-time and “other basis” employees. Subject to a few exemptions, employees of affiliated companies count toward the 500-employee cap.

Eligible businesses can include many different types and forms, including sole proprietors, independent contractors, self-employed individuals, nonprofit organizations and veterans’ organizations.

Loan forgiveness: Subject to forgiveness limitations in connection with the employer’s reduction in the number of employees (who are not subsequently re-hired) and the employees’ compensation, the indebtedness will be forgiven up to the principal amount of the loan. For the portion of the loan that is not forgiven, the loan maturity date will be determined on a case-by-case basis, but will not be greater than 10 years, and interest rates on the loans will not exceed 4%.

The SBA has more information on its website.

Assistance for mid-size businesses

In the near future, additional investments to mid-size businesses (likely in the forms of loans and loan guarantees) will be made through programs provided by the Federal Reserve.

The CARES Act contains a directive “to endeavor to seek the implementation of” a program to lend to financial institutions that in turn make direct loans to eligible businesses, including nonprofit organizations, to the extent practicable, of between 500 and 10,000 employees. These direct loans would not require principal or interest payments within the first six months, and the interest rate would not exceed 2%.

The criteria for this program that are likely applicable to New Hampshire businesses include:

• Certifying that the uncertain economic conditions make the loan request necessary for ongoing operations
• The recipient will retain at least 90% of its workforce at full compensation through September 30
• The recipient will restore its workforce to at least 90% of its workforce existing as of Feb. 1 and will restore all compensation and benefits to its workers no later than four months after the termination of the declared public health emergency
• While the loan is outstanding, the recipient will not pay dividends on its common stock or repurchase public equity securities of any eligible business or any parent company except pursuant to contractual obligations in effect as of the date of the act.

In order to take advantage of the unprecedented financial relief provided by the CARES Act — given that many loan applications are anticipated across the country — New Hampshire business owners should strongly consider gathering the necessary information and applying as soon as reasonably possible.

Mark E. Beaudoin, a partner with Nixon Peabody based in Manchester, represents business and energy clients in all aspects of commercial real estate transactions, including finance and leasing. Talia Burghard, an associate with Nixon Peabody based in Manchester, assists clients with commercial real estate transactions. Morgan Nighan, a partner with Nixon Peabody, represents clients in complex commercial, bankruptcy, and white-collar matters in state and federal courts, administrative agencies, arbitrations, and mediations across the country.