This past Friday the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law; it is a massive $2 trillion economic stimulus package designed, in large part, to offer some relief for the nation’s small businesses and millions of laid-off workers. Hopefully this article will assist with digesting this complex and lengthy new law. Attached hereto are the following:
- A section-by-section general summary of Division A of the CARES Act (the “Paycheck Protection Loan” provisions);
- A chart-form summary of said Paycheck Protection Loan provisions;
- An index of all sections of the CARES Act to assist in locating what provisions may or may not be applicable to your business;
- A copy of the entire text of the CARES Act, which can also be found at this link:
Division B of the CARES Act, which is not summarized here, primarily concerns funding for hospitals and other facilities in the healthcare system, through direct appropriations and availability of payments through Medicare and other federal healthcare programs.
Division A of the CARES Act contains the most incredible provisions, which are of the greatest importance to the vast number of small businesses in this country (which is why said portion is summarized in the two attachments referenced above). It provides for “Paycheck Protection Loans” (which really can be a full or at least a partial ‘grant’) from the Government, via the Small Business Administration (SBA), which should be available very soon.
Many people do not yet know about these loans (or at least not the details of them), even though they are perhaps the most important piece of the entire CARES Act. These loans are available to any type of business (including independent contractors, self-employed persons, and non-profits) with under 500 employees (with restaurants and hotels being able to qualify with under 500 employees per location). This program is designed to encourage employers to retain their employees on the payroll (and even hire them back if they were recently laid off).
These qualifying businesses can “borrow” 2.5 times their previous 12-months average MONTHLY payroll costs, including retirement and healthcare benefits (but salaries are capped at $100,000 per year for any employee). The funds can be used for payroll costs (including retirement and healthcare benefits/insurance), rents, mortgages, interest, and utilities. THEN THE LOAN IS FORGIVEN to the extent used on 8 weeks of payroll costs (again with the $100K/year of salary limit), rent, mortgages, interest, and utilities. The loan forgiveness is not even taxable for income tax purposes. If the business’s employee headcount has reduced as compared to that same period form a year earlier, then the percentage forgiveness is proportional to that reduction (for instance, if a business only has 90% as many employees as in that prior period, then 90% of the loan is forgiven). There is certainly more complexity about reductions in pay, part-time employees, businesses that have not been around for a year, and certain other nuances; further, the Guidelines for these provisions will probably not be issued for several weeks.
Nearly all FDIC-insured banks are supposed to be making these loans, and the application and funding process is supposed to be relatively fast and easy. Businesses should check with their banking contacts (if they have not already) about the status and timing of the application process (some banks may have already begun accepting supporting information for the applications, such as the 12 months of applicable payroll info to determine the max loan amount), even though specific applications based on the bank guidelines and instructions for these loans have not yet been issued). And there is concern that, since the funding dedicated to these loans is “only” $349 billion, that such amount will be exhausted quickly (likely on a first-come, first-served basis); however, there is at least a possibility that more funds are on the way for this SBA program; see the article published today at this link:
There are also other provisions of the CARES Act that will be very helpful to businesses as well. There is too much information to summarize here; however, the following two links provide some key information (including, notably, that there will be refundable payroll tax credits for up to $10,000 of some employees’ pay, businesses can defer paying part of their Federal payroll tax into future years, and there are expanded SBA loans available (in addition to the Paycheck Protection Loans):
If you qualify as a small business under the CARES Act, you will certainly want to take advantage of this program once the banks are online to make the loans. You should begin gathering your payroll and benefits information for the previous 12 months.
We know that most all businesses will face some very difficult times ahead. The CARES Act is a once-in-a-lifetime government assistance program, and it may be merely one step in a series of programs that will be passed into law. We will be assessing future Bills as they are promulgated and will try to keep you informed of the changing situations in light of other government aid programs that comes into the picture going forward. My firm expects to weather this COVID-19 pandemic and economic storm and hope to see you do so as well.
Please feel free to use this summary as a general guideline of this new law, and hope you find this article helpful/useful. But be sure to consult with legal counsel and/or tax and other professionals in connection with any important actions taken for your particular businesses and situations.
If Hoover Slovacek or I can be of any assistance, please do not hesitate to contact me. Best wishes to you all. – Gregory A. Savage