How Energy Companies Can Benefit from the CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides trillions of dollars in economic stimulus to companies and individuals all across the U.S. Small businesses in the energy sector can benefit through two loan programs administered by the Small Business Administration (SBA).

Small Business Relief Programs

The SBA offers two loan programs: the Paycheck Protection Program (PPP), which provides capital to cover the cost of retaining employees and other qualified costs; and the Emergency Economic Injury Loan Program (EIDL), which provides a quick infusion of funds to cover operating expense shortfalls caused by COVID-19. Companies can obtain loans right now through participating banks. Many banks are only taking applications for the PPP loan from existing customers, so check with your existing bank to determine if they are in a position to help you. To obtain the EIDL loan, you have to apply online at the SBA website. The eligibility criterion are generally the same for both loan programs but the use of proceeds requirements and terms of each loan are different.

Size Eligibility

The SBA loan programs are not limited to only companies with 500 or less employees. To be eligible for SBA loan programs, a business must be "small" as determined by the primary industry the business operates in, and by either the number of its employees or its revenue. The SBA maintains a database of each industry, which describes the number of employees and the annual revenue that qualify a business as "small" within the meaning of the SBA's loan programs.

Affiliation Rules that Affect Size Eligibility

In determining whether a business is "small," the SBA has "affiliation rules" which aggregate the size of a business together with its affiliates. There is no set formula for determining whether a business is an affiliate of other businesses as the SBA looks at a variety of factors. In general, if a business is under "common control" with other businesses, the affiliation rules will apply. A business determining its size must identify and include the employees and annual revenue of its affiliates to determine its applicable size. If the aggregate size of the business and its affiliates exceeds the size limits, the combined business would not be considered "small."

"Small" Size Standards for Energy Industry Companies

SBA rules identify what business qualifies as a "small" in the energy sector by North American Industry Classification System (NAICS), as follows:

NAICS Code	Industry/Type of Business	Small Business Size Standard*
211130	Natural Gas Extraction**	1,250 Employees
213112	Support Activities for Oil and Gas Operations	500 Employees
213111	Drilling Oil and Gas Wells	1,000 Employees
221210	Natural Gas Distribution	1,000 Employees
237120	Oil and Gas Pipeline Construction	500 Employees
333132	Oil and Gas Field Machinery Equipment	1,250 Employees
486210	Pipeline Transportation of Natural Gas	500 Employees

*Certain revenue limits may apply for industries with revenue size standards. See PPP FAQ, Question 2.

**Not all oil and gas exploration qualifies. See SBA Rules on Eligibility, Page 1 (disqualifying "wildcatting").

Small Business Relief Programs Summary

PROGRAM NAME	PAYCHECK PROTECTION PROGRAM (PPP)
SHORT SUMMARY:	Authorizes loans of up to $10 million per applicant. Loan proceeds covers expenses incurred by the company between February 15, 2020 and June 30, 2020. Allows company to borrow money for a variety of qualified costs related to employee compensation and benefits.
WHO IS ELIGIBLE:	Company that has fewer than 500 employees or company is the applicable small size standard per the NAICS Code in its industry, as provided by SBA.
ELIGIBLE COSTS	Loan proceeds are to be used to cover payroll costs, continuation of health care benefits, employee compensation (less than $100K), mortgage interest obligations rent, utilities, and interest on debt incurred before the covered period.
WHAT ARE THE BENEFITS:	Maximum $10 million loan equal to 250% of company's average monthly payroll costs. Loan with an interest rate of 1% with a maximum term of 2 years. Zero loan fees and zero prepayment fee.
ELIGIBILITY CRITERION:	Company must certify that: the loan request is necessary to support the concern's ongoing operations due to COVID-19; the funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments; the company has not already received an SBA loan for the same purpose from February 15, 2020 and December 31, 2020, or has an application pending for another SBA loan for the same purpose
HOW DO YOU APPLY:	Company with existing SBA loans, should submit the PPP Application to their existing SBA lender. Company can also use the SBA's Lender Match Program to find lenders who currently participate in the SBA loan program. Company should submit the following: documentation verifying the number of full-time equivalent employees on payroll and pay rates for the applicable periods, including payroll tax filings; state income, payroll, and unemployment insurance filings; and documentation verifying payments on mortgage obligations, lease obligations and utilities, including cancelled checks, payment receipts, and transcripts of accounts. Additional details on the application process and eligibility criterion are expected soon.
OTHER IMPORTANT TERMS:	Loan can be forgiven if used for the qualified costs. Company must apply through the lender for loan forgiveness. Loan does not require any personal guarantee or collateral from the borrowing company. Additional information about the program can be found here - PPP Fact Sheet. Specific affiliation rules applicable to the program can be found here in the PPP Affiliation Rules.

PROGRAM NAME:	EMERGENCY ECONOMIC INJURY DISASTER LOAN (EIDL)
SHORT SUMMARY:	Authorizes loans of up to $2 million. Loan proceeds covers costs incurred by the company between January 31, 2020 and December 31, 2020. Allows company to use loan proceeds for business obligations. Available through December 31, 2020, and the loan may be obtained in addition to a PPP, so long as both loans are not used for the same purpose.
WHO IS ELIGIBLE:	Company that has fewer than 500 employees or company is the applicable small size standard per the NAICS Code in its industry, as provided by SBA.
ELIGIBLE COSTS	Loan proceeds are to be used to pay existing fixed debt, employee payroll, accounts payable and other expenses of operation.
WHAT ARE THE BENEFITS:	An initial $10,000 is advanced once an application has be made. Advancement does not have to be repaid. Maximum $2 million loan. Loan with an interest rate of 3.75%, with a maximum term of 30 years.
ELIGIBILITY CRITERION:	Company, must demonstrate: it was a small business as of January 31, 2020; an acceptable credit history; an ability to repay the loan; substantial economic injury as a result of the COVID-19; loans over $25,000 require a collateral, in the form of a lien against the assets of the business loans over $200,000 require personal guarantees from 20% owners
HOW DO YOU APPLY:	Company must submit an online EIDL Application. The Application consists of five parts: disclosures (to ensure that the business is an eligible entity); business information (including business name, organization type, COGS and Gross Revenue in the past twelve months, business address, business contact info and number of employees); business owners information; additional information; and summary The Application must include a signed and dated IRS Form 4506-T giving permission for the IRS to provide SBA your tax return information.
OTHER IMPORTANT TERMS:	The SBA will provide the $10,000 advancement within three (3) days of application. The SBA will disburse the loan funds within five (5) days of receiving the executed loan closing documents.
	Additional information about the EIDL can be found on the EIDL Fact Sheet.

Here is a summary comparison of the two relief programs.

Criteria	Paycheck Protection Program	Emergency Economic Injury Disaster Loan
Maximum Loan Amounts	$10 Million	$2 Million (and a $10,000 Advancement)
Loan Forgiveness	Eligible	Not Eligible
Maximum Maturity	2 Years	30 Years
Interest Rates	1%	3.75%
Application Process	Directly with Participating Bank	Online at SBA

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