Smaller fleets and businesses struggling to maintain payrolls and other business expenses during the COVID-19 pandemic could qualify for lending programs and tax credits set up in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The CARES Act is also allowing states to issue special permits for overweight loads of emergency supplies as long as the president’s emergency declaration lasts. But for some carriers, they might need some liquidity to keep freight moving.
“Across the country right now, truckers are answering the call during this national emergency, delivering food, medicine, PPE and other critical supplies,” said Chris Spear, the American Trucking Associations’ president and CEO. “It’s important for our nation’s supply chain that trucking has access to liquidity, so we can keep our trucks on the road — and not on the sales lot.”
The $2 trillion economic recovery package — the largest in U.S. history — was signed into law March 27 by President Donald Trump. It includes $350 billion in Small Business Administration loans for companies with fewer than 500 employees. This Paycheck Protection Plan (PPP) is a good-faith, potentially forgivable loan that is supposed to be used to retain workers, maintain payroll, cover insurance premiums, and make mortgage, lease, rent and utility payments.
PPP loans can equal 250% of an employer’s average monthly payroll — up to $10 million with a maximum interest rate of 4% — with various constraints such as not covering high-wage employees. Loan payments would be deferred up to six months while also being available retroactively from Feb. 15. This would allow employers to rehire recently laid-off employees through June 30.
Small businesses and sole proprietorship carriers can apply for PPP loans now. Independent contractors and self-employed individuals can start applying on April 10. Applicants can apply until June 30, according to the act.
Even if a fleet had not qualified for Small Business Administration loans in the past, the CARES Act could change that. “The SBA has essentially opened the door for companies that normally would not have the ability to get an SBA loan under regular SBA regulations and rules,” according to Bran Noonan, a partner with FordHarrison, a U.S. labor and employment law firm.
Loans used for the purposes laid out in the PPP may be forgiven by lenders thanks to government backing and different rules than typical business loans.
“There's no requirement with respect to collateral,” Becky Kalas, counsel with FordHarrison, said as an example of the different rules for the PPP loans. “There's no requirement to show economic hardship. There's no requirement that a small business shows that it's tried to get credit elsewhere and has been unable to. There's no personal guarantee requirements, although the regulations did specify that there's an anti-fraud provision to this as well. There are no personal guarantee requirements, but if someone has fraudulently obtained these loans or fraudulently represented what they use these loans for, the government has made it clear they'll go after that.”
Loans can be forgivable if used as intended and if companies maintain headcount and don’t decrease employee salaries and wages (except those more than $100,000 per year) more than 25% during the loan period. If employees are laid off over the next month, the amount of loan forgiveness could be reduced up to 50%, according to FordHarrison, which hosted a webinar on the CARES Act on April 3.
Unforgiven loan amounts are subject to a 1% interest rate but can be deferred for six months from the disbursement date (but interest will be accrued during that time). The total loan is due back within two years and can be paid back early with no prepayment penalty, according to Noonan.
Carriers seeking PPP loans can contact their company’s financial institution to see if it is an SBA 7(a)-approved lender or if they intend to participate in the PPP loan program, according to advice from the American Trucking Associations. The application can be found here. Information on finding an approved SBA lender can be found here.
Larger carriers might be eligible for assistance through Federal Reserve lending programs, notes the ATA. The CARES Act allocates $454 billion to the U.S. Treasury’s Exchange Stabilization fund for this purpose. Among other requirements, firms receiving loans will be prohibited from engaging in stock buybacks for the duration of the loan plus one year. Borrowers must maintain their March 24 employment levels, to the extent practicable, and retain no less than 90% of their employees until Sept. 30.