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CARES Act includes $349B in government-backed small-biz loans to ease COVID-19 coronavirus slowdown

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Congress passed and Republican President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act” on Friday, making billions of dollars in loans available — and partly forgivable — for small businesses like body shops suffering an COVID-19 economic hit.

House Resolution 748, also known as the “CARES Act,” passed the Senate on Wednesday in a 96-0 vote, and the Associated Press reported the House passed it by voice vote.

“The financial impact on automotive repair facilities, during this crisis, continues to expand. The economic stimulus legislation passed by the House this morning will provide opportunities to help auto repair facilities across the U.S. to recover,” Automotive Service Association lobbyist Robert Redding Jr. said in a statement Friday.

“This is a very important day,” Trump said Friday, according to a White House transcript.

He estimated the entire bill at $2.2 trillion and called it “the single-biggest economic relief package in American history.”

“(T)his will deliver urgently needed relief to our nation’s families, workers, and businesses,” Trump also said, according to the transcript. “And that’s what this is all about. …

“This legislation provides for direct payments to individuals and unprecedented support to small businesses.  We’re going to keep our small businesses strong and our big businesses strong.  And that’s keeping our country strong and our jobs strong.”

“The House’s passage of the bipartisan #CARESAct sends a clear message: we are all committed to protecting America’s workers and families as our nation confronts this public health crisis,” U.S. House Speaker Nancy Pelosi, D-Calif., wrote on Twitter on Friday.

“The CARES Act directs financial help for the American people, provides rapid relief for small businesses and their employees, takes significant steps to stabilize our economy and protect jobs, and delivers more support for the brave healthcare professionals and the patients who are fighting the coronavirus on the front lines,” U.S. Senate Majority Leader Mitch McConnell, R-Ky., wrote in a news release Thursday.

In a sign of how badly the largely small-business auto body industry might be hurting, Gerber Collision’ parent company on Friday said demand has been down 40-50 percent.

Here’s some of the details on how the CARES Act could help repairers, based upon the text of HR 748 itself and a summary shared and highlighted by the Automotive Service Association (the original author is unclear).

The CARES Act includes $349 billion to guarantee small business loans under what’s known as the “Paycheck Protection Program.”

Any business employing 500 or fewer people can seek loans used to cover expenses like payroll, keeping up health benefits, mortgage interest, rent or utilities for the time between Feb. 15, 2020, and June 30, 2020. No personal guarantee or collateral is needed to obtain the loan, and the government will guarantee 100 percent of the amount, thereby removing the risk to lenders. Taken together, these two actions ought to make it easy for shops to apply for loans and receive approval.

Businesses can borrow roughly 2.5 times their average monthly payroll or $10 million, whichever is less. The maximum interest rate is 4 percent. The business owner must “make a good faith certification” that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient”; “funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments”; and they didn’t already borrow the money or have another loan pending.

Borrowers can defer paying on the principal or interest for at least 6 months, up to a year. Lenders will receive between 1-5 percent of the loan immediately from the government.

The government will even forgive part of the loan — an amount roughly equivalent to what the business spent on payroll, mortgage interest, rent and utility payments during the first eight weeks of the debt’s life. (It’ll repay your lender the amount.) The payroll forgiveness per employee caps at a prorated amount that would work out to making $100,000 a year. (By our math, roughly $15,384 per employee.)

However, if you lay off staff, the government won’t forgive as much of the loan. The forgiveness will fall by a quotient calculated by taking your average employee count between Feb. 15 and June 30 and dividing that amount by either your average employees last year or your average employees between Jan. 1-Feb. 29, whichever you prefer.

In addition, the government will reduce its forgiveness by the total of pay cuts exceeding 25 percent of the prior quarter’s wages. That rule doesn’t apply for employees making more than $100,000 — which means high earners can absorb the burden instead of passing it on to the rank-and-file. (For example, a CEO who cuts his or her salary to $1 when times get tough.)

That said, if you cut staff or slashed salaries between Feb. 15 and a month after this bill became law but restored those workers and pay by June 30, the government won’t reduce your loan forgiveness.

The bill also gave the Small Business Administration $10 billion for economic injury disaster loans. It allowed businesses with 500 or fewer employees to request advance grants on those loans of $10,000. The government must pay the advance within three days.

A personal guarantee isn’t necessary on loans up to $100,000, and any business operational by Jan. 31 can apply. The advances can be used for sick leave for employees “unable to work due to the direct effect of the COVID–19,” making payroll, paying higher materials costs from a different supplier if your supply chain was disrupted, rent or mortgages, or covering other debt at a time of revenue loss.

“An applicant shall not be required to repay any amounts of an advance provided under this subsection, even if subsequently denied a loan under section 7(b)(2) of the Small Business Act,” the bill states. However, if the funding rolls into a 7(a) SBA loan, “the advance amount shall be reduced from the loan forgiveness amount for a loan for payroll costs made under such section 7(a).”

The government also appropriated $17 billion to pay six months worth of bills on existing Small Business Administration loans.

Continue to check Repairer Driven News for updates as we and others dive into the 854-page measure.

More information:

House Resolution 748 (“CARES Act”) text

Summary of CARES Act provisions with highlighting by Automotive Service Association

Featured image: Republican President Donald Trump on March 27, 2020, signed the CARES Act. (Provided by Trump)

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