The CARES Act is a federal law which provides federal economic stimulus for businesses and individuals.  The CARES Act was signed by President Trump on March 27, 2020 after having been passed by the U.S. Senate and U.S. House of Representatives.  This law allocates $2.2 trillion in spending and tax breaks to increase liquidity in the economy, provide relief for individuals and businesses, as well as specific industries most seriously harmed by the Coronavirus pandemic.

Important tax provisions for businesses include deferrals of employer payroll tax liabilities coupled with an employee retention tax credit, rollbacks of Tax Cut & Jobs Act limitations on net operating losses (NOLs), deferral of the business interest limitation under Section 163j and a technical correction on qualified improvement property (QIP) that benefits taxpayers.

Eligibility for businesses including sole proprietorships, nonprofits, and self-employed must have fewer than 500 employees and meet the Small Business Administration’s industry-based “size standard” requirements for the applicable North American Industry Classification System (NAICS) code, based on either the number of employees or annual receipts.

In addition, the business must have been substantially affected by COVID-19 which is defined as:

• Supply chain disruptions;
• Staffing challenges;
• A decrease in sales or customers;
• A shuttered business.

The maximum maturity of the loan is 10 years.  The amount of a loan can be the lesser of:

• $10 million, or;
• 2.5 multiplied by the average monthly payroll payments by the applicant incurred during the 1 year period before the date which the loan is made.

Loans under the Act can be used for:

• Payroll support, including paid sick, medical, or family leave and costs related to the continuation of group health care and retirement benefits during those periods of leave;
• Employee salaries, up to a $100,000 annual salary;
• Mortgage payments;
• Rent, including rent under a lease agreement;
• Utilities;
• Any other interest on debt obligations that were originated before the covered period (excludes payment of principal);
• Refinancing of an Economic Injury Disaster Loan.

An eligible business recipient under the Act is eligible for forgiveness of indebtedness in an amount equal to the cost of maintaining payroll continuity and other allowable costs during the covered period (8 weeks from loan origination) compared to the previous year.

The directive from the SBA at this time states that under this program “all” employees are to be kept on the payroll.  While union employees are not specifically mentioned in the SBA directive, it appears that union employees will be counted in any employee headcount.  Anyone laid off/furloughed, that is hired back, would count to the restoration of full time employee levels.  Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full time headcount declines, or if salaries and wages decrease. Reductions in workforce salaries and wages that occur from February 15, 2020 to April 26, 2020 will be disregarded for the purposes of reducing the forgiveness amount, as long as the reductions are eliminated by June 30, 2020.  The borrower (business) must submit to the lender an application including documentation verifying the number of full-time equivalent employees on payroll and other costs included in the allowable uses for a loan under the Act including:

• Payroll tax filings reported to the Internal Revenue Service;
• State income, payroll, and unemployment insurance filings;
• Financial statements verifying payment on debt obligations incurred before the covered period of the loan; and
• Other additional documentation that might be determined to be necessary.

The amount of any loan forgiveness will be reduced by any reductions in employee wages, in excess of 25% for any employee, or a reduction in the number of employees during the period covered through June 30. 2020.

Any canceled indebtedness under this portion of the Act is to be excluded from gross income.

• Loans under this program are non-recourse, no personal guarantee required, except if you are using the loans for purposes other than those that are allowed;
• Final rates for the loan, which are not to exceed 4%, underwriting standards, and other terms and conditions have yet to be determined;
• Loans under this program will be issued by SBA 7(a) lenders;
• The program will be available through June 30, 2020.

Yes, they are eligible, but under another section of the Act that allows for credit support for these businesses.  The terms and conditions of that program differ significantly from the Small Business Interruption Loans/Paycheck Protection Program.

Loan under this program can be made in amounts of up to $2 million.

The interest rate for loans under this program is 3.75%.  The term length of the loan may vary but will not exceed 30 years.

These loans can be used for accounts payable, fixed debts, payroll, and other bills due to the virus.

Supporting documentation may include your business’ most recent tax return, a personal financial statement, and a schedule of liabilities that list all of your current debts.

One can directly apply to the SBA at https://disasterloan.sba.gov/ela/.  Select “economic injury” as your reason for applying.