On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The full text of the CARES Act can be found here. The Act is a lengthy set of laws that: a) provides stimulus funding, loans, and other measures for individuals, businesses, and certain health care providers who are suffering from the economic impact of the virus; b) apportions funding for the Secretary of the Treasury to make loans and loan guarantees to state and local governments; and c) provides emergency appropriations to various government agencies to support their Coronavirus health response and agency operations. For our purposes, we will focus on the provisions that provide assistance for businesses.
SMALL BUSINESSES:
Paycheck Protection Program (PPP): Section 1102, and one of the most popular provisions of the CARES Act, is the Paycheck Protection Program, which authorized $349 billion in forgivable loans to small businesses to retain and pay their employees during the Coronavirus crisis. Generally, funds through this program were available to businesses with 500 or fewer employees. Loans under the PPP are to cover two months of one’s average monthly payroll expenses calculated over the past year, plus 25% of that amount, but are capped at $10 million. It is important to note that although this program is intended to help employers fund “payroll costs,” qualified costs under this program do not include sick or family and medical leave wages paid under the Families First Coronavirus Response Act (FFCRA) and for which the employer is allowed to receive a tax credit.
Amounts used under this program to cover payroll costs, interest payments on mortgages, covered rent and utility payments, will be forgiven if the borrower’s workers stay employed through the end of June, 2020.
As of now, the Small Business Administration has declared a lapse in appropriations for this program. In other words, it has run out of available funding for these loans and is no longer accepting new applications. Congress is currently negotiating another package to provide as much as an additional $310 billion of funding for the PPP. Thus, more funding may become available in the coming days or weeks.
If additional funding becomes available and the SBA reopens the PPP, one seeking a loan under this program would apply directly with an SBA authorized lender, which can be searched for here. Detailed information about qualifications, loan forgiveness, and limitations of the program can be found here.
EIDL loans and Emergency Grants: The CARES Act also appropriates $10 billion for emergency Economic Impact Disaster Loan (EIDL) grants of up to $10,000 per applicant. This program was available to businesses with no more than 500 employees. The grants are forgiveable and are available to those seeking a loan under section 7(b)(2) of the Small Business Act, which allows the SBA to provide loans to businesses that “suffered a substantial economic injury” as a result of a “disaster,” also called EIDL loans. The SBA was also providing up to $25,000 for express bridge loans for businesses that already have a relationship with an established SBA express lender. Again, the SBA has declared that it has run out of funding for both the emergency grant and the EIDL loans. Should additional funding be made available, information about the EIDL grant can be found here. Information about the express bridge loan can be found here.
Debt Relief Program: The Act appropriates $17 billion to be used to provide debt relief for qualifying small businesses. Under this program, the SBA may pay the principal, interest and fees for businesses that have an existing Section 7(a), 504 or microloan, for a period of six months. The SBA may also pay the costs of new loans issued before September 27, 2020. Information about this program can be found here.
EMERGENCY RELIEF FOR OTHER BUSINESSES:
Section 4003 of the CARES Act appropriates $500 billion for “loans, loan guarantees, and other investments in support of eligible businesses, States, and municipalities.” These “loans, loan guarantees, and other investments,” are carved out as follows:
$25 billion dollars for passenger air carriers and others that “perform inspection, repair, replace, or overhaul services, and ticket agents.” $4 billion are available for loans to cargo air carriers. $17 billion are available for businesses “critical to maintaining national security.”
Detailed procedures and minimal requirements for obtaining loans for the airline industry and businesses “critical to maintaining national security,” can be found at the website of the US Department of Treasury here.
$454 billion (and any amounts not used for the foregoing businesses) are to be used to make loans and loan guarantees to, “and other investments in,” programs established by the Board of Governors of the Federal Reserve System. Under this set of programs, the CARES Act directs the Secretary of the Treasury to implement a program to provide financing to banks and other lenders that make direct loans to businesses, and to the extent practicable, nonprofit organizations, that have between 500 and 10,000 employees. Such loans are subject to an interest rate cap at 2%. Moreover, principal and interest on such loans are deferred for six months. Such loans are available to qualified businesses as long as they make a “good faith certification,” that: 1) the uncertainty of economic conditions makes the request necessary to support ongoing operations; 2) the funds received will be used to retain at least 90% of the recipient’s workforce, at full compensation and benefits, until September 30, 2020; 3) that the recipient intends to restore at least 90% of its workforce that existed as of February 1, 2020; 4) that the recipient was created and is domiciled in the US, and has significant operations and employees in the US; 5) that the recipient is not a debtor in bankruptcy; 6) that the recipient will not pay dividends or use the money to repurchase stock; 7) that the recipient will not offshore jobs for 2 years after completing repayment of the loan; 8) that the recipient will not abrogate existing collective bargaining agreements; and 9) that the recipient will “remain neutral” in any union organizing effort during the term of the loan.
TAX BENEFITS FOR ALL BUSINESSES:
The CARES Act contains numerous provisions that provide tax relief to businesses, at least for 2020. For example, it provides for an employee retention credit against applicable employment taxes for each calendar quarter of an amount equal to 50% of the qualified wages with respect to each employee. This is applicable to employers who: have had to fully or partially suspend their business due to stay at home orders; or whose gross receipts have declined in the first quarter of 2020 by more than 50% since the prior calendar year. Qualified wages include health care costs. The credit is available for wages paid from March 13 to December 31, 2020, but are capped at $10,000 for each employee.
The Act also eliminates the 80% taxable income limitation for net operating losses during this year. The Act also postpones the payment of payroll taxes and suspends certain limitations on business deductions until 2021. Some information about these provisions is available at the Treasury Department’s website here. One seeking to take advantage of these benefits, however, should discuss the implications of these changes for their business with a tax professional.
STATE SPONSORED RELIEF:
Keep in mind that your state may also be providing relief to small or other businesses, so be sure to check your state’s website for COVID-19 relief options. California for example has dedicated $50 million for loan guarantees for small business disaster relief, which may provide funding for businesses who do not qualify for federal funding. Information about loans under this program can be found here. The state is also deferring payment of sales and use taxes (without interest) for small businesses with less than $5 million in taxable annual sales, although this has to be requested. Newsom also issued an executive order deferring tax filings and payments for businesses with less than $1 million in taxes, for a period of 90 days. Larger businesses may also get deferrals of their tax filings, although they have to seek state approval.
Glad you are back :) I have been waiting for your weekly article!
Thank you! This is very helpful.