The historic $2.2 trillion stimulus package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump late Friday afternoon.
While the CARES Act contains various loans, stimulus payments and relief measures targeted to vast swaths of the U.S. economy, we have highlighted two key relief programs that all small and midsize businesses should be immediately aware of as they contemplate staffing and operational changes in response to COVID-19.
SMALL BUSINESS LOANS
Paycheck Protection Program (PPP): An expansion of lending under the Small Business Administration’s (SBA) existing 7(a) program, meant to incentivize small and medium-sized businesses to keep employees on payroll and/or to re-hire employees previously laid off or subject to wage reductions.
Through June 30, 2020, employers with fewer than 500 workers (including sole proprietors and independent contractors) can access federally guaranteed loans via the SBA’s network of 7(a) lenders.
Low interest rate loans (no interest rate higher than 4%), limited to a 10-year term, with all loan fees, collateral and personal guarantee requirements and subsidy recoupment fees waived.
Loan size is limited to 250% of the business’s average monthly payroll costs from the preceding year, not to exceed $10 million.
Payroll costs include all wages, tips, vacation, family leave and sick pay (excluding costs for COVID-19 paid leave for which a federal credit is claimed), allowances for dismissal or separation, contributions to maintain group health care, payment of retirement benefits, and state and local tax payments, but exclude compensation of individual employees or self-employed individuals in excess of $100,000.
Partial Loan Forgiveness: Provided certain conditions are met, a portion of the loan proceeds may be forgiven, with no taxable cancellation of debt income, in an amount equal to the sum spent on payroll, mortgage interest payments, rent and utility expenses incurred between February 15, 2020 and June 30, 2020, and if used for these purposes in the 8-week period after the date of the loan.
The forgiveness amount may be reduced based on the number of employees laid off or experiencing salary reductions of more than 25% prior to, or during the period between February 15, 2020, and June 30, 2020.
Of critical importance to note, taking advantage of the PPP loan forgiveness program may prevent you from being eligible to participate in other programs included in this legislation. We can help you work through these statutory conditions and criteria to ensure you are availing yourself of the maximum benefits you may qualify for.
The CARES Act also provides for further expansion of existing SBA loan programs, such as :
Express Loan Program - Increases the maximum loan available under this existing program from $350,000 to $1 million.
Economic Injury Disaster Loan Program - Expansion of eligibility requirements under this existing program, making it easier for businesses to obtain advances (up to $10,000) under the loan and expands the types of businesses eligible to receive such loans to include startups, sole contractors and sole proprietors.
Loan Payment Subsidies - For existing SBA guaranteed loans, the SBA will pay for a period of six months, the principle, interest and associated fees.
PAYROLL TAX RELIEF
Employee Retention Tax Credit
You may be eligible for a 1-year employee retention credit against the employer’s share of Social Security payroll taxes for wages paid between March 12, 2020 and December 31, 2020, if (i) you were forced to suspend or close your business due to COVID-19; or (ii) if your business remained open but quarter-to-quarter gross receipts suffered a 50% reduction when compared to the same quarter in 2019 (and the credit will continue to apply in subsequent quarters if gross receipts remain under 80% when compared to that same quarter in 2019).
For businesses with more than 100 full time employees, the credit only applies to wages paid during a furlough, while businesses with less than 100 may apply the credit to the employees’ wages, furloughed or not.
This credit is limited to a total of $10,000 per employee and is not available to employers that take advantage of the PPP loan forgiveness program.
Employer Payroll Tax Deferral
To promote small business liquidity and further incentivize employee retention, effective March 27, 2020, the employer’s share of FICA taxes may be deferred, payable in two installments, with one half of the deferral due on December 31, 2021 and the remaining half due on December 31, 2022.
This includes 50% of payroll taxes incurred by self-employed persons.
However, this deferral would only be available to those that did not take a PPP loan.
We are still waiting for the implementation guidance around these programs to be released which will likely take some time. In the meantime, our team is available to help you evaluate these options and consider what strategy best positions your business to weather the storm.