COVID-19 CARES Act

President Trump recently signed the Coronavirus Aid, Relief and Economic Security Act or the CARES Act. The Act provides certain relief for businesses and individuals amidst the coronavirus pandemic. There are significant aspects of relief available to businesses contained in the CARES Act, focusing on the areas of loans, loan forgiveness, unemployment, employee benefits, healthcare and tax.

Paycheck Protection Program

The Paycheck Protection Program (PPP) is a new Small Business Administration (SBA) loan program, which will be administered through private lenders. The purpose of the PPP is to assist small businesses to retain employees and maintain payroll. With a cap of $10 million, the PPP loan amount will be equal to 2 1/2 times the average monthly payroll costs based on the prior year. The PPP loan may be used to pay certain business expenses, including employee salaries; vacation, parental, family, medical or sick leave; group health care and retirement benefits; income withholding taxes; and mortgage, lease and utility payments. 

Eligible small businesses may apply through an SBA-approved private lender. For PPP loans obtained between February 15, 2020 to June 30, 2020, the PPP lender will allow a complete deferment of repayment of at least 6 months, and up to a maximum of one year.

To qualify, a business must: (1) have been in operation since February 15, 2020; (2) have paid salaries, payroll taxes, or Form 1099 non-employee compensation; and (3) meet size limitations (e.g., 500 or less employees, with some exceptions). Nonprofits, sole-proprietors, independent contractors and the self-employed are also eligible for the PPP.

PPP Loan Forgiveness Program

PPP borrowers are eligible for loan forgiveness equal to certain costs incurred and payments made during the 8-week period starting from the date of loan origination. Eligible costs and payments include payroll costs and mortgage, rent and utility payments. To qualify, the lender will require detailed supporting documentation. The borrower also must certify that: (1) the uncertainty of current economic conditions justifies the loan request to support ongoing operations, (2) the supporting documentation provided by the borrower is true and correct, and (3) the funds expended were used to retain employees. An otherwise eligible recipient of loan forgiveness will be denied if the required documentation is not submitted to the lender.

Employee Retention Credit and Payroll Taxes

Under the Act, certain employers are entitled to credits against payroll taxes, as well as for certain expenses incurred with respect to employer-maintained health plans. The credit is a refundable credit, meaning that any excess credit (that is not applied against taxes due) will be paid in cash to the employer like a typical income tax refund. Employers are eligible if their operations were fully or partially suspended due to a COVID-19-related shut-down order, or if the employer has had a decline in gross receipts of more than 50% when compared to the same quarter last year. 

The credit against employment taxes for each quarter equals 50% of the “qualified wages” paid to employees during the COVID-19 crisis. The dollar amount of the credit is capped at $10,000 per employee and certain restrictions apply to employers with more than 100 employees. 

The CARES Act also provides that all employers may delay payment of the employer’s share of certain payroll taxes, with 50% of such taxes due December 31, 2021, and the other 50% due by December 31, 2022.

Economic Injury Disaster Loan

An EIDL is a low-interest working capital loan available to small businesses, small agricultural co-ops and certain nonprofits whose businesses have been severely impacted and suffered working capital losses due to the COVID-19 coronavirus pandemic. Businesses must apply directly to the SBA for an EIDL. 

The CARES Act expands EIDL eligibility to all co-ops with 500 employees or less, ESOPs, tribal small business concerns and individuals who operate under a sole proprietorship or as an independent contractor. It also waives the personal guarantee requirement for loans under $200,000 and reduces the time frame from when businesses must have been in operation to January 31, 2020.

The CARES Act also allows businesses to receive both a PPP loan and an EIDL under certain circumstances, including if the business obtained the EIDL before the PPP loans became available.