Business Owner’s Guide to the CARES Act
As a business partner for our clients, Melanson Heath has put together information about the programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This Act is intended to assist business owners with whatever needs they have right now. They are available for small businesses, nonprofits, and other employers. Businesses can apply for a number of different loans as long as there is no duplication in the use of funds.
During this unpredictable and challenging time, it is more important than ever to stay connected. Here are just some of the ways we can help you:
- Review your eligibility for different sources of funding
- Provide assistance with payroll calculations needed to prepare loan applications
- Prepare and/or review loan applications before submission
We encourage you to reach out to us. Let us help you select the right options and navigate through the business challenges you may be facing. We are all in this together.
Below are outlined details about the different programs being offered to help get you started in understanding what may be available to you:
Paycheck Protection Program (PPP)
- Purpose: The program would provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency.
- Features: If employers maintain their payroll, the loans would be forgiven. Such forgiveness can be for 08 weeks of payroll based on employee retention and salary levels. No SBA fees and six months to one-year deferral.
- Eligibility: Small business concerns, non-profits(501(c)(3) and 501(c)(19) of the IRC), sole proprietorship, independent contractor and self-employed individuals who were harmed by COVID-19 between February 15, 2020 and June 30, 2020 and must have been in operation on February 15, 2020. Affiliation rules have been waived for certain industries and any business operating as franchise that has been assigned a franchise identifier code.
- Application deadline: June 30, 2020.
- Loan size determination/calculation: The maximum loan size is $10 million.
- The maximum loan amount will be calculated by taking aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States. Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year. Calculate average monthly payroll costs. Multiply the average monthly payroll costs by 2.5.
- If you have taken an Economic Injury Disaster Loan between Feb 15 – June 30, 2020 then you can refinance that into PPP loan.
- Eligible payroll expenses for loan size calculation: Compensation, payment for leaves, allowance for employee dismissal, group health care benefits, health insurance premiums, retirement benefits, state or local taxes on employees’ compensation.
- Non-eligible payroll expenses: Employee/owner compensation above $100,000, Non- resident employees, certain taxes, qualified sick and family leave covered under Families First Coronavirus Response Act.
- Allowable uses of loan proceeds: Payroll costs including commissions, group health care insurance premiums, repayment of mortgage interest (shall not include principal), rent, utilities, interest on any other debt obligations that were incurred before the covered period
- Loan terms: Maximum term is 2 years, maximum interest rate is 1%, zero loan fees, and zero prepayment fee. Six months to one-year deferral of repayment but the interest will accrue during that time period.
- Loan forgiveness calculation: Payroll costs incurred during the covered 8 week period compared to the previous year or time period plus any payment of interest on any covered mortgage obligation plus any payment on any covered rent obligation plus and any covered utility payment. The non-payroll expenses should not be more than 25%.
- Documentation required for loan forgiveness:
- Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.
- Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
- Certification from an authorized representative of business to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.
- More than one PPP loan: An entity is limited to only one PPP loan.
- Lenders: All current SBA lenders are eligible lenders of PPP loans.
Small Business Debt Relief Program
- Purpose: The program would provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans.
- Features: SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the President signing the bill into law.
- Eligibility: Business must meet size standards by using their business’s 6-digit North American Industry Classification System (NAICS) code.
- 7(a) loan: This loans is an affordable loan product of up to $5 million for borrowers who lack credit elsewhere and need access to versatile financing, providing short-term or long-term working capital and to purchase an existing business, refinance current business debt, or purchase furniture, fixtures and supplies.
- 504 loan: This loan program provides loans of up to $5.5 million to approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization.
- Microloan: The Microloan Program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers to start up and expand.
Economic Injury Disaster Loans & Emergency Economic Injury Grants
- Purpose: All businesses suffering substantial economic injury can use all for these loans.
- Features: On applying for the loan within 3 days an emergency advance of up to $10,000 will be provided. The advance is grant and does not need to be repaid.
- Eligibility: Small business concerns with 500 or fewer employees including sole proprietorships, independent contractors, cooperatives, employee owned businesses and Tribal small businesses. Most non-profits of any size are also eligible. The business should have been in operation since January 31, 2020.
- Allowable uses: Loan is used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
- Application deadline: December 31, 2020.
- Loan size and interest rate: The maximum limit is $2 million and maximum loan term is 30 years. The interest rate is 3.75% for small businesses and 2.75% for non-profits. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
- Application fees: Application fees for a disaster business loans are $2500.
- Non-eligibility: Applications who have not complied with terms of previous SBA loans may not be eligible. These loans cannot be used to refinance long term debts.
- Collateral: Collateral is required for all loans over $25,000. SBA takes real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but will require the borrower to pledge collateral that is available.
- Loan processing: Loan processing will be done by SBA offices and processing will take 2-3 weeks.
If you are a government contractor, there are a number of ways that Congress has provided relief and protection for your business. Agencies will be able to modify terms and conditions of a contract and to reimburse contractors at a billing rate of up to 40 hours per week of any paid leave, including sick leave. The contractors eligible are those whose employees or subcontractors cannot perform work on site and cannot telework due to federal facilities closing because of COVID-19.
Small Business Tax Provisions
- Employee Retention Credit for Employers Subject to Closure or Experiencing Economic Hardship: This provision would provide a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including nonprofits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis.
- Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit.
- The credit is not available to employers receiving assistance under PPP loans.
- Delay of Payment of Employer Payroll Taxes: This provision would allow taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022.
- The Deferral is not available to employers receiving assistance under PPP loans.
Our advisors are here to help with the following regarding the CARES Act:
- Review of the eligibility for different sources of funding.
- Loan application preparation based on the information provided by the businesses (especially for Economic Injury Disaster Loans).
- Review the documentation before submission for PPP loan forgiveness.
- Tax compliance services and correspondence with IRS.
Please reach out to us with any way we can help you and your business during this time. We are here to be your partner!
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