Relief for Small Business Clients Under the Cares Act of 2020

The CARES (Coronavirus Aid, Relief, and Economic Security) Act of 2020 provides several important provisions that may assist as our clients navigate through the financial challenges presented by COVID-19. Here are the highlights.

Small Business Loan Changes & Forgiveness

  • The CARES Act broadens the requirements and increases loan limits for small businesses (under 500 employees) when applying for a 7(a) loan from the Small Business Administration during the period February 15, 2020 through December 31, 2020. Any small business (including non-profits) is eligible to borrow up to 2.5 times the last year’s average total monthly payroll costs, up to a limit of $10 million.
  • Eligible businesses need to have been operating on February 15, 2020 and had employees (with wages and payroll taxes) and would need to have been greatly impacted by COVID-19.
  • The loan funds may be used for:
    • Rent, Mortgage, payments on other debts, and utility costs.
    • Compensation (wages, commissions, or independent contractors)
    • Employee benefits (healthcare premiums, leaves, PTO, etc.)
    • Retirement Plan and related costs.
  • Loan Forgiveness (the Paycheck Protection Program) – Small businesses can apply for loan forgiveness up to what was spent on payroll costs and interest paid on mortgage, rent or utilities that were in place before February 15, 2020. Note that the amount forgiven may be reduced by the number of employees not retained or salaries reduced, when compared to the prior year.
  • The forgiven funds are not taxable under the CARES Act.

Payments for Payroll Tax and Self-Employment Tax can be Deferred

  • Employers can delay paying their share of the Social Security Tax from now through December 31, 2020. The amount owed would then be paid in two payments (50% each) on December 31, 2021 and December 31, 2020.
  • Self-Employed individuals can defer paying half of their tax owed – with the payments made on the same schedule noted above.

Tax Credit for Employee Retention

  • Employers whose operations are impacted by COVID-19 in any quarter of 2020 but continue to pay employees may apply 50% of the wages for each impacted employee up to a maximum of $10,000 per employee against the Employer’s 6.2% share of Social Security payroll taxes.
  • To qualify, the employer’s operations must have been fully or partially suspended during the quarter or have had gross receipts less than 50% of those for the similar quarter in 2019.

Economic Injury Disaster Loans (EIDL) and Grants Expanded

  • These loans are now available to a much broader base including startups, sole proprietorships and independent contractors. Many of the fees are waived for EIDL loans made in response to COVID-19 before December 31, 2020 including the personal guarantee on advances and loans below $200,000.
  • Applicants may also request and receive up to $10,000 advances on the loan funds. If the loan application is denied, the advance dollars do not need to be repaid.
  • Note that these loans are administered directly through the SBA so processing times may be much longer than the other Loan programs noted above.

SBA Loan Payment Waivers and Forgiveness

  • For those who already have SBA loans, lenders are now authorized to defer payments up to 90 days and the CARES Act also authorizes the SBA to “Pay” up to 6 months of payments as well. Deferred payments are added to the back end of the loan, but the payments “Paid” by the SBA are just that – they’re paid by the SBA on your behalf and do not need to be added back.

With any of these CARES Act enabled SBA loans, you can make application and get more information by contacting your bank (most have SBA programs) or preferred lender.

If you would like more information regarding the CARES Act or to discuss your specific situation and how these may apply to you, please contact Nielsen Law Group at (480) 888-7111 or [email protected].