As small business owners grapple with the economic realities of nationwide stay-home orders and social distancing mandates, legislatures have been updating laws and developing new programs to keep the economy afloat. The latest and most groundbreaking is the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2.2 trillion stimulus package aimed at supporting individuals, businesses, and governments now and beyond this pandemic. The federal government has earmarked $377 million to help small businesses avoid failure and encourage them to retain their workforces. Here are the most important things for business owners to know about the CARES Act:
1. Small Business Administration (SBA) Economic Injury Disaster Loans and Emergency Economic Injury Grants. Small business owners will be able to apply for low-interest federal disaster loans to maintain cash flow for payroll, utilities, rent, and other fixed debts. Additionally, small businesses may be eligible for up to $10,000 in grants, in the form of a loan advance, if they can show economic injury caused by the COVID-19 pandemic. An applicant may be eligible for the advance even if the applicant is denied the federal loan. Applicants who are approved for the loan advance will receive funds within three days of applying.
2. Paycheck Protection Program (PPP). In addition to funds available through the SBA as disaster loans, small businesses may be eligible to receive loans through the newly created Paycheck Protection Program. This loan program provides federally backed loans of up to $10 million for businesses with less than 500 employees as an incentive to encourage business owners to keep their employees on the payroll. The program broadly recognizes sole proprietorships, independent contractors, and private nonprofits as eligible businesses. These loans are due within two years at an interest rate of 5 percent but could possibly be forgiven. Moreover, loan payments are deferred for six months.
3. Small Business Debt Relief Program. The federal government will defer loan payments for businesses that have SBA 7(a), 504, or microloans. Additionally, the SBA will pay the principal and interest on 7(a) loans issued to owners before September 27, 2020. For current 7(a) loans, the SBA will pay the principal and interest for six months.
4. Employee Retention Tax Credit for Employers Subject to Closure or Experiencing Economic Hardship. Employers whose businesses have been partially or fully suspended as a direct result of the COVID-19 outbreak and whose gross receipts are below 50 percent of their prior amounts as of 2019 are eligible for tax credits for wages paid to employees during this time. The 50 percent fully refundable tax credit is for qualified wages of up to $10,000 per employee. This includes allocable qualified health plan expenses. Because there are additional tax credits related to the COVID-19 outbreak but outside the scope of the CARES Act, special attention must be paid to what and how wages are paid. Employers that receive an interruption loan under the Paycheck Protection Plan are not eligible for the tax credit.
5. Tax Cuts and Jobs Acts Amendments. The Tax Cuts and Jobs Act 80 percent net operating loss rule has been lifted so that losses can now be carried back as far as five years. The excess business loss limitation for all noncorporate taxpayers was also removed. This loss limitation will still expire for tax years beginning after December 31, 2025; however, these provisions are effective from December 31, 2017, so tax returns filed with excess business loss limitations can be amended.
There have also been amendments to retirement fund regulations resulting in the removal of the 10 percent withdrawal penalty and the increase of the loan limit on 401(k) loans. Up to $100,000 can be borrowed under CARES as compared to the former $50,000 limitation.
You Are Not Alone
Identifying how specific provisions of the CARES Act relate to your business is not simple. If you need assistance understanding the new laws and positioning your business to survive this pandemic, we are here to help. Call our office to schedule a meeting. We will help you prepare the necessary legal documents as you focus on leading your business through these challenging times.