The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress on Friday, March 27th, offering individuals and businesses $2.2 trillion of financial relief from the financial strain caused by the coronavirus epidemic. To put the United States’ financial downturn into perspective, nearly 3.3 million Americans filed for unemployment benefits for the week ending March 21. Not only is this a U.S. record for the number of unemployment claims in one week, it shattered the previous record set in 1982 by more than four times. This article will explore the following sections of the CARES Act and how it can help you and your business:
1.) Loans available for small businesses;
2.)Other special provisions for small businesses;
3.)Rebates for individuals (also known as stimulus checks); and
4.) Labor provision sand unemployment compensation
Paycheck protection program from the SBA
The Paycheck Protection Program (PPP) provides loans of up to $10 million to qualified small businesses. This program provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this COVID-19 emergency.
DOES MY BUSINESS QUALIFY? If your business was in operation on February 15, 2020 and has 500 or fewer employees or independent contractors for whom the business had paid salaries, compensation and payroll taxes, you qualify. (There are limited exceptions to the 500-employee threshold, such as businesses in the hospitality and food sectors that have multiple locations, which can have up to 500 employees per physical location of the business.)
BUSINESSES MUST PROVIDE GOOD FAITH CERTIFICATION: In addition to the aforementioned qualification criteria, in order to participate in the PPP a business is required to certify the following:
IT LOOKS LIKE MOST U.S. SMALL BUSINESSES ARE ELIGIBLE? It certainly appears that way. This definitely looks like a very good deal for U.S. small businesses.
PPP LOAN PROVISIONS (IT GETS EVEN BETTER)
The PPP loan provisions make this program look even more attractive:
WHAT EXPENSES CAN I USE THE LOAN TO PAY FOR? In addition to payroll, the following expenses can also be paid using a PPP loan:
HOW MUCH CAN I BORROW? Here’s how the loan will generally work – each eligible business may receive up to 2.5 times its average monthly payroll costs subject to a $10 million limitation. The SBA will be issuing more guidance on how to apply for a PPP loan and calculate the maximum loan amount your business will be eligible for. We have also prepared a free template that you can use to help calculate this.
MY BUSINESS HAS ENOUGH CASH TO GET US THROUGH THE NEXT FEW MONTHS. SHOULD I STILL APPLY? Nobody knows when life – and the worldwide economy – will be back to normal. Even if your business is in the fortunate position of weathering this storm for now, that could change in a hurry. The PPP program is a pretty sweet deal for all U.S. small businesses. If you qualify to apply, you should strongly consider doing so. However, if your business is thriving because of COVID-19 you should probably leave this program for those who need it most.
HOW TO APPLY: While the SBA will be administering and guaranteeing these loans, you will apply through your bank or credit union.
WHAT TO DO NOW: Talk to your bank or credit union as soon as possible and ask for a checklist of required documentation that will be required for the initial loan application (and subsequent loan forgiveness application – see next section). We’ve also included this in our free template.
Although your bank or credit union is likely still waiting for more information from the SBA on how to process PPP applications, they will probably be inundated with loan applications very soon so its best to be as prepared as possible ahead of time.
NOTE: A loan under the PPP makes the borrower ineligible for the Employee Retention Tax Credit made available under the CARES Act (see later section in this article). This only applies to the Employee Retention Tax Credit in the CARES Act and does not apply to any credits available under the Families First Coronavirus Response Act (such as the paid sick leave tax credit) or other credits available under the CARES Act.
MAJOR NOTE: The SBA has up to 30 days following the enactment of the CARES Act to issue regulations implementing and providing guidance under certain provisions of the CARES Act. In addition, the Treasury Department is required to issue regulations implementing and providing guidance under certain provisions of the CARES Act. Issuance of regulations and guidance may delay loan approval and disbursement or modify/waive certain loan requirements.
Loan forgiveness provisions
Under the CARES Act, small business loan borrowers will be eligible for loan forgiveness, both for new loans under the PPP and for existing SBA 7(a) loans.
WHAT EXPENSES CAN BE FORGIVEN? For borrowers under the PPP, the loan forgiveness will equal the amount spent by the borrower in the 8-week period after the loan origination date on the following items (not to exceed the original principal amount of the loan):
IS THE CANCELED DEBT CONSIDERED TAXABLE INCOME? No. The forgiven loan amount is NOT considered taxable income to the borrower.
HOW IS THE FORGIVEABLE AMOUNT OF THE LOAN CALCULATED? The amount forgiven will be reduced proportionally by any reduction in the number of employees retained as compared to the prior year. Any loan amount outstanding after considering the amount forgiven will be repayable over a term not to exceed 10 years.
DON’T FORGET! You must separately apply for loan forgiveness with your bank or credit union with appropriate supporting documentation. It is not automatic.
Economic Injury Disaster Loan (EIDL) Program – additional $10k grant
EIDL’s are lower interest loans of up to $2 million, with principal and interest deferment available for up to 4 years that are available to pay for expenses that could have been met had a disaster not occurred, including payroll and other operating expenses.
All businesses suffering substantial economic injury from a disaster, including the COVID-19 pandemic, in all 50 states, the District of Columbia and associated territories may apply for an EIDL.
The Act made several changes to the Economic Injury Disaster Loan (EIDL) program under Section 7(b) of the Small Business Act:
HOW TO APPLY FOR AN EIDL LOAN: To apply for an EIDL online, visit disasterloan.sba.gov/ela.
Other business provisions under the CARES Act
DELAY IN PAYMENT OF PAYROLL TAXES: Businesses and self-employed workers can defer the employer’s 6.2% portion of the Social Security tax for the 2nd, 3rd and 4th quarters of 2020. The tax must be repaid over a 2-year period, with 50% due by the end of 2021 and the remainder paid by December 31, 2022.
5 YEAR CARRYBACK OF NET OPERATING LOSSES: For net operating losses incurred in 2018, 2019 and 2020, this provision enables a 100% income offset with the option to carry back the loss for 5 years.
EMPLOYEE RETENTION CREDIT: This program is for eligible businesses that are forced to suspend or close operations due to COVID-19 or otherwise have a significant revenue decrease and continues to pay its employees while not currently working. Here’s how the credit works:
Rebate checks
Rebate checks are intended to assist low and middle-income individuals and families afford what they need during this public health crisis.
Unemployment benefits
The CARES Act provides $250 billion in unemployment benefits for workers who have lost their job and business owners who have been forced to close their doors or significantly scale back operations.
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