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Important CARES Act SBA Provisions for small business relief from COVID-19

Important CARES Act SBA Provisions for small business relief from COVID-19

April 02, 2020
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In response to the COVID-19 epidemic, the Federal Government has passed a $2 trillion emergency fiscal stimulus package in order to help offset the economic impact to individuals and small business.  We would like to give an overview of the various business programs, along with a few links to where you can find further information.  Keep in mind, the bill was passed rapidly and the situation is fluid.  Things will change and processes will evolve.  To keep up to date, here are the best resources for accurate information:

https://www.sba.gov/

https://www.irs.gov/coronavirus

Always double check your source to assure that the information is reliable.  There is a lot of misinformation currently out there and we are anticipating a lot of fraud to appear surrounding these programs.  Please use reputable firms, and use the same amount of caution providing your personal information as you normally would when applying for a loan.  Additionally, here is one of the more thorough and informative articles that we have come across regarding the bill:

https://www.washingtonpost.com/business/2020/03/30/heres-how-get-small-business-loan-under-349-billion-coronavirus-aid-bill/

We are going to try to provide a brief summary of the most important parts of the bill relating to small business relief.  Please contact our office with any additional questions.

Emergency Relief

The first thing that we advise business owners to do is to apply for emergency relief if needed.  These loans are made directly by the SBA itself, not by a bank or other third-party lender.  The link to apply can be found here:

https://covid19relief.sba.gov

Eligible entities that apply for an SBA Disaster Loan can request an advance of up to $10,000, to be paid within three (3) days of application.  These emergency grants do not have to be repaid, even if the applicant is subsequently denied a loan. Here are some more details:

  • 1110 - Emergency Economic Injury Loans and Grants

Under the new CARES Act, eligible entities will be able to apply for an SBA disaster loan with loosened eligibility and reduced documentation requirements.  For example:

  • A business need not have been in business for a year
  • Personal guarantees are not required for loans up to $200,000
  • The applicant does not need to prove it is unable to obtain credit elsewhere
  • The SBA may approve an applicant without requiring tax returns or transcripts

Eligible entities include businesses with 500 or fewer employees, private nonprofit organizations, and sole proprietorships with or without employees.  SBA disaster loans can be used for the following purposes:

  1. Proving paid sick leave to employees
  2. Maintaining payroll
  3. Meeting increased materials costs due to supply chain issues
  4. Paying rent or mortgage
  5. Repaying other debt

Paycheck Protection

The next important program is the Paycheck Protection Program.  This allows businesses to continue to pay employees and potentially forgive part of the loan.  Some details about this program:

  • 1102 - Paycheck Protection Program

The Paycheck Protection Program allows eligible individuals and entities to borrow up to $10 million in 100% SBA guaranteed loans.  These loans are issued by an SBA approved lender, not by the SBA itself.  Eligible borrowers include businesses, individuals, and non-profit organizations that employ 500 or fewer employees.  Businesses with more than one physical location can still qualify if they employ 500 or fewer employees at each location. 

The amount each borrower can borrow is dependent on the borrower’s historical payroll costs.  If the borrower was in business from 2/15/19 to 6/30/19, the maximum loan available is 250% of the average monthly payroll costs for that period.  If the borrower was not in business for that period, the maximum loan is 250% the average monthly payroll costs from 1/1/20 to 2/29/20.  Payroll costs include wages, salaries (including owners’ salaries up to $100,000 each), vacation or sick pay, group health insurance, retirement benefits, and state/local payroll taxes.

Payroll Protection Program loans can be used not only for payroll costs, but also for mortgage interest, rent, utilities, and interest on existing debt.  Loans used for these purposes (other than payment of existing debt) may be forgiven, but the amount forgiven is reduced in the following circumstances:

  1. The borrower reduces its number full-time equivalent employees during the eight-week period following loan origination as it did during either the periods described above, or
  2. The borrower reduces the amount paid to any particular employee during the eight-week period following loan origination more than 25% from the amount paid to that employee during the most recent full quarter.

Forgiven loans are not included in the gross income of the borrower for tax purposes.  The maximum term for Payroll Protection Program loans that are not forgiven is ten years, and the maximum interest rate that may be charged is 4%.

Delaying Payroll Tax Payments

For business, employers can now delay making 2020 federal payroll tax deposits until next year.  Half of this amount must be paid by the end of 2021, while the other half must be paid by the end of 2022.  For self-employed individuals, the employer portion of self-employment tax can also be so deferred, with no obligation to make estimated payments of these amounts.  Payroll taxes withheld from employee wages, as well as the employee portion of self-employment tax, must be deposited or paid as usual.

 

This new delay provision doesn’t apply if the business receives a loan under the new Paycheck Protection Program and has the loan forgiven.

Debt Relief

  • 1112 - Small Business Debt Relief Program

Borrowers with existing SBA loans, who obtain an SBA loan within the next six months, can request their lenders to defer payment of principal, interest, and fees for up to six months.  The SBA will pay the lenders directly during this period.  Deferral is not available for Paycheck Protection Loans or disaster loans, discussed above.

State and Local Programs

Many state and local governments are also offering relief programs.  Most have the requirement that you have to apply for federal aid first.  Here is a partial list of programs currently available:

Florida

California

New York City

Pennsylvania

Please check with your local government's official website to see if anything else may be available.

Special thanks to Matt Ringler, CPA, LLC for his research contributing to this article.  If you would like further information, please contact our office at 561-223-3252.