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The CARES Act: What Midsize Business Owners And Not-For-Profit Organizations Need To Know




The CARES Act: What Midsize Business Owners And Not-For-Profit Organizations Need To Know

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (the “CARES Act”). The CARES Act implements an important source of liquidity for midsize business owners and not-for-profit organizations—the Coronavirus Economic Stabilization Act of 2020 (“CESA”). Under this initiative, midsize businesses and not-for-profit organizations with 500 to 10,000 employees can receive low-interest loans to provide a much-needed cash infusion to help endure financial uncertainties created by COVID19.2

I.Overview of the Coronavirus Economic Stabilization Act of 2020

CESA authorizes lenders to provide loans to eligible businesses and not-for-profit organizations that have incurred or expect to incur losses directly or indirectly as a result of COVID-19. The CARES Act allocates $500 billion to this program. $46 billion of this amount is earmarked for specific industries,3 and $454 billion, and any amount remaining from the $46 billion, will be available to eligible businesses and not-for-profit organizations.4 The loans will have a maximum maturity of five years and a maximum interest rate of 2.00%. Loan payments will be deferred for at least six months. These loans are intended to be used to maintain the borrower’s workforce at 90%, at full compensation and full benefits, until September 30, 2020. Furthermore, the borrower must intend to restore at least 90% of the workforce that existed as of February 1, 2020, and all compensation and benefits to workers within four months after the date in which the Secretary of Health and Human Services determines that the public health emergency no longer exists. Unlike other programs under the CARES Act, forgiveness for loans under CESA is expressly prohibited.

II. Certifications Required by Applicants for Loans Under CESA

To qualify for a loan under CESA, midsize business owners and not-for-profit organizations must certify that:5

1. the uncertainty of current economic conditions makes the loan necessary to support its ongoing operations

2. the applicant intends to maintain its workforce at 90%, at full compensation and full benefits, until September 30, 2020;

3. the applicant intends to restore at least 90% of the workforce that existed as of February 1, 2020 and all compensation and benefits to workers within four months after the date in which the Secretary of Health and Human Services determines that the public health emergency no longer exists;

4. the applicant is domiciled and organized or created in the United States or under the laws of the United States;

5. the applicant has significant operations and a majority of its employees in the United States;

6. the applicant has not received adequate economic relief in the form of loans or loan guarantees under a different provision of the CARES Act; and

7. the applicant is not a debtor in a bankruptcy proceeding.

III. Certain Restrictions on Borrowers That Receive Loans Under CESA

Any business or not-for-profit organization that receives a loan under CESA must comply with the following after receiving the loan.6

1. For the term of the loan, a borrower must remain neutral in any union organizing effort.

2. For the term of the loan, a borrower must not:

a. pay a dividend; and

b. repurchase any publicly traded security of the business or its parent, unless there existed a prior contractual obligation before March 27, 2020.

3. For the term of the loan and for two years after the loan is repaid, a borrower must not:

a. outsource or offshore jobs; and

b. abrogate collective bargaining agreements.

Additional guidance is expected from the Treasury Department. Businesses and not-for-profit organizations are susceptible to closures and slowdowns due to restrictions on gathering, stay-at-home orders, loss of consumer income, and illness. This program under the CARES Act is intended to provide them and their employees a way forward in these uncertain times.


1 For information on the low-interest rate loan programs available to small businesses and not-for-profit organizations with fewer than 500 employees, see our memorandum “The CARES Act: What Small Business Owners and Not-for-Profit Organizations Need to Know,” found here.

2 Businesses that qualify for this program may also be eligible for an employee tax retention credit. For more information, see our memorandum “Employee Leave Provision Under CARES Act and FFCRA,” found here.

3 These industries include passenger air carriers, eligible businesses certified to perform inspection, repair replace or overhaul services, ticket agents, cargo air carriers, and businesses critical to maintaining national security.

4 Section 4003(b)(4) of CESA authorizes these funds to be used for loans provided by financial institutions and for loans or primary and secondary credit facilities created by the Federal Reserve for eligible businesses, not-for-profit organizations, states and municipalities. This memorandum focuses on loans available to midsize businesses and not-for-profit organizations that are to be provided by financial institutions. It does not discuss the programs created by the Federal Reserve, including the Main Street New Loan Facility, or funding for other eligible businesses, states, or municipalities. The Federal Reserve’s programs are described in our memorandum “Federal Reserve Announces up to $2.3 Trillion in New Lending Programs in Support of Economy,” found here.

