Partner Carrie Hoffman was quoted in the Law360 article, “What Employers Should Know Before Seeking Stimulus Loans,” about the the nuances of the loans being offered to businesses under the CARES Act.
Hoffman said applying for a loan is close to a no-brainer for small businesses, but using it is a different story. She noted that many businesses are considering applying for loans, thinking, “It’s ‘free money’ … Why wouldn’t I try to get some of it if I can?” But she said she is advising clients to keep their options open, saying there are several reasons they might not want to draw on the funds. “You have to bring your employment levels back to prepandemic levels [to get a loan], and some of my clients, frankly, are struggling with whether that makes sense when they don’t have work for people to perform,” she said.
Maintaining relationships with workers will make it easier to resume business on the other side of the pandemic, but if the economy is still struggling at that point, employers won’t be facing bidding wars for their laid-off workers, she said. And taking a small business loan means forgoing other financial help in the CARES Act, such as tax credits on money used to pay wages and benefits, she added. Employers can only get back half the wages they pay, up to a $5,000 credit per worker, but this applies to wages paid out through the end of the year.
The act provides for a few loan types, each of which has certain conditions attached. For example, the law makes airlines and several other specified recipients keep at least 90% of their workforce as of March 24 through September, limits how much their executives can earn and blocks stock buybacks. General businesses tapping into another pool of funds must satisfy the last two conditions. And another provision making low-interest loans available to businesses and nonprofits with 500 to 10,000 workers imposes its own set of conditions, including that they maintain most workers through September and promise to remain neutral if their workers seek to unionize.
Some of these conditions are tough to swallow, especially the requirements that recipients keep workers on through September, Hoffman said.