The Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted on March 27.  It contains provisions that could provide relief to a wide variety of small businesses, including developers of renewable energy projects.

Paycheck Protection Program

The CARES Act implements a variety of programs to support small businesses, defined as businesses (including the self-employed, sole proprietorships and independent contractors) with 500 employees or less.  Many renewables developers fall into this category.  Chief among the initiatives in the CARES Act is the Paycheck Protection Program.  $350 billion is allocated to make loans available, through the Small Business Administration (SBA), to pay employee salaries, wages and other compensation and benefits, mortgage interest payments, rent payments, utility payments and payments on previously incurred debt obligations.  The maximum loan amount is based upon a multiple of a business’s average monthly payroll costs (for salaries up to $100,000), up to a maximum of $10,000,000.  SBA loans made after January 31, 2020 but prior to the date the Payment Protection Program loans become available may be refinanced with loans under the Program.  The loans are non-recourse to the business owner, except to the extent they are not used for their designated purposes.

SBA Fees and Requirements Waived

To facilitate borrowing under the Program, fees ordinarily payable to the SBA for loans are waived.  The standard requirement that a borrower be unable to obtain credit elsewhere is also dropped, as is any requirement to provide a personal guaranty or collateral.  The maximum interest rate under the loans is 4%.  As further relief, eligible businesses may defer all payments (including principal and interest) under the loans for a period of 6 months to 1 year.

Loan Forgiveness

Finally, borrowers are eligible for loan forgiveness in an amount equal to the aggregate of the borrower’s payroll costs, mortgage interest, rent and utility payments for the 8-week period beginning on the date of the loan’s origination.  The amount is reduced, however, to the extent that the borrower does not continue to employ its employees or reduces employee compensation.  The full amount of forgiveness, without deduction, can be reinstated in the event the number of employees and their compensation, to the extent reduced, are restored prior to June 30, 2020.  It is important to retain records documenting employment, compensation and other relevant expenses (such as IRS payroll tax and state payroll, income and unemployment insurance filings, cancelled checks, utility payments, etc.), because this documentation will be needed in order to apply for the loan forgiveness.

Self Employed are Eligible

The Act provides that self-employed individuals, independent contractors and sole proprietors are also eligible to receive loans under the Program.  However, because the loan amounts are based on payroll, the amounts of loans available to these types of entities will be limited.

Further Details

The SBA is directed to issue further guidance regarding the Paycheck Protection Program and loan forgiveness within 30 days.  Renewables developers that qualify may be able to use these loans to help maintain their workers, pay rent, pay utilities bills and otherwise help with cash flow.  Keep an eye on this blog for further updates.