After a tense standoff late last week, both houses of the US Congress and the President decided they could actually agree on something.
Negotiations ended in the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES), a nearly $2 trillion dollar relief package for just about everyone including individuals, small businesses and major industries hit hardest by the Covid-19 crisis. In this post, we want to focus on the basics of the small business piece to make you aware of significant relief that is available to the local business community.
What follows is a general description. We are not lawyers or accountants and after spending hours poring over the text of the new law, it is clear that we probably need to be both to really understand CARES in its entirety. There are caveats galore as you might expect, but we were able to glean the basics of it and we share our cursory understanding of it with you here. Hopefully, this will alert you to the fact that you have a place to turn for help and we encourage you take immediate action to get the ball rolling for you and your business.
The most impactful component of CARES is the availability of up to $10 million in assistance for employers with fewer than 500 employees. The program will be run under the auspices of the SBA, but borrowers will be interfacing with their own banks to expedite and streamline the process. In general, almost any business is able to borrow 250% of its monthly payroll to a maximum of $10 million dollars. That amount is forgivable if it is spent within two months of loan origination on payroll, health benefits, rent, utilities (including transportation expenses) or interest on mortgages or any other debt instruments.
Yes, you read that right: forgivable. And, yes, it is hard to believe, but these are unusual times and our leaders in Washington decided to go all-in to keep our economy from collapsing.
Whatever portion of the loan that does not qualify for forgiveness must be repaid based on a 10-year amortization period and an interest rate of just 4%.
Payments would not begin for at least 6 months after the unforgivable balance is determined. We are still having trouble believing it, but this is, in fact, the case. These loans are also being made without pledge of collateral, personal guarantees or fees of any kind. Your bank will be reimbursed for origination fees by the SBA.
All you have to do is get in front of your personal banker and complete the application. He or she has been authorized by the SBA to approve your loan on the spot. From all we have read, that’s the entire process, as hard as it is to believe.
Here are few other components of the law that we are also looking into and hope to get more detail to you on shortly:
- Deferral of 50% of an employers’ payroll tax deposits for 2020 (with 50% of deferred amount due by December 31, 2021, and 50% due by December 31, 2022)
- A refundable employer retention credit equal to 50% of qualified wages against quarterly employment taxes, to offset up to $10,000 of wages paid per employee in 2020
- The reinstatement of NOL carrybacks for the 2018–2020 taxable years, and repeal of the 80% taxable income limitation for the 2018–2020 taxable years
- A TCJA (Tax Cuts and Jobs Act of 2017) technical correction that classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactive as if it was included in the TCJA at the time of enactment
Penalty-free withdrawals of tax retirement funds of up to $100,000 (income recognized over a three-year period)
These are just a few of the main components of CARES that could help you weather the storm. We encourage you to take immediate steps to learn how you can take full advantage of the program. In the end, we are all going to pay a price for our government printing another $2 trillion. Nothing is free at the end of the day. However, this assistance could put you in a better position to restart your business and make it thrive in the economy we have on the other end of this current crisis.
We are doing everything we can to learn more so that we can keep you informed. Please give us a call if you have any questions. And, if you are feeling brave, click here for a complete copy of the CARES legislation.