On March 27, 2020, President Trump singed into law an unprecedented package of $2.2 trillion in relief for individuals, health care providers, and businesses impacted by the COVID-19 pandemic. Of interest to many Meyer Njus Tanick clients, the Coronavirus Aid, Relief, and Economic Security Act or “CARES Act” provides for certain financial protections for small- to mid-sized businesses.
The following is a brief and general summary highlighting five of the more impactful portions of the CARES Act. This summary should not be construed as legal advice. For more detailed information on how the Act may present opportunities for your business, please contact us directly.
- Small Business Administration Loans.
The CARES Act allows for business with fewer than 500 employees or other qualifying small businesses to participate in the new “Paycheck Protection Program” through the SBA. Individuals who are self-employed, independent contractors or sole proprietors may also be eligible.
The Program provides for SBA loans to qualifying businesses equal to 100% of the funds needed to pay qualified payroll costs (including health care benefits) up to $100,000 of prorated annual salary per employee. The loan proceeds may also be used to cover mortgage interest, rent, utilities, and other pre-existing debt interest. The traditional application fees and collateralization and guaranty requirements are waived.
Small businesses are further entitled to full or partial loan forgiveness for qualifying payments made between February 15, 2020 and June 30, 2020. The percentage of the Program loan that may be forgiven will be determined with reference to a formula based on both the retention of employees and the maintenance of their salaries (though some minor reductions are allowable) through June 30th.
Thus, by way of illustration, if an employer reduces its staff by an average of 25% during the covered period of February 15 to June 30, the employer would only be entitled to 75% forgiveness of its Program loan. Similarly, the total amount of loan forgiveness will be reduced dollar-for-dollar by the total amount of salary or wage reduction that is in excess of 25% for each employee so affected. Employers may avoid these reductions, however, by restoring the salaries of affected employees and/or restaffing affected positions prior to June 30, 2020.
- Small Business Administration Disaster Relief.
Employers with fewer than 500 employees or other qualified entities are, in addition to the Paycheck Protection Program outlined above, entitled to disaster relief loans through the end of the calendar year. The loan amount is capped at $10,000 and it is not required to be repaid. Any amounts advanced under this program will serve as a dollar-for-dollar reduction of any forgiveness the employer would otherwise be entitled to under the Paycheck Protection Program. Thus, if an employer borrows $10,000 from the disaster relief program and then borrows an additional $100,000 form the Paycheck Protection Program, the amount of forgiveness the employer would otherwise be entitled to under the Paycheck Protection Program formula will be reduced by $10,000.
Funds borrowed under the disaster relief program may be used more broadly than the funds provided for in the Paycheck Protection Program. Specifically, the funds may be used for qualifying “disaster” purposes, which specifically include the provision of paid sick leave to employees directly impacted by COVID-19, maintenance of payroll during substantial slowdowns or business disruptions, meeting costs of materials increased by supply-chain disruption, payments of rent or mortgage (including principal), and repayment of debt obligations that cannot me met due to lost revenue.
- Current SBA loan subsidy.
Companies that have current SBA loan obligations are entitled to additional relief. The CARES Act provides that the SBA shall pay all principal, interest, and associated fees on current SBA loans for a period of six months. The payments made by the SBA shall not be subject to repayment by the borrower.
- Employee Retention Credit.
Employers whose business operations are fully or partially suspended as a result of governmental order or who realize a qualifying “significant decline in revenue” are entitled to a credit against applicable employment taxes. Employers may take a credit of up to $10,000 for each calendar quarter in which they are so impacted. The exact amount of the credit will be equal to 50% of the qualified wages paid during such calendar quarter. Any amount of the credit over the $10,000 limit will be treated as an overpayment and will be refunded by the IRS.
Likely candidates for the employee retention credit would include restaurants, retailers, caterers, and other customer-facing enterprises. This credit would be in addition to any payroll tax deferment outlined in section 5 below.
- Delay of Payment of Employer Payroll Taxes.
The CARES Act defers payment of the remainder of 2020 payroll taxes. Half of the deferred taxes must be repaid by the year end of 2021; the remaining amount of deferred taxes must be repaid by the 2022 year end.
We anticipate that each of the foregoing provisions will be subject to additional regulatory guidance in the days and weeks ahead. We will do our best to keep abreast of any material updates or guidance that will impact a wide range of our clients. If you have any specific questions regarding the CARES Act, please consider contacting David Robbins, Neil Meyer, James Njus, or your usual Meyer Njus Tanick attorney for assistance.
As always, we wish you, your business, and your employees the very best as we all navigate these unprecedented times.