5 Sections 4003(c)(3)(A)(ii); 4003(c)(3)(D); 4002(4)(B).

6 Section 4003(c)(3)(D). Additional certifications and restrictions apply to loans provided under Federal Reserve programs and facilities, such as limitations on certain employee compensation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Ms Helene R. Banks
Cahill Gordon & Reindel LLP
80 Pine Street
New York
NY 10005-1702
Tel: 212701 3000
Fax: 212269 5420
E-mail: [email protected]

© Mondaq Ltd, 2020 – Tel. +44 (0)20 8544 8300 –

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UBS: Economy Still Facing Deep Risks




UBS: Economy Still Facing Deep Risks

Economists at UBS warn that even after an uptick in economic activity in May and June, the pace of recovery slowed in July as consumers, workers and businesses remain cautious.

The economists believe that the unemployment rate will be hovering around 10% by the end of the year. However, they do expect a strong jobs recovery next year as the country wins the battle against the pandemic. They expect the country’s GDP to rise 5% in 2021 as the economy slowly returns to normal.

The Basis of Models

UBS’ chief US economist Seth Carpenter added that the models that UBS is basing their GDP projections on don’t factor in a large increase in new infections. This is something that could add another hurdle to the recovery. Alan Detmeister, a UBS economist, believes that the recovery is less about the number of cases. Instead, it’s more about the level of restrictions in place.

“The risks are deep,” said Carpenter during an interview with MarketWatch. He points to three challenges facing the economy as it tries to recover. These three include overall job growth is now slowing, incomes are falling, and both households and businesses are hesitant to make long-term plans.

When it comes to job growth, UBS economists are focused on what he calls “labor-market scarring,” according to Carpenter. He’s worried that the next 6 to 12 months could exhibit a “prolonged dislocation in the labor market,” and added, “What’s going to drive this is how fast people get their jobs back.”

The group also noted that except for the automotive sector, manufacturing jobs saw a drop in growth during July. The labor-force participation rate also slipped in July after gaining ground in May and June. “And within the employed, a large share remained either part-time for economic reasons or employed but not at work,” they noted.

Income Drops to Slow Recovery

Falling incomes will also slow any economic recovery. The bank warns that household incomes will drop 10% at an annual rate. This is due to the expiration of enhanced unemployment benefits and at least thus far, no additional stimulus checks. Even with an extension of unemployment benefits or another stimulus check, the economists say it won’t make up for the massive financial relief that was “the lifeblood to prevent the economy from tanking” from March through July.

This drop in incomes is putting further strain on the retail sector. Bankruptcies are piling up, most recently with Stein Mart announcing it would enter bankruptcy and will likely close most, if not all, of its 300 stores.

Neil Saunders, managing director at GlobalData Retail, notes that Stein Mart is just the latest retailer to go under. He’s also sure that won’t be the last. “The failure of Stein Mart is not only the latest in a long line of retail bankruptcies, it also underlines that even traditionally robust segments like off-price are not immune from pandemic-induced disruption.”

He added, “For a company that, at the start of this year, was in the process of selling itself to a private investment firm, the bankruptcy is an abrupt change in fortunes that shows the immense damage the pandemic has inflicted on retail.”

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4 Ways To Lower Your Taxes In Retirement




4 Ways To Lower Your Taxes In Retirement

With the likelihood of higher taxes in the future, it’s important to do as much planning as you can today to minimize your taxes during retirement. While nobody knows what the future holds, taxes generally go up over time, meaning even in retirement you could be faced with significant tax bills.

Fortunately, there are steps you can take today to help minimize your taxes in the future. Here are four ways you can help lower your taxes in retirement.

1. Know the Difference Between Each Retirement Account

401(k)s are tax-deferred. You contribute pre-tax income, and your employer may match your contributions up to a certain percent. When the time comes to start withdrawals, the money will be taxed as ordinary income. You can invest up to $19,500 in a 401(k) for 2020, plus an additional $6,500 catch-up contribution if you’re over 50 by the end of the tax year.

Roth 401(k)s are tax-free. Unlike a traditional 401(k), you fund a Roth 401(k) with after-tax dollars. This means your withdrawals are tax-free and penalty-free, as long as you’ve had the account for five years and are at least 59½. As an added benefit, there are no income limits on Roth 401(k)s. It makes this type of retirement account an attractive option for high-earners.

IRAs, or individual retirement accounts, are tax-deferred. Your withdrawals in retirement will be taxed as ordinary income. You can contribute up to $6,000 in 2020, plus a catch-up contribution of $1,000 if you are 50 and older.

