COVID-19: A Resource Guide

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I have more than 500 employees - does the CARES Act help me?

Mar 31, 2020

Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), $500 billion of emergency relief has been allocated to be used at the discretion of the Secretary of the Treasury (the “Secretary”) to make loans, loan guarantees, and other investments in support of eligible businesses, states and municipalities.

While this memo is accurate and up to date with respect to the CARES Act, recent programs announced by the Fed may have altered how businesses receive assistance for practical purposes. It is currently unclear if these Fed programs are pursuant to the CARES Act or if they are independent of the CARES Act. The Fed programs provide terms sheets which offer a clearer understanding of how money makes its way into your account. To better understand these Fed programs, please follow the links within the text below.


Of the $500 billion allocated under the CARES Act, $454 billion is available to United States business that has not otherwise received adequate economic relief in the forms of loans or loan guarantees provided under the CARES Act. The Act then covers all of those businesses not covered by any other portion of the CARES Act, including those qualifying for the SBA loan provisions of the CARES Act and those medical facilities and institutions provided for elsewhere in the CARES Act.

The funds are primarily also only meant to provide relief for those “covered losses” incurred directly or indirectly as a result of coronavirus, as determined by the Secretary. There seems to be a great deal of discretion given to the Secretary to determine what losses are a result, whether directly or indirectly, of the economic distress caused by the coronavirus.

To achieve these purposes, the Secretary may make loans and loan guarantees to, and other investments in, programs 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 the eligible businesses, states or municipalities. This drafting creates an indirect process of providing relief to eligible businesses, states and municipalities.

Assistance for Eligible Businesses, States and Municipalities through Fed Programs

The Act allows the Fed, through its powers under Federal Reserve 13(3), to purchase obligations and other interests directly from issuers or in the secondary markets and to make loans directly to some eligible businesses and financial institutions. In essence, the Secretary allocates money to the Fed and then the Fed is able to divert funds to the applicable entities. Federal Reserve 13(3) is a critical tool that can be used in times of crisis to help mitigate extraordinary pressure in financial markets that would otherwise have severe adverse consequences for households, businesses, and the U.S. economy.

The Act separates those eligible businesses for whom the Fed facilities can make direct loans and those mid-sized businesses that may receive funds through financial institution intermediaries. However, all participants taking advantage of any lending through a 13(3) facility must adhere to the requirements of section 13(3), the most pertinent of which are the requirements to be solvent and the inability to obtain adequate financing elsewhere. Additionally, any loan under section 4003 will not be reduced through any loan forgiveness.

Direct Loans from Fed Facilities

Any direct loan from a Fed facility pursuant to the Act must not be part of a syndicated loan, a loan originated by a financial institution in the ordinary course, or a securities or capital markets transaction. Additionally, the Fed facility may only purchase obligations of or make loans to U.S. businesses with a majority of employees based in the United States

The eligible businesses must also agree to the following restrictions in order to obtain direct loans found in section 4003(c)(3)(A)(ii) of the CARES Act:

  • Borrowers (not including affiliates) cannot engage in stock buybacks, unless contractually obligated, or pay dividends until the loan is no longer outstanding or one year after the date of the loan.
  • Salaries of employees until a year after the date on which the loan or guarantee is no longer outstanding:
    • whose total compensation exceeded $425,000 in calendar year 2019
      • will not exceed total compensation received in calendar year 2019 for any 12 months during that period; and
      • will not receive any severance pay or termination benefits exceed double the amount of compensation in calendar year 2019.
    • whose total compensation exceeded $3,000,000 in calendar year 2019
      • will not exceed the sum of $3,000,000 and 50 percent of the excess over $3,000,000 of total compensation for calendar year 2019 during any 12 months during that period.

The above enumerated restrictions may be waived upon a determination that such waiver is necessary to protect the interests of the federal government. Please note that businesses seeking direct loans under this subsection are not required to have incurred or expect to incur covered losses, nor do the loans have to be specifically tied to the uncertainty of the current economic conditions.

**The Fed announced the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility, both intended to provide relief to larger, more established corporations, which may or may not be subject to this section. As stated at the onset of this memo, it is currently unclear if the Fed programs act in concert with or independently of the CARES Act section 4003.

Special Assistance for Mid-Sized Businesses

Furthermore, the Secretary will endeavor to implement a special 13(3) facility through the Fed, independent of the above assistance, targeted specifically towards nonprofit organizations and businesses between 500 and 10,000 employees. The funding will be provided to banks and other lenders that make direct loans to eligible businesses. The direct loans to the end borrower pursuant to this special 13(3) facility will be subject to additional loan criteria and obligations on the recipient, such as:

  • The uncertainty of economic conditions makes necessary the loan request to support the ongoing operations of the recipient;
  • The funds will be used to retain at least 90 percent of the recipient’s workforce at full compensation and benefits until September 30, 2020;
  • The recipient intends to restore at least 90 percent of the recipient’s workforce that existed as of February 1, 2020, and to restore all compensation and benefits to their workforce no later than 4 months after the termination of the public health emergency;
  • The recipient is not a debtor in a bankruptcy proceeding;
  • The recipient is domiciled, and created or organized in the United States with a majority of its employees based in the United States;
  • No dividends from common stock or stock buy-backs (including parents, but not affiliates)  while the loan is outstanding, except to the extent required under a contractual obligation that is in effect as of the date of enactment of the CARES Act;
  • The recipient will not outsource or offshore jobs for the term of the loan plus an additional two years after repayment of the loan;
  • The recipient will not abrogate existing collective bargaining agreements for the term of the loan plus an additional two years after repayment of the loan; and
  • The recipient must remain neutral in any union organizing effort for the term of the loan.

These direct loans to mid-sized businesses made pursuant to this special 13(3) facility will be subject to an annualized interest rate that is not higher than 2 percent per annum. For a minimum of 6 months from the date of the loan, no principle or interest on the loan shall be due and payable.

Main Street Lending Program

This section makes reference to other lending avenues for mid-sized businesses, stating that nothing “shall 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,” including any (b)(4) program under the Act.

On April 9, the Fed announced the Main Street New Loan Facility and the Main Street Expanded Loan Facility, both aimed at providing relief to businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. As stated at the onset of this memo, it is currently unclear if the Fed programs act in concert with or independently of the CARES Act section 4003.

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