On March 27th, Congress passed the Coronavirus Aid, Relief and Economic Security, or C.A.R.E.S. Act in an effort to alleviate the economic distress for individuals and businesses caused by the COVID-19 pandemic. While the Act has numerous stipulations to protect individuals, as outlined in Part I of this series, there are also a wide range of relief benefits for small businesses to take advantage of.
Paycheck Protection Program (PPP) Loans
Possibly one of the most impactful aspects of the CARES act involves the SBA backed Paycheck Protection Program (PPP) Loans for small businesses. This loan incentivizes businesses to keep their payroll consistent during the COVID crisis.
The Paycheck Protection Program loans are being offered on a first-come first-serve basis and are intended to cover payroll, rent, utilities and loan obligations. The best part? PPP Loans can be forgiven for employers that maintain consistent payroll numbers.
Who Qualifies for a PPP Loan?
Small businesses with under 500 employees that operate within the US can qualify for the SBA backed PPP loans. Businesses can also qualify by meeting the employee based size standards for its industry.
Qualifying 501(c)(3) non-profits, tax exempt veteran organizations, and tribal businesses that meet small business size standards are also eligible for a PPP Loan. Independent contractors, individuals who operate sole proprietorship, and eligible self-employed individuals can potentially qualify as well.
How much money will your business qualify for in PPP Loans?
The PPP loans are based on 250% of your monthly payroll, with a 10 million dollar cap.
What Counts as ‘Payroll’?
Per the PPP application promoted by the SBA, payroll for most businesses is considered the average monthly payroll for 2019. For seasonal businesses, this is a bit different. If you were not in business between February 15, 2019 and June 30, 2019, your loan maximum is calculated as your average monthly payroll costs between January 1, 2020 and February 29, 2020.
In regards to actual figures that play into payroll calculations, the SBA outlines the following expenses:
- Salaries/Wages/Commissions or Tips – NOTE: This is capped at $100,000.00/Annually for each employee
- Employee Benefits: Medical, insurance premiums, and retirement benefits, in addition to benefits for paid time off, sick leave, family/medical leave, etc.
- State and Local payroll taxes (no federal)
- Sole Proprietor/Independent contractor wages, commissions, income, or net earnings for self employment, also capped at $100,000.00 annually
My Employee Counts have Varied over the past 18 Months: How Do I Determine an Accurate Count?
The most concise information provided by the SBA is that employee count figures should be measured as your average employment over the same time period as your payroll calculations. Alternatively, you could also calculate headcount based on the average employee count per pay period in the 12 month period prior to the loan date.
What are the Stipulations for Loan Forgiveness with the PPP Loans?
In order to get Loan forgiveness for the PPP Loans under the CARES act, employers will need to keep employees on the payroll for the eight week loan period. It is still unclear whether head count or salary – or a combination of the two – will be used to calculate forgiveness.
In addition to maintaining payroll obligations, loan funds will need to be used for payroll, rent, mortgage interest, or utilities. At least 75% of the loan funds will need to be solely dedicated to payroll.
When and How do I Apply for a PPP Loan?
It is important to apply for a PPP loan as soon as possible, as funds will only be available on a first come first-serve basis.Existing SBA lenders began accepting applications on April 3rd, and independent contractors and self-employed individuals will be able to apply on April 10th.
If you don’t already have a business banking relationship, you can go to any SBA backed lender to get the PPP Loan process started. Most larger banks, including Bank of America, have already started getting online application processes in the works, however the Treasury Secretary did note that smaller community banks have actually been more active in getting their loans submitted.
Are there other Loan Options for Small Businesses?
The PPP Loans is the primary loan option under the CARES Act for Small businesses, however EIDL Loans, Economic Injury Disaster Loans is an alternative option for employers potentially looking for quick funds.
The EIDL loan was actually established prior to the Coronavirus pandemic for disaster time situations. The EIDL loan provides a low interest loan option with a fully forgivable emergency advance of up to $10,000.00 – which essentially serves as a grant. Interestingly, businesses can apply for both the PPP loan and the EIDL loans, as long as the funds are not used to cover the same costs.
Are there other Benefits the CARES Act provides for Small Businesses?
There are several tax provisions available for redemption to alleviate the financial burden caused by the COVID-19 pandemic.
Employee Retention Tax Credits
For employers who’s gross income declined by more than 50% or who had to suspend (partially or fully) operations due to a shutdown order, a 50% tax credit is available to alleviate impacts. The credit applies to up to $10,000.00 in wages paid during the pandemic from March 13, 2020 to the end of the year.
My Company Won’t Qualify for the PPP Loan Forgiveness. What Other Options are Out There?
Payment & Filing Extensions
Fortunately for employers who may not benefit from the PPP loans, payroll tax payments, including the employer share of Social Security taxes, can, in fact, be delayed. This can also apply for self-employed individuals. For employers who choose to defer, the payments will need to be paid back in two increments; half by Dec. 31, 2021, and half by Dec. 31, 2022.
Do note that the CARES Act also provides numerous stipulations to benefit individuals financially as well. For a full breakdown of these benefits, be sure to check out Part I of our CARES Act blog series.
If you need more information about the CARES Act, and how your business is affected, be sure to contact our financial advisors at Morris Financial Concepts.
The opinions expressed herein are those of Morris Financial Concepts, Inc. (“MFC”) and are subject to change without notice. Links to third-party websites have been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. This material is for informational purposes only and should not be considered investment advice. MFC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about MFC including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request. MFC-20-08.