Roth IRAs are tax-free. Because you contribute after-tax income now, you get tax-free withdrawals in retirement.

2. Know What Type of Investments Should Go Into Different Accounts

Investments That Should Go In Taxable Accounts: Index funds, ETFs, buy-and-hold stocks and tax-exempt municipal bonds should be held in taxable accounts.

Investments That Should Go In Tax-Free Accounts: Fixed income, REITS, commodities, liquid alternatives and other actively managed investments should be held in tax-deferred or tax-free accounts so you can grow the account without paying taxes along the way.

3. Prepare Now For Required Minimum Distributions

Under the CARES Act, all RMDs have been suspended for 2020. But you should plan for them to be reinstated at any time. If you have a 401(k) or a traditional IRA, you’ll have to start taking required minimum distributions (RMDs) every year.

If you turned 70½ in 2019 or earlier, you may have already started to take your first RMD by April 1 of the year after you reached 70½. For the rest of us, if you turn 70½ in 2020 or later, you can now wait to take your first RMD by April 1 of the year after you reach 72. To make sure you comply with the complex rules, our advice is to consult with your financial professional.

4. Consider a Roth Conversion

If you have a year with a particularly low-income level compared to normal, consider doing a Roth conversion. The conversion is a taxable event, so you’ll face a higher tax bill the year you convert, or you can slowly convert your accounts over a few years to help break up the tax implications. Critically, by converting to a Roth, any future withdrawals will be tax-free. Additionally, Roth IRA’s have no RMDs, so you aren’t forced to withdraw money every year.

All of these tips involve your retirement account, so consult with a financial or tax professional to make sure any of these changes are best for your individual situation.

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Wall Street Insider: The Smart Money Is In Cash, Ready To Buy During A Correction




Wall Street Insider: The Smart Money Is In Cash, Ready To Buy During A Correction

49% of Americans said they expect to live paycheck to paycheck each month. Additionally, 53% said they don’t have money worth at least three months of expenses saved in an emergency fund.

Those figures are from earlier this year before the pandemic began. Also, as you can imagine, these would be much worse today as the economic fallout from the coronavirus spreads into its fifth month.

Michelle Connell, the founder and president of Portia Capital Management, says the numbers show how weak the US consumer was even before the pandemic, so the prospects of a “v-shaped” recovery are “grim.”

“When the U.S. economic shutdown began in March, we were told to expect a “V- shaped” recovery. The consumer and the economy were originally expected to be fully recovered by the end of 2020 at the latest. Now the grim realities are starting to show,” says Connell.

The Rally and Tech Stocks

She points out that the stock market rally has been concentrated in just a few tech stocks. She also says that essentially every other stock that isn’t a tech stock hasn’t participated in the rally.

Since the S&P 500’s March drawdown of almost 35%, the index has almost retraced the year’s high and is currently 4% up for the year to date. But further analysis finds that only a handful of technology stocks have led this rally,” says Connell. She added that “Investors have focused on the companies that support “shut-in” consumers and workers.

The result has been that the top 10 names in the S&P 500 now comprise more than 27% of the index’s market weight and large-cap growth stocks have returned 20% year-to-date. To a large degree, the other 490 names and other investment styles have not participated. For instance, large to small “value” names are still down between 10%-to-16%% year-to-date.”

She says retail investors overtaken with “boredom” have piled into the markets. She also mentions that they “poured fuel on the government’s fiscal and monetary fire.”

Smart Money in Cash

So what should smart investors be doing right now?

The best idea, according to Connell, is to watch what professional money managers do in their own accounts, not what they are doing in their managed accounts.

And right now, they are in cash.

“You can always determine an institutional money manager’s real opinion on valuations when you ask them what they’re doing with their own money. Currently, many institutions are sitting on cash positions as large as 20% to 25% in their personal accounts.”

She adds, “If you’re sitting in cash, don’t feel dumb. History is on your side — and you are also in good company. Interestingly, over the past 30 years there has been a strong inverse relationship between the unemployment rate and the performance of the S&P 500. This relationship has been upended only over the past five months. Obviously, the $2.44 trillion of fiscal stimulus that has been pumped into the U.S. economy has created an artificial market environment. At some point, this inverse relationship will represent itself and the stock market will correct.”

She says to prepare for the correction by putting together a list of stocks to pick up at bargain prices.

“Be ready for pullbacks in the stock market and dislocations in private markets. And make a shopping list.”

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