30 Mar Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)
By: Barry E. Haimo, Esq.
March 30, 2020
Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)
All business owners may benefit from the passage of the Coronavirus Aid, Relief, and Economic Security Act (the “Cares Act” or “Act”). There’s a lot of provisions making up the Act. If your business has been adversely affected by Covid-19, then you may qualify. That basically applies to all businesses.
SUMMARY OF MATERIAL TERMS RELATING TO SMALL BUSINESSES:
The most important provisions relating to business owners are highlighted below.
- The purpose of the Cares Act is to encourage small businesses to retain their work force through a definite period of time intended to be the duration of this Corona Virus disruption.
- To qualify, your business must be less than 501 employees.
- Maximum amount –
- Existing Businesses – the maximum loan is 2.5 times your average monthly “payroll costs” for the 12 month period prior to the date of the loan.
- New Businesses – the maximum loan is 2.5 times your average monthly “payroll costs” for January 2020 and February of 2020.
- In either case, the maximum amount is $10,000,000, therefore most small businesses may qualify.
- “Payroll costs” include salary/wages/tips, sick/family leave/PTO, severance payments, group health benefits (including insurance premiums), retirement benefits, and state or local taxes assessed on employee compensation. However, for any employee who is paid more than $100,000 salary, only the amount up to $100,000 (prorated for the covered period) is calculated into the number.
- Loan proceeds MUST be used for “Eligible Expenses” which includes “Payroll Costs”, as well as other things like, interest on a mortgage or other certain debt obligations, rent and utilities.
- Forgiveness – the main attractive term here is that the loan MAY be forgiven in its entirety AND you will not be characterized as receiving cancellation of indebtedness income. The amount that is forgiven is the sum of the payroll costs, mortgage interest payment, rent, and utilities incurred or paid by the borrower during the 8-week period beginning on the loan origination date. Any portion of the loan that is forgiven is excluded from taxable income.
- No forgiveness – if the business laid off employees, then the amount to be forgiven is reduced proportionately based on terms in the act. Furloughs will impact this calculation.
- Terms for unforgiven portions of the loan – The terms of the amount of any portion of the loan that is not forgiven will be for a term not to exceed 10 years and at an interest rate of no more than 4%.
LONG-FORM SUMMARY RELATING TO ALL PROVISIONS
Another Long-Form Summary from a CPA firm with whom we work:
HOW TO APPLY:
Talk to your banker. The terms are not yet solidified and passed down to the banks yet. Meanwhile, consider using the existing options, called the “Economic Injury Disaster Loans”. Read more about them here: https://www.sba.gov/funding-programs/disaster-assistance
EIDS Loan Application:
Note – these are NOT the same loans that will be provided under the Cares Act.
We hope you and your family are safe and well during this chaotic and scary time. Please call us if you need guidance or advice regarding the Cares Act or other business needs, planning or challenges.
Stay tuned for more.
THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND REQUIRES A CONSULTATION TO UNDERSTAND SUCH FACTS AND THE CLIENT’S NEEDS AND GOALS. ACCORDINGLY, NOTHING CONTAINED HEREIN CONSTITUTES LEGAL ADVICE.