Thanks to Paul Fenaroli for putting together this quick summary of small business provisions in the CARES Act:
Forgivable Loan (Paycheck Protection Program)
Businesses with 500 employees or less are eligible for an SBA 7(a) deferred loan which provides funds to cover COVID-19 pandemic-related costs for the period of Feb. 15 – June 30. Collateral and personal guarantee requirements are waived for PPP loans.
Eligible Amounts
The loan amount is tied to payroll costs incurred by the business, capped at $10M.
How to apply
You will be able to apply at local banks. The CARES Act relaxed standards for lenders as well, making finding a lender easier. Lenders do not have application forms available yet, but the documents to compile for a typical SBA 7(a) loan include:
- Borrower Information Form (Form 1919);
- Statement of Personal History (Form 912);
- Personal financial statement (Form 413);
- Business Financial Statements (Profit and Loss Statement, Projected Financials)
- Ownership and Affiliations
- Business License
- Loan Application History
- Income tax returns – personal and business for the last three years;
- Resumes for each principal;
- A written summary of the loan request and history of operating company
Amounts forgivable
- Amounts spent over an 8-week period after the loan was authorized, used to maintain payroll, or pay mortgage, rent or existing debt, may be forgiven
- The amount forgiven will be reduced proportionally by any layoffs or cut in employee pay over 25%.
- Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
- Amounts not forgiven can be deferred for 6 to 12 months, and the interest on the loan is capped at 4%.
Grants
- Emergency Grant to allow an eligible entity (Businesses with less than 500 employees, sole proprietors, independent contractors) who have applied for an economic injury disaster loan (EIDL) due to COVID-19 to request an advance on that loan, of not more than $10,000, which the SBA will distribute within 3 days.
- Applicants are not required to repay advance payments, even if their EIDL loan is denied.
- CARES Authorizes $265M for SBA to provide financial assistance to resource partners to businesses providing counseling, training, and education to small business owners affected by COVID-19.
Existing Loans
If you are currently paying back a 7(a), 504 or microloan product, SBA will cover your payments for six months.
Tax Benefits
- Section 2301 provides refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis for the first $10,000 of compensation paid from March 13 – Dec. 31.
- Employers may defer Social Security tax on employee wages for one year, split between 2021 and 2022.
- Net operating losses arising in 2018. 2019, or 2020 can be carried back five years, and the taxable income limitation is temporarily removed; allowing companies to carryback 100% of losses as far as 2013 to offset taxable income.
- Businesses can deduct up to 50% (rather than 30%) business interest
- Improvement Property: improvements to the interior of nonresidential buildings can be depreciated over 15 years (rather than the 30-year life of the building)
Bankruptcy
Modifies eligibility thresholds for one year. Contact your legal representative for further information.
Keeping your Workers Informed
- Most individuals earning less than $75,000 can expect a tax rebate or cash payment of $1,200.
- Unemployment benefits have been expanded, providing $600/week for four months on top of amounts received by the state and adds 13 weeks to the maximum allowance.