Business Relief Provisions Contained in the CARES Act
The CARES Act (the “Act”) has been passed by Congress and signed into law. The next three emails, including this first part, will focus on various provisions contained in the Act. Part I summarizes the business relief provisions contained in the Act. Part II will summarize other business and tax related provisions. Finally, Part III will focus on the individual relief provisions.
The Employee Retention Credit is a fully refundable tax credit tied to the payment of employee wages. Employers are permitted to claim a 50% credit of wages paid up to $10,000 per employee. This is only available to employers whose operations were fully/partially suspended due to COVID-19 OR whose gross receipts declined by more than 50% compared to the same quarter in the prior year.
The SBA 7(a) Loan Program has been expanded to include the following:
Paycheck Payback Program (PPP): The PPP loan is determined by a formula tied to the business’s payroll costs. The maximum loan is 2.5x the average monthly payroll from the past 12 months.
Allowable loan borrowing uses include payroll, insurance premiums, mortgage, rent and utility payments. The period to claim this is between February 15th and June 30th, 2020. This loan can be forgiven, but is based on a calculation of wages paid. Borrowers that re-hire workers previously laid off will NOT be penalized for having a reduced payroll at the beginning of the period.
The loan forgiveness will be proportionally reduced if the average number of employees is reduced during the covered period as compared to the same period in 2019. In addition, it will be reduced by the amount of any reduction in total employee wages during the covered period in excess of 25% of the total wages. However, if you rehire any laid off workers by June 30, you will not be penalized for having a smaller workforce at the beginning of the period.
SBA Express Loan: Accelerates the turnaround time of processing a loan. These SBA loans will be issued with a 3.75% interest rate.
Emergency Economic Injury Disaster Loan (EIDL): Establishes an emergency grant to allow an eligible entity who has applied for an EIDL to request an advance of up to $10,000 which must be distributed in 3 days after the application is received. The advance payment may be used for providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses. Applicants are not required to repay the advance payment, even if they are subsequently denied the EIDL.
Please keep in mind, if you utilize the SBA loan forgiveness program, you may not qualify for the employee retention credit (and vice-versa).
While the SBA website will be handling any “Disaster Loan Assistance” applications, the FDIC insured banking institutions and lenders will handle any SBA 7(a) Loan applications. If you believe you may qualify for any SBA 7(a) Loan, we recommend that you reach out to your banking institution to begin this process immediately. In addition, please contact us at GCS to review your specific needs and decide the best “next steps” to obtain any relief necessary for you and your business.
Should you have any questions or wish to speak to a team member, please don’t hesitate to call us at 201-599-0008.