The CARES Act Provides Mid-Size Business and Main Street Business Loans to Help Stabilize the Economy

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. Title IV of the CARES Act, The Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy (“Title IV”), provides relief to organizations through direct loans, loan guarantees, and other investments consisting of: 

  • $25 billion for air carriers;
  • $4 billion for cargo air carriers;
  • $17 billion for businesses critical to maintaining national security; and
  • $454 billion for programs established by the Federal Reserve System to provide liquidity to the financial system that supports “eligible businesses,” States, and municipalities.

This summary addresses the $454 billion loan program for eligible businesses (i.e. 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) and more specifically to businesses having between 500 and 10,000 employees (“Mid-Size Businesses”).[1] The Treasury Secretary has broad rulemaking ability with respect to loans, loan guarantees, and other investments under Title IV, and is expected to issue such rules within 10 days of the enactment of the CARES Act. Unlike the loans outlined in the Paycheck Protection Loan Program, none of these loans are eligible to be forgiven.

The CARES Act allows for the implementation of a program or facility that provides financing to banks and lenders that, in turn, make direct loans to Mid-Size Businesses, which includes nonprofit organizations. This program provides favorable loan terms which include an annualized interest rate not higher than 2 percent and a six-month period (or longer period as the Treasury Secretary may determine) where no principal or interest is due and payable. 

Certifications and Restrictions Applicable to Loans

A business that accepts one of these loans is subject to the following restrictions and prohibitions[2] while the loan or guarantee is outstanding and for 12 months thereafter:

  1. If it is a company listed on a national securities exchange, the business may not buy back any of its equity (or that of a parent company) unless an existing agreement requires it;
  2. The business may not make any dividends or distributions on common stock (i.e. not preferred stock);
  3. No officer or employee whose compensation exceeded $425,000 in 2019 may receive compensation[3] exceeding his or her 2019 compensation, and no severance for such officer or employee may exceed twice the maximum compensation received in 2019 – the law is silent about increasing the salary of an employee with compensation below $425,000 in 2019 to above that during the restriction period; and
  4. No officer or employee whose compensation exceeded $3,000,000 in 2019 may receive compensation exceeding the sum of $3,000,000 and 50% of the excess over $3,000,000 that he or she received in 2019. By way of example, if an officer received $4,000,000 in compensation in 2019, they will only be eligible to receive $3,500,000 during the restriction period.

In order to receive one of these loans, a Mid-Size Business must make the following good faith certifications:

  1. The uncertainty of economic conditions makes the loan request necessary;
  2. The funds it receives will be used to retain at least 90 percent of its workforce, at full compensation, until September 20, 2020;
  3. It intends to restore not less than 90 percent of its workforce existing as of February 1, 2020, and intends to restore all compensation and benefits to its workers no later September 30, 2020;
  4. It must certify to the dividend, distribution, and buy-back restrictions described above;
  5. It will not outsource or offshore jobs for the term of the loan and for two years after repayment of the loan;
  6. It will not cancel existing collective bargaining agreements for the term of the loan and for two years after repayment of the loan;
  7. It will remain neutral in any union organization effort for the term of the loan;
  8. It is created/organized and domiciled in the U.S. with significant operations and a majority of its employees located in the U.S.; and
  9. It is not in bankruptcy.

We expect that items 1-6 will be included as covenants in any loan agreement governing this loan and not merely certifications at the time the application is submitted.

If you would like more information on loans under the CARES Act, please contact a member of our Corporate practice group at 585.232.6500 or 716.853.1616.


[1] The CARES Act allows for the creation of a “Mainstreet Lending Program,” but provides little to no insight into what that program will entail.

[2] The Treasury Secretary has the ability to waive each of these upon a determination that such waiver “is necessary to protect the interests of the Federal Government.”  This is a presumably a very high-bar and, therefore, not likely to be granted in the overwhelming majority of cases.

[3] Compensation (for purposes of this and the following restriction) is broadly defined and includes salary, bonuses, awards of stock, and other financial benefits.